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On Social Mobility and “Who Runs Britain”?

There’s a report from Alan Milburn’s Social Mobility and Child Poverty Commission, which suggests, amongst other things, companies should publish social mobility audits, revealing how many privately educated employees they have. This offensive, ridiculous, illiberal, and counterproductive proposal undermines the sweetcorn of truth which does exist in the report, from amongst the turd of Alan-Milburn’s chippiness. This report fails to illuminate because it’s asking the wrong questions.

Britain is not unique. We are middling in terms of inequality in the EU, but near the top in the extent to which your parents’ income predicts ones own, which is being taken as a proxy for social mobility. The report then spends many pages talking about public schools and Oxbridge. Inequality isn’t about the 7% at the top, but about the 15% at the bottom, trapped on welfare. Do something for them, and Britain’s social mobility and inequality will look a lot better.

Oxford and Cambridge exist to select the very best students, and then give them the very best education. I would be surprised if Oxford and Cambridge universities (and the wider Russell Group, I attended Edinburgh) didn’t provide the vast majority of leaders across a number of fields. It is after all what they are there to do. For Milburn to imagine becoming a FTSE 100 CEO is more about who you met than a consistent track record of success in exams, University and Business, is being disingenuous.

Likewise the 7% of people who go to public (mostly boarding) school have many advantages, so it would be surprising if they didn’t also form a disproportionate part of the elite, not least in access to Oxford and Cambridge. This is true in all rich-world democracies. My parents weren’t rich, but they made enormous sacrifices to send me and my Brother to a boarding school and they did so because the skills and experience I would receive would be worth their sacrifices. It’s not just technical or academic, many of these are soft skills.

If you start boarding at 13, you effectively leave home and you’re forced to mature faster. You have to go through puberty in the company of peers, with nowhere to hide. You learn to keep private, while being in public. You have to be a diplomat to survive. This generates a robustness of character, but also a certain tolerance. You often share a room, so you need to learn to negotiate with people you may not like much. There is little privacy, so learn how to keep yourself to yourself, even when around others. You talk more, to a wider range of people than people who go home to parents most evenings. Every meal is social. These skills carry through into later life, as the ability to network, be polite, diplomatic, charming and confident.

The additional pastoral care in a public school enables easier focus on extra-curricular activities such as sport or music, developing the whole person. The communal living is in particular an excellent preparation for a military life, so it is unsurprising that Public schoolboys still make up a disproportionate number of the Officer corps of the British army*.

At the top end of the Arts, Sport and Music – remember these are ‘tournament’ professions: the winner takes it all. And often, the also-rans get next to nothing. Is it surprising that people with rich parents feel more willing to take the risk of chasing a dream of a life on the stage? Is it surprising that schools with extensive and varied sporting facilities (Eton’s boating lake was an Olympic venue, for example) produce lots of sportsmen? Is it surprising that schools with extensive music facilities, with access to them late into the evening, and very little else to do, often produces musicians? An aspiring musician in a boarding school will find it a lot easier to recruit bandmates than at a comprehensive where the bandmate might live 5 miles away, rather than down the corridor. Many of the co-incident advantages advantages shared with “middle-class” parents in the state sector: wealth, a home full of books, parents committed enough to put commit their income into education (private school, or after school tutoring), heath and wealth. Imagining this to be discriminatory behaviour by an old-school tie is just fanciful.

Instead of imagining why 7% of the population provide 62% of senior Army officers, ask why 88% of state educated pupils aren’t better represented, and what can be done to encourage them to apply for Oxbridge, Sandhurst or RADA. Instead of assuming a discriminatory “old boy’s club” ask whether there is anything the state sector can learn from the Public Schools in preparing pupils for excellence. This is the point of the academy and free schools programs: to open the state sector to new ideas, and free them from the dead hand of the Local Authority, (and by extension the dreadful teaching unions and their dogma). Many public schools are opening up academies, and offering scholarships to the brightest and best of their intake.

Instead of imagining talent is evenly distributed, ensure opportunity is. Labour closed many routes of access to an excellent education to poor students, not least the assisted places scheme, which supported access to the best education for bright children of low-income parents. Instead of assuming “elitism” to be a bad thing, revel in the fact that Trinity College, Cambridge has more Nobel Prizes than France, and some of those are tales of social mobility. Elitism works, if the groundwork is there. Why are public schoolboys so confident? What can be done to encourage able state pupils to believe they can make it, rather than succumb to the “soft bigotry of low expectations”. Unfortunately, some of the state sector is failing, but Alan Milburn is asking the wrong questions, because he’s already decided upon the answer.

*Though it is a marker of the increased professionalism and calibre of the Army these days that privately educated people are joining the ranks in ever greater numbers too.

Some Strikingly Weak Arguments against Cannabis Legalisation

James Snell wrote the “no” piece on this online poll. I don’t know whether he’s writing for pay, or whether this is actually what he believes, but the arguments are strikingly weak. What’s also remarkable is that he writes for HuffPo, Left Foot Forward and so on. The political left are the authoritarians, and openly so. In the past they are always the ones who argued for liberty against the overweening, overmighty state, but now, the Gramscian march through the institutions is complete, with lefties dominating the legal profession, the quangocracy and much of the civil service, Lefties now feel comfortable advocating the state force people to behave as Fabians think they ought.

