Mark Carney's quite right about the Engels Pause

Mark Carney worries, in a recent speech, about a repeat of the Engels Pause. The vast improvements in productivity from automation in the early days of the Industrial Revolution seemed not to feed through into wages for the workers. In fact, it wasn't until the 1840s that the standard measurements showed a decent enough rise in general wages.

If this were to repeat then there's the possibility of an increased, as then, interest in communism:

Mr Carney has said the growth of technology and expected automation of millions of blue and white collar jobs will result in a poor wage growth for those in work.

He said “Marx and Engels may again become relevant” if technology destroys jobs, decreases wages and increase the amount of inequality, as a new elite of highly skilled workers and the owners of high-tech machines receive the rewards.

One answer to this is that those wages started to rise properly once we'd abolished the Corn Laws that so favoured the rentiers. So, that's our current commitment to unilateral free trade justified then. On the very basic grounds that this is what raises the real wages of the workers, gaining access to the best and cheapest from around the world.

A deeper analysis gives us another parallel. We're not measuring real incomes properly now, as we didn't then either. Producing this very problem being complained about. As is so often true this comes from the very new technologies being talked about - what value do we place, in our income calculations, upon the ability to do these new things? 

What should be the value of Google, Facebook, the new digital services, be in our GDP calculations, those then feeding through into our income ones? We know, absolutely, that we're doing this wrong right now - WhatsApp appears as a reduction in productivity for example. No, really, 200 engineers providing telecoms services to a billion people turns up in GDP and other statistics as a decrease in productivity.

Back to Engels' time:

And there is another group who benefited mightily from North American slavery: consumers of machine-made cotton textiles, from peasants in Belgium able for the first time to buy a rug to London carters to Midwestern pioneers who found basic clothing the only cheap part of equipping a covered wagon.

As with slavery so too with that other part of the same economy, that revolution in cotton manufacture. The people who really benefited were those able to get cheap cotton clothing. Anyone who thinks this wasn't an increase in real income should try wearing woollen knickers for a few weeks.

Part - the only disagreement here being how much, some or all - of our low income growth today is just because of the errors in the manner we count such real income. As is true of how we count those historical incomes that make up the Engels Pause.

A useful thing for us to be doing now is to do the counting correctly so that we've not got that descent into the communism.

Isn't it great that the car fleet is getting older?

Our initial reaction - made elsewhere - to this news was, well, that's obvious, isn't it? 

The average age of a car on Britain’s roads is at its highest level since the turn of the millennium with the proportion of motorists behind the wheel of an old banger surging.  

UK cars and vans in 2017 had an average age of 8.1 years which is believed to be the first time that the average age has been above eight since at least 2000.  

We've just had a deep and bitter recession, people will have been running their cars a little longer, not replacing them at quite the usual speed. As is always true readers in aggregate know more than any individual writer so it wasn't long before it was pointed out what good news this is, it means that cars are better, they last longer these days.

And then a very good comment indeed from "isp" (Ian P to those in the know):

In fact given the energy required to produce a car it could be argued that car efficiency has improved by more than you see from the simple mpg stats.

An important point - it takes energy to produce a car. If cars are lasting longer then that energy requirement for fabrication is being amortised over more miles and or years. The energy requirement for any one mile of travel is thus reduced. And reduced in a manner that we don't count in our normal statistics.

So far just an interesting observation. But now think of the near mania for scrappage schemes to get older cars off the road so as to increase the efficiency of the fleet. None of the calculations of these do include the energy costs of building the new vehicles - and certainly not in the case of electric vehicles and the energy required to make large batteries.

Those car building energy requirements are such that we don't actually know how much the mpg of the fleet has to improve for us to be gaining a net energy saving and we most certainly don't know whether scrappage schemes actually achieve a net saving - or, they might be energy sinks.

All of which leads to a more usual and much more important point. Planning of the economy is impossible because it's just too complex. What should we be including in our costs and benefits of any action? As Hayek pointed out, we can only use the economy itself to make such calculations. Nothing else does actually take account of these second and third etc order effects.

Brace yourselves, here comes the disability pay gap

Following on from the varied lies we're being told about the gender pay gap (hint, it's actually about primary child care decisions and little else) we're going to get hit with the next demand, that we close the disability pay gap:

How can bosses get away with this? As Suzanne Moore points out, women’s unequal pay is justified in a myriad ways: from us not trying for competitive roles, to being “too caring”. Similarly far-fetched excuses are used when it comes to disabled people. Longstanding prejudice around disability – that we are pitiable, stupid or a burden – creates a climate that permits keeping disabled people in low-waged, junior roles. Even the chancellor, Philip Hammond, last year implied disabled workers were less productive, while the idea we should be paid less than non-disabled people is a persistently mainstream opinion (in 2014, the then welfare minister David Freud suggested disabled workers may be “worth” about £2 an hour ). The message is often, “Forget equal pay – if you’re disabled, you should be grateful for having a job at all.”

