Piketty's World Inequality Report is less than it might seem

Whether inequality is increasing or not very much depends upon what it is that we’re trying to measure. Inequalities of lifestyle? Consumption? Income or wealth?

How these are measured also matter rather a lot. And it would appear that the latest attempt, the World Inequality Report and associated work from Thomas Piketty et al is rather less accurate than many seem to assume.

We defer to James Galbraith on this subject - someone we’ve discussed the larger issue with at times. It’s entirely true that our world views don’t entirely coincide but we do agree that facts is facts and that’s where we’ve got to start from. For if we don’t accurately analyse whether there’s a problem at all, nor the causes of it, then we’re just never going to find a solution.

Galbraith’s new paper:

A more interesting claim lies in the focus on national institutions and policies, which is justified by the comment about ‘different speeds’. Differences in the behaviour of inequality over time are indeed evidence that national institutions matter. But if it should appear instead that movements of inequality are correlated across countries, that inequalities move in the same way in neighbouring countries or even across continental distances — that would lead toward a very different view. Namely, it would suggest that global forces tend to drive the movement of inequalities across countries, even if they do not work everywhere with the same force or at the same rate. We shall return to this issue, as work with different data strongly indicates that powerful global macroeconomic currents affect the movement of inequalities, especially in smaller countries and the developing world.

Quite so, international happenings are likely to have international causes. Our own insistence would be - note ours, not Professor Galbraith’s - that integrating billions of excruciatingly poor labour into the global economy would, we would predict, increase inequality by increasing the pressures on low skill labour everywhere. The benefit of this cost being that those excruciatingly poor become less so as economic growth happens. As has been happening these past few decades.

We’d also insist that this is a benefit that is worth the cost of greater inequality.

It’s also, eventually, self-solving as catch up growth reduces that competitive pressure. But the important point to take from this being that if it’s not domestic political decisions causing the rise in inequality then it’s most unlikely to be domestic political action which will reduce it.

The lesson of this paper though is that the evidence base being used to make the wilder claims of inequality growth is, well, that evidence isn’t very good.

Christmas message

In this Christmas season, the ASI team wish to thank our loyal readers for their interest and attention. We send good wishes to those spending time with family and friends, and hope that they, like us, will give thought to those not able to do so. We wish safe journeys to those travelling, and we all wish you a happy festive season and a very merry Christmas.

The High Street dies - This is what happens to old technologies

We’re glad we’re able to be the Grinch shouting Bah Humbug - to mix stories - this joyful season. For there is much public wailing about how the High Street is dying, concern over how a couple of centuries’ worth of retail technology is being superseded. Yes, excellent, isn’t it, this is how old technologies die:

Britain’s crisis-wracked retailers have seen almost £20bn wiped off their value in a devastating year as markets brace for a tough Christmas that could cause more high street casualties in the new year.

Fears of another torrid festive period for the sector have mounted in recent weeks after gloomy warnings from high street stalwarts and Asos, the ­online fashion giant. The total market capitalisation of UK retailers has plunged 29pc to £49bn in 2018 with Debenhams, Asos and Carpetright ­enduring the heaviest losses.

The joy here being not this decline of the old, rather what it means. Which is that we’ve now got some better technology, obviously enough the online one, to produce those retail services we desire. As we flock to that new and more desirable the old fades away.

The true joy being that this is all self-regulating. It doesn’t require a planner to manage it, directives and instructions from the omniscient aren’t needed. As the new technology proves itself then capital is directed toward the money that can be made in that manner. And the old system sees first those capital values declining, then the willingness of anyone to put more or new capital into that method. We thus gain exactly what is desired, a redirection of capital to the new manner and away from the old, simply through the combination of human greed and the price system.

This general structure being what produces for us in the rich countries, this general idea of free markets and capitalism, the groaning tables piled high with food that Tiny Tim thought such a wonder just the one day of the year. Which is a cheering thought isn’t it? We’ve lucked into a system which achieves Roy Wood’s desire, that it really is Christmas everyday.