Cannabis legalisation, it seems, is the current cause célèbre for those who don’t have consequential things to advocate. Compared with other – more urgent and more important – issues the world over, making certain substances legal seems trivial and self-indulgent. However, it is not just my job here to denigrate the question itself; I am also required to actually argue against the unleashing of this dangerous and untested drug on the public at large – which I will attempt to do now.

It is not “dangerous”. There is no lethal dose for THC, as there is for alcohol. Or salt. It isn’t good for you, and I will come to that later, but THC isn’t dangerous. Nor is it “untested”. People have been smoking hemp for at least as long as they have been drinking booze.

The first statement I shall offer is one I believe to be obvious. Cannabis is dangerous, and therefore making such a dangerous thing legal would be bad. The reasoning behind this is pretty simple: the evidence for a causal link between cannabis use and irreversible mental illness is growing

No it isn’t. Few studies that I can find (which aren’t funded by overtly prohibitionist government organisations) conclude a causal link. Most regard schizophrenia as the main potential problem, but sufferers take all and any drugs more often and in greater volume than people who don’t exhibit symptoms. Cannabis use and schitzophrenia are a co-morbidity, there’s no evidence Cannabis CAUSES the condition, though it may trigger the already prone, and even the evidence for that is weak. The symptoms of schitzophrenia first manifest themselves in teenage years. Most pot smokers start…. in… oh. Andrew Wakefield was struck off for concluding cause of autism by MMR vaccine on just such spurious grounds, yet the massive violence of the law is deployed on similar logic.

and it is self-evident that legalising a drug will increase the number of people who use it,

No it isn’t. With legal drugs, you can have some control over who you sell them to. With illegal drugs you can’t. The drug is universally available now, despite decades of draconian enforcement against suppliers.

the frequency of its use and the total quantities concerned.

All the evidence from Amsterdam, Colorado, Uruguay and Portugal seem to suggest that Cannabis is a substitute for alcohol and the vast majority of users moderate their income. The point is anyone who wants pot right now, when it’s illegal, can get it. You just go to a pub, and discretely ask about. Young male bar-staff with tattoos are usually a good bet, so I’m told.

Except of course the very ill people, who might benefit from the drug’s powerful effects on appetite and chronic pain. They can’t get the drug. They must live in unnecessary pain.

Legalising cannabis might not just prove to be the first nation-wide test of the gateway drug hypothesis: it might also be gateway legislation as well.

The Gateway drug hypothesis is absolute bollocks. How many people smoked pot at university? 60%, 70%? How many of those ended up smack-addled derelicts?

I dislike the terms ‘hard’ and ‘soft’ drugs, due to the fact that this sort of classification inevitably makes cannabis look like a healthy alternative to the really bad stuff: the Diet Coke of getting high – but this is a not insubstantial point. As we all ought to know by now, such illusions are simply too good to be true.

Is there an argument there? If there is I can’t see it. Cannabis is, according to people without a stake in the status quo, like professor of pshycopharmacology, and former UK Government drug Czar, David Nutt regards Cannabis as significantly less harmful than alcohol.

Another irritating thing about the campaign to have this particular substance accepted by the statute books is the self-righteousness.

…Absolutely no “self-righteousness” from prohibitionists. No sir….

Bill Maher, in the US, declared on his show (the modestly titled Real Time with Bill Maher) that cannabis legalisation is the new civil rights struggle – after those of marriage equality and the ever-present fights against sexism, racism and the like. His audience-in-a-can duly applauded, by the way.

The US locks up millions of (mainly black) people for non-violent drug offences. Black and White teenagers are roughly equally likely to smoke pot, but Only black people are likely to suffer gaol time for doing so. To suggest (and by a lefty no less) that this isn’t a civil rights issue is telling. We might not be quite as egregious in punishing people for getting high on this side of the pond, but there are still distinct racial differences in the likelihood of incarceration for drug offences. It is a civil rights issue.

To me, this remark is not only stupid: it also represents a hideous degradation of the aforementioned: the real civil rights issues.

I think I’ve demonstrated why it doesn’t….

A statement such as this demonstrates the rottenness at the heart of the pro-legalisation lobby: a hedonistic bunch masquerading as martyrs. While there is real suffering, and real hardship, going on elsewhere – an apparently major concern for some people in the West is the ability to make use of recreational poisons without fear of the police getting involved. It is a parochial concern, at best. At worst, it is a deliberate desire for legalisation-endorsed selfishness.

What a vicious, bigoted, small-minded argument, which pre-supposes the state’s right to legislate behaviour which harms no-one else, and may even be a substitute for less harmful “poisons” like alcohol. Why is getting high on pot any more “selfish” than getting pissed on wine or beer? Why allow one, and not the other.