It depends upon the disability and the job of course. Freud was talking about, as an example, someone severely affected by Down's Syndrome. The harsh reality being that people are paid - closely enough and never perfectly - the value of their marginal production. The distinction between disabled and not is that if the productivity is equal then someone isn't disabled with reference to that particular task. And pay won't be different either.

However, disability is going to reduce the number of right shaped holes in the employment market that the peg of the worker can be inserted into. The blind aren't going to get jobs as deep sea divers nor pilots, we'd not recommend someone wheelchair bound applies to clean stairwells. 

That might well lead to differences in average wages. That rather comes with the very idea of disability itself, it does mean not being able to do certain things.

As to what we do about it, sure, this is unfair in that cosmic sense. Much to most disability comes from sheer happenstance and we tend not to like outcomes being determined by that. However, equalising the wages that must be paid isn't the solution to this at all. For we would thereby be insisting upon the same wages for lower productivity, something which just always does lead to no jobs rather than better pay for those affected.

The correct answer is that if we, as a society, wish to compensate for that happenstance then it's we, as a society, that has to do the compensating. Rather than trying to dump it upon employers and thereby increase the problem itself over the incomes of the disabled. This means we put our hands in our pockets to pay tax to be distributed to those disabled. As, actually, we do.

The lesson to take to heart here is that we cannot change prices in markets without ill effects. But we can indeed compensate for market prices if we wish to do so. As we so often do of course, everything from unemployment pay to Motability to a carer's allowance is a compensation in this sense. This is the way to do it rather than trying to change the functioning of the market itself.

Personal Health and Care Budgets

Despite their straitened circumstances, the NHS is never short of ways to extend their bureaucracy. Now it intends to increase the number of people with legal rights to having personal health and care budgets. It has been piloted since 2008 with an interim, inconclusive report in 2012. A final report is due soon but they are not waiting for that. A consultation is now running on expanding the “streams” of those legally entitled to personal health budgets from the current 23,000. Planned expenditure can be paid directly into their bank accounts if they wish. Plans can be either health only, funded by the NHS, or care only, funded by the Local Authority, or “integrated” and funded by both and also any other agencies that can be persuaded to give their time and money and participate.

The concept has merit. Patients and the cared-for have more understanding of the costs involved and the options. Patients and the cared-for like the sense of being in charge and having choices, illusory though that may be. Importantly planning seemed to reduce the time spent in hospitals.

On the other hand, the pilots showed no change in clinical measures, e.g. life expectancy, clinical symptoms and “EQ-5D” (health quality of life) for the “plan” group versus the no-plan control group.

The NHS now intend to expand this scheme to about 100,000 people with continuing/long-term health and/or social care needs. No doubt the NHS will have us all at it in due course. The 2012 evaluation did not take into account the meetings and paperwork involved in assessing individuals in the first place and then keeping the account books and updating the plans thereafter. 

Once assessed as having the right to a plan, if the individual wants one, the expected future health/care needs are planned for an appropriate period and costed. The range of items that can be purchased is wide. It includes aromatherapy, for example. To save the Clinical Commissioning Group/Local Authority having to deal with dribs and drabs of bills, funds can be transferred monthly to the carer’s bank account. As I have a rare but continuing condition that can only be mitigated by betting on horse races, I am putting in for a plan myself. The rules say that if the Clinical Commissioning Group or Local Authority consider the money has been misused, they are entitled to ask (sic) for that money back. But they have to continue to provide the care willy nilly.

The system seems to be fraught with opportunities for administrative error. And if you die with funds in your bank, whose money is it? 

For example, Local Authorities have long funded professional carers but not caring by the, often heroic, family members. The distinction is whether the carer cohabits with the cared-for or not. Not too difficult, you might think, for one’s partner to care for the neighbour and his partner to care for you, at least notionally. While the Local Authority is paying the wages, as is the case today, such naughtiness is minimal but with the cash all handed over to the individuals, it surely will. And how many people will be needed to police all this and put prices on everything the individual gets from the NHS and Local Authorities. Are medicines still to be free for the over 60s? Or should plans include the true costs so that proper comparisons can be made?

If someone with an Integrated Personal Budget moves house, does he or she keep unspent funds? Is a bridging loan provided to cover the gap before the new plan comes into place Perhaps it will become attractive to move a few streets from tight-fisted funders to more generous ones.