If we could only get Noddy off the sound systems and radio the Grinch really would be defeated.

Rewilding Britain

There is much to disagree with what George Monbiot writes and thinks, but he deserves some sympathy and support for his views on "rewilding" – allowing some agricultural land to revert to a non-managed or "wild" state.

We have some form on this. In 1994 we published "20-20 Vision: Targets For Britain's Future," and included a proposal to reintroduce beavers and wolves in remote parts of the UK, and even bears on some Scottish islands. There is evidence for the positive environmental effects, with beavers already aiding flood management in Britain, and grey wolves in Yellowstone National Park aiding tree growth by controlling deer populations, and creating habitats in which other wild creatures can flourish.

Monbiot called for us to give up meat and dairy products, so that agricultural land could be rewilded. Without going that far, Tim Worstall of this parish suggested that more efficient, industrialized farming could use less land and thus allow some farmland to grow wild again. He cited an example of the success of this:

New England. A century and a half back the area was a quiltwork of small farms. The forests we go to gawp at in autumn didn't exist, they'd been clear cut. What we do go to see these days is almost entirely new growth. Rewilding that has occurred as a result of mechanical farming and the railroads opening up the mid-West.

In summer we took this a stage further. A paper co-authored by Jamie Hollywood and myself looked at the prospects for cultured ("lab grown") meats, and concluded that this promised a new agricultural revolution. Cultured meats will probably soon be less costly than traditional meats from animals, and are rapidly improving in both taste and texture. This raises the possibility of using a tiny fraction of the land used in animal husbandry – less than 1 percent. This, in turn, would release land that could be rewilded. The UK's tree cover, estimated today at 13 percent, could be dramatically increased, creating huge new habitats for animals, insects and birds.

Some who oppose modern technology in agriculture because they prefer the traditional methods will not like this, but those who look to the advantageous outcomes it can produce will endorse it wholeheartedly.

For those advocating a public solution to Britain's housing woes

We’re all well aware that there’re a number of people proposing a solution to whatever it is that ails Britain’s housing provision - government should do it. This is to make a basic logical error. That a pure and unadorned free market might not solve every problem is entirely true. There are even such things as market failures. But this does not mean that government is the correct solution to that same problem. For, a truth not universally acknowledged, it is also true that there is such a thing as government failure:

Outgoing Public Advocate Letitia James took a parting shot at the de Blasio administration on Wednesday by dubbing the city’s Housing Authority the worst landlord of the year.

James, who becomes the state attorney general next month, placed NYCHA at the top of her annual Worst Landlords Watchlist, which is typically reserved for private landlords.

In our own system the council, the local housing authority, perhaps the housing association, they will most certainly be different from private sector landlords but there’s not a great deal out there to insist that they’ll be better.

The correct logic to be using here is which will fail least or least badly, government or markets. And it just isn’t always either although obviously we’re of the view that it’s government more often and failing worse.

Still, there’s a certain justice to it being the de Blasio Administration having this pointed out to them:

It was de Blasio who created the Worst Landlord list back when he served as public advocate.

Biter bit, what a nice seasonal present.

Northern Rail guards strike - safety or union featherbedding?

We’ve yet another strike on Northern Rail over the issue of driver only operated trains. The question being, well, is this just unions sticking their oar in to save the jobs of their members or is it really something to do with the safety of passengers as is claimed? Lynsey Hanley gets rolled out at The Guardian to make the safety case:

Without guards, train passengers like me would be unsafe. I back their strike

Lynsey Hanley

This is not true. “Unsafe” is an absolute, the correct phrase here is, possibly at least, less safe. There is nothing in this universe of the occasional falling asteroid which is safe. Things can only be more or less so. We thus need an idea of how many resources we’re going to use to make something how safe? Which we do have on the railways, we think that if it costs £2 million or less - we’ll not trouble to look up that specific number - to save a life then make it that safe, more and don’t. Sure, we can argue about the number but not the concept for to abandon the idea would mean that we’ve not got trains at all. No one at all being able to travel anywhere is not worth saving only the one life, is it?

As it happens not having guards isn’t less safe:

In 2017, George Bearfield, the RSSB’s director of system safety, stated that there was no discernible risk on DOO trains.

“Our conclusions from the latest analysis are that there is no discernible difference in the risk associated with driver-only dispatch vs driver and guard dispatch.

“There is no such thing as absolute safety, you cannot remove all risk. We take a rational, evidence-based view, to ensure progress in safety.”

Which is why guardless trains are operated by Abelio, Great Western, Chiltern, Govia and a number of other rail lines and franchises. With no obvious or known diminution in the safety of passengers.

Which leaves us with just this:

Dispensing of train guards could result in thousands of jobs being axed around the country, however.

Our aim and intention is always to destroy jobs, to be able to achieve our goal with the use of less human labour. For that’s how we free up labour to produce other things for us all to enjoy.

Yes, this is union featherbedding and no more.

Dame Sally Davies is sadly ignorant about obesity

We rather reject the idea that the technocrats should be running society for us - on the grounds that we think we should be doing as we wish in our own society without being told to do as we must. Not a rigid rule but a general observation.

This all gets rather worse when those technocrats who would tell us what to do are hopelessly ignorant of the reality they’re trying to organise. This is sadly true of Dame Sally Davies:

Chocolate and crisps must be taxed and the money used to subsidise the cost of vegetables, the country’s top doctor has insisted, declaring herself the nation’s “chief nanny”.

Professor Dame Sally Davies, the chief medical officer, said that food companies’ voluntary efforts to cut sugar and salt were not sufficient. She called for laws to force them to make healthier products.

“The food industry is not doing enough,” Dame Sally said at the launch of her annual report. “We have a situation at the moment where people are benefiting from selling unhealthy food and they are not paying for the harm that is doing to people as individuals, to us as a society and the costs to the NHS.”

There are no costs to the NHS from obesity therefore there should be no tax to cover them and the prodnoses can leave our food alone to boot. We’ve been pointing this out for at least a decade now which is enough time for anyone to get the message. And we’d really hope that one who would manage the impact of food upon NHS costs would grasp the simplicity of the point:

Having us all slim, svelte, sober and pure of lung into our 90s would cost the NHS very much more money than the current level of topers, smokers and lardbuckets does.

There might well be very good reasons to advise people that the private costs of their behaviour, the years of life they will lose through their habits, might well not be worth it. But the public costs of their actions are the other way around from what is being assumed here.

And:

The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run.

On average, healthy people lived 84 years. Smokers lived about 77 years and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.

Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.

The cost of care for obese people was $371,000, and for smokers, about $326,000.

It simply isn’t true that obesity has net costs to the NHS and therefore there’s absolutely no valid argument at all that taxes should be levied as if it does, or that some grand effort is needed to change our diets to alleviate those non-existent costs.

And really, Dame Sally should know this and it’s a wonder that she doesn’t.

You can try but it'll probably not work

It’s most certainly possible to try to ignore economics but it’s not so certain that economics is going to ignore you:

The Gallagher Premiership clubs will each receive a windfall of about £13 million after the league sold a 27 per cent stake to a private equity firm, but they have been ordered not to blow the cash on player salaries.

That’s not the way that sporting teams work. Not, that is, if there’s promotion and relegation.

There’s no specific standard which a team must be at in order to remain in the top flight. They’ve instead just got to be better than the other teams straining to remain in that top flight. That means that there’s no specific level of talent required, instead the team needs the best talent. Once we’re in such a game we find that all of the revenue flowing into the team flows out again to that talent. A new TV contract simply means player salaries go up for example. Most teams don’t make a profit on exactly the same basis.