I may be underestimating the wisdom of the NHS and the Local Authority bosses who are putting all this together. They talk of the move to individual choice and individual rights but the reality is quite different. The paperwork is organized to fit us all into “streams”. Everyone inside a stream is deemed to be the same but different from everyone outside the stream. We are not being given individual independence but categorized.

My final concern is with handing out a new bunch of “legal rights”. Court cases will follow. Follow this logic and we will have legal rights to “Personal Life Budgets” which will require the government to provide each of us with the wherewithal to cope with life’s problems.

Far simpler would be to require more complex health and social care cases, defined by, say, four or more separate specialisms being involved, to appoint from their ranks the lead professional to ensure that a holistic view is taken. Meetings, where feasible, should include the patient/caree because that sense of being in control and having choices is valuable. Normally the leader should be the professional most involved. GPs are not keen on that idea as they would typically get the leadership role and have to add that to their already heavy loads. Some reward would be appropriate. Such a system would cost far less than personal budgets and no bureaucracy would be needed. 

The consultation on the NHS England website runs until 8th June. Please take part. You will soon get a sense of the quality of analysis behind it.

Just to remind everyone, the good old days are right now

To read the pages of the, say, Guardian, is to be confronted with a list of all that is wrong with the world - there are undoubtedly things wrong with it too. But the insistence is that things are getting worse. Something that Hans Rosling insisted wasn't true and as The Guardian has just printed from him:

It is absolutely true that there are many bad things in this world. The number of conflict fatalities has been falling since the second world war, but the Syrian war has reversed this trend. Terrorism too is rising. Overfishing and the deterioration of the seas are truly worrisome. The list of endangered species is getting longer. But while it is easy to be aware of all the bad things happening in the world, it’s harder to know about the good things. The silent miracle of human progress is too slow and too fragmented to ever qualify as news. Over the past 20 years, the proportion of people living in extreme poverty has almost halved. But in online polls, in most countries, fewer than 10% of people knew this.

Entirely so, there are undoubtedly things wrong out there. As there are things going right. And there's a useful shorthand for the bits that are going right - those to do with economics. People everywhere are leading richer, longer, more healthy, lives. With more choices, more calories and fewer dead children.

Given that the main economic idea of the last 40 years - well, The Guardian insists it is at least - is neoliberalism, that must mean that neoliberalism is the correct economic policy to be following.

We can take this further, as Ricardo Hausman points out:

Our research has uncovered that in the developing world, there are enormous differences in productivity within countries, across their different regions. For example, in the US, the richest state, which is probably Connecticut, is about twice as rich as the poorest state, which is either Mississippi or West Virginia. The difference is a factor of two. In Mexico, the difference between Chiapas and Nuevo León is a factor of nine. Similar differences exist between the Indian states of Bihar and Goa or between the cities of Patna and Bangalore. These differences in income are mainly differences in productivity. It’s not the result of what share of the pie goes to capital and what size of the pie goes to labor. It is differences in the sizes of the pie.

So there are these enormous differences in productivity that make the productive places rich and the unproductive places poor. The poor people are not being exploited. They’re being excluded from the higher productivity activities. It’s not that the capitalists are taking a very large share of what they produce. It’s just that they produce very little in the first place.

Many of those that worry about inequality blame capitalism for it. Even Pope Francis has been framing the issue in this way. Now, let’s define capitalism the way Karl Marx did. It is a mode of production where some people own the means of production and others work as wage laborers for them. But if this is the case, capitalism hires 8 out of each 9 workers in the USA, 2 out of 3 in Nuevo Leon, 1 out of 7 in Chiapas and 1 out of 19 in India. Places where more of the labor force works for capitalist firms are richer, because capitalist firms allow for much higher productivity.

A useful shorthand for neoliberalism would be the expansion of capitalism - tempered, as we should always hope, by free markets - to those parts of the world previously unexploited by it. This being something that actually works in improving the human condition.

By any historical or global standard the good old days are right now. Something caused by that neoliberal globalisation, the spread of capitalism and markets to the parts of the world previously unsullied by them. The only puzzle we've got is why so many people are unhappy with this?

Madsen Moment – the morality of private sector players in Education and the NHS

Dr Pirie tackles the moral objections to the private sector getting involved in education and the NHS, and those that object to people choosing these services. 

We're sorry but we're going to have to call a halt to all this social mobility malarkey

One standard demand in modern society and politics is that we shouldn't be running society in pursuit of this wealth, all this stuff and GDP. Instead, we should be concentrating upon the happiness of the people. Another insistence from the same sort of source is that we should be having lots of social mobility. Something which even Polly has managed to note means downward social mobility for just the same number as those who enjoy upward such.

Something has to give here:

Men spend their lives subconsciously striving to do better than their parents and are materially less happy if they fail, while women have no such hang-ups, research has found.

Men already have lower self-reported happiness than women - something that's been true all along in fact.

So, downward social mobility increases unhappiness in society, happiness is the goal, we'll have to stop the mobility, won't we? Good, that's settled then.

Leaving us with the correct structure, the one we should be having anyway. Have a society as free and liberal - liberal in that correct sense of relating to liberty - as it's possible to have without us all bursting from the joy of it. Including that economic freedom which is what leads to there being more GDP, more stuff. And the happiness of the resulting society will be something emergent from our interactions - just like everything in that economy is.

Polly Toynbee just is such a card, isn't she?

It's never quite been possible to work out what it is with Polly Toynbee. She'll argue, vociferously, at cross purposes with herself and the difficulty is whether she does this deliberately, in pursuit of some political point or other, or is it simply the not knowing much about that reality out there? 

For example, she's spent decades insisting that the idea of different schools for those of varied abilities - a split, say, into academic and vocational schools as with grammars and secondary moderns - is an anathema, a stain on our very society in fact. All must be educated in the same place in much the same manner, in comprehensives.

But today the conversation is about technical education, apprenticeships and so on for the, as she herself says,. non-university going classes. Thus she says:

Brexit turbo-charges the need for German-style technical education when the door slams shut on importing the skills we lack.

That German system divides into those academic and technical streams at the age of 10. And there's pretty much no way out of the technical into the academic stream after that age either. Certainly graduation from the technical stream does not enable a more academic tertiary education.

That is, the German system divides earlier and is even more rigid in its divisions than that older British system which is so anathematised. Which leaves us with our question about Polly. Is it just that anything is fair game in making a political point? Or is it that she just doesn't know?

Britain's slow wage growth could be to do with the taxes upon wages paid

It's a standard and completely unsurprising economic point that taxes levied upon the employment of labour come out of the wages paid for that labour. The employer is interested in the total price to be paid to gain the work desired, how that is divided between, say, national insurance and wages, is of no consequence to said employer. They're both part of the total costs, raise the NI portion and you'll lower the wages part.

Thus we might have a useful explanation for slow wage growth recently:

The Apprenticeship Levy, which came into effect last April, forces companies with a wage bill of more than £3 billion to pay 0.5 per cent of it to the Education and Skills Funding Agency (ESFA), which is part of the Department for Education.  

The companies have until April 2019 to draw down the funding, which they must use to take on new apprentices, or train existing staff.

As is the nature of these things a flat rate tax will largely produce revenue from those on higher wages. As is also the nature of these things apprentices are generally paid rather low wages. To tax the higher paid to produce lower wage jobs - and, as above, the total charge coming out of wages, it ain't the employers carrying the economic burden - will tend to reduce wages, won't it? 

What is one of the major complaints about the British economy currently? That there's not much wage growth.

Gosh, we wonder why?

Once again the new economics foundation fails economics

Nef, the new economics foundation, has a new little campaign running. That there should be affordable rents of businesses working in the railway arches which permeate London. This is to entirely misunderstand the purpose of prices:

In many cases, traders are being replaced by cafes and workspaces designed for people working on laptops.

Of those that remain, many are struggling for survival, as business rates also went up substantially last year for the first time in seven years.

Frances Northrop of the New Economics Foundation says: “Imagine Londonwithout the small businesses of Portobello Road, Brick Lane, Columbia Road and Chinatown. They are being driven out by the cold logic of ever-increasing rents.”

Many small independent businesses are based in railway arches across London, often owned by Network Rail or Transport for London.

As their press pack notes:

This campaign is really important and closely linked to the London Living Wage. If it can be established what a person needs to earn to live in London, it must be possible to establish what a small business can afford to pay in rents and rate.

As we say, this is entirely to misunderstand prices. For that's exactly what they do for us. Tell us how much a business can afford to pay in rent and rates. More than that, railway arches are a scarce resource. There's a limit to the number of them and a larger number of people who would like to occupy them. We thus desire them to be occupied by those who are adding the most value - that will be those who are able to pay the higher amounts in rent and rates.  

The market in property, the associated rent and rates costs, therefore do the job for us - sort through those who will add the most value by occupying a railway arch and also make sure that those who do add the most value do the occupying. Huzzah, job done and all that.

If that turns out to be cafes and workspaces instead of artists then so be it. We might not like what prices are telling us but they don't lie all the same.

All of which is just another instance of that great truth first revealed by Giles Wilkes. Nef stands for not economics frankly.