So, an insistence that this new money not go on salaries isn’t really going to work. There’s only one set up where it might, which is to abolish relegation as in most American sports. Such a creation of a cartel among the owners does mean that limits upon player salaries can be made to stick. But, obviously, at the cost of having created a cartel and limiting the wages of the workers.

What if blood pressure - heart attacks, strokes - is not about salt consumption?

We would warn that we’re not doctors here, there’s a marked absence of any form of medical training floating about. However, we are connoisseurs of how an incorrect idea can become embedded in the political process and thus drive the world to ruin as it is incorporated into all policy. There’s really no other excuse for socialism for example, is there?

Which brings us to this conjunction of stories, interestingly in the same paper on the same day. Public Health England spitting their dummy out and banging the tray of the high chair in toddler tantrum over salt:

Health chiefs have demanded “no more excuses” after new figures showed just half of targets to cut salt intake in common foods have been met.

A report by Public Health England (PHE) reveals zero progress reducing average salt content in some foods – including bacon and ham – since pledges were made four years ago.

Ministers have repeatedly vowed to wage war on salt, which increases the risk of heart attacks and strokes.

The new analysis found that just 52 per cent of the average sodium level targets were met for products consumed in the home, PHE said.

Meat products were the saltiest culprits, with no average targets met and 43 per cent of products above recommended maximum limits.

And:

Exercise may be as good at drugs at reducing high blood pressure, research suggests.

The study – the first of its kind – pooled data from almost 400 trials looking at the impact of either medication or physical activity.

It found that for those with high blood pressure, exercise seemed to be just as effective as most drugs used to treat it.

PHE is telling us that more have high blood pressure, more die from heart attacks and strokes as a result. Let’s just leave aside the usual points that as we’ve largely conquered communicable disease as a cause of death of course this will happen as we will all die of something.

But what if it’s not the salt as the cause? For we do know that with the near total absence of manual labour in our rich and modern economy near all of us are taking very much less physical exercise than our forbears. Yes, we do know this as the recommended calorie intakes these days are well below what those forbears would have lost significant weight upon. Actually, today’s average recommendation is below a minimal WWII rationing diet and about half a front line soldier’s in WWI.

No, we don’t know but we really are certain that we should all go and find out. For, as we continually point out around here, we can never come up with a solution to a problem unless we correctly identify the cause of it.

A freeport Northern Ireland

While the UK could invoke article 21 of WTO (previously GATT) rules, claiming “vital national security” to allow goods from the Republic of Ireland tariff-free access into Northern Ireland, it is uncertain if this would ultimately be upheld by the WTO. There is, however, an alternative approach.

The UK could, simultaneously with the passing of the Brexit deal, also pass an Act committing it to granting Northern Ireland Freeport status at the end of the transition period if no free trade agreement with the EU had been signed. If a free trade agreement were signed, then no backstop would be needed because goods could flow freely across the border.

If no free trade deal were agreed, however, the granting of Freeport status to Northern Ireland would mean that goods from outside could enter tariff-free, unilaterally removing the requirement for a backstop. Northern Ireland would not need to be part of the Customs Union because the border between North and South would remain open to goods. Once it has left the EU, the UK will be free to set up Freeports wherever it wishes.

It would be entirely up to the Republic of Ireland and the rest of the EU, to decide how to respond to this UK initiative, but it would be hugely advantageous to Northern Ireland and would boost both cross border traffic and inward investment. The DUP would almost certainly endorse it enthusiastically, given the shot in the arm it would impart to the Northern Irish economy.

There is quite a good possibility that such a commitment would bring the DUP behind the Brexit deal, and allay many of the misgivings that some MPs have concerning the backstop situation, and allow them to support the deal. There is an even stronger possibility that such a commitment would encourage the EU to agree a free trade deal that would make it unnecessary before the end of the transition period.