To sum up then; Cannabis use is being increasingly demonstrated to be harmful.

No it isn’t

The harm it causes is not insignificant.

Yes they are, and many of the “harms” are caused by prohibition, not the drug itself.

For that reason it ought to be banned.

Even if you accept the harm argument, it doesn’t follow that it ought to be banned. The aim should be to minimise harms. If cannabis, which is widely, nay universally, available despite viciously-enforced laws against it, causes harms aside from the law-enforcement effort, then these may be better mitigated at lower cost in a situation where the drug is legally available.

I’m not defending the status quo; how we control the supply of drugs has to change (although I reject the misleading use of ‘prohibition’ to describe the current government’s drug policy), but caving in to Russell Brand or Nick Clegg’s demands for ‘reform’ will not lead to less consumption, nor to less damage. It will only create a wider potential scope for harm, and a greater amount of actual suffering.

The status quo is indefensible. Not one single argument used in the rest of that summing up stands up to any scrutiny at all. The habit of prohibition is so ingrained in some minds that the illegality and the harm have been bound together. It is, or should be, clear to any graduate who smoked pot at university that “harm” from cannabis use is rare, and concentrated in people already prone to mental health issues, who often tend to be multiple substance abusers. Is cannabis a cause or a symptom to these people? Most harm is caused, not by the drug, but by prohibition.

In any case, harm is no reason to prohibit with the full violence of the law. People do things that are “harmful” but fun, from skiing to horse-riding. They take the risk of harm on board, but people derive utility from these activities. Horse-riding like smoking pot, is fun.

No increase in crime and disorder has been associated with decriminalisation or legalisation experiments. Often quite the opposite. And consider the opportunity costs of the money currently spent policing supply, and interdiction; money which could be better spent dealing with the small number of problem users. Instead of paying for policing, users could be taxed to pay for any externalities.

Finally and most obviously, James fails to deal with the potential medical uses of Marijuana. My late Grandmother had multiple sclerosis. Cannabis helped her. It appears to be excellent at mitigating chronic pain, and for cancer sufferers counteracts the appetite-suppressing effects of chemotherapy. Any stoner, jonesing for cookies would be able to attest the latter. Yet BECAUSE it cannabis is illegal, what little research is allowed into the medical uses, has focussed on separating the enjoyable from the medicinal. Does no-one else think this absurd, because to me it sums up the utter perversity of the whole damn system.

On the Legitimacy of Strikes

My good friend Joel compares the turnouts in Strike Ballots with the turnouts in elections. Obviously, it’s ridiculous to say a person “was elected by 25% of the electorate” when 50% of those who voted voted for him. Abstention is a legitimate democratic choice. The same is true of strike ballots. Perhaps 30% of members return their ballots. Of whom there might be a majority in favour of strike action. This doesn’t mean the “strike is supported by 15% of the members” to take the rather dishonest Tory line. What is more reasonable is the line taken by the Tory MP on the Today programme this morning, who said in an election, everyone affected can vote, and can choose not to. However a strike affects people who do not have a vote.

The Union barons are whining that Margaret Thatcher’s evil anti-union legislation, which demanded postal ballots for strike action is preventing high turnouts. Why, they ask, can’t there be work-place ballot boxes? Had anyone bothered to look at why all-postal ballots are insisted upon in the legislation, they would know that it is a measure to prevent intimidation by Union organisers in the workplaces. Who would oversee those secret ballots? The Union reps, who would then be tempted to influence the result…. 
What the Union Barons want is for people to turn up to work, and vote on a strike ballot overseen by the union, so the union members can be subject to the same intimidation and thuggery that they were in the good-old days of the 1970s, which increases union power in negotiations with “the Bosses”, supposedly for the benefit of the workers, but in practice so the Union barons can feel all important.
Strikes, though romanticised by the Union movement and the broader left as part of the “Workers Struggle”, have actually achieved very little in the way of improvements in pay or conditions. What has driven pay and conditions is productivity and investment. What a strike does is encourage the bosses to fire people and, where possible, employ machines. The people running the machines will be paid well enough so they regard themselves as one of the bosses, and so don’t strike.
The very point of a strike is to impose costs on the bosses, and broader society so that the monopolistic power of employers can curtailed, and the rewards for labour are more evenly shared. But employers don’t have monopolistic power any more. Educated people especially don’t need Unions, because there are plenty of people hiring. UK unemployment is low thanks, in part, to flexible Labour markets that allow people to be taken on “on risk” because getting rid of them should they turn out to be unsuitable is not too costly either for the employer or employee. The idea that “bosses” still have the power, absent any legislation or unions, to drive down pay and conditions in a “race to the bottom” is risible. The strike then, is a 19th century solution to a 21st century problem. 
The problem is not bosses beating up on the poor, downtrodden worker, but the workers in safe, secure jobs, pulling up the drawbridge behind them. Every time there’s a strike, there’s an incentive for workers not yet hired to never be hired, and their wages spent on a machine instead. Or in businesses folding because the labour relations are too much bother, or not being started in the first place, because even taking on one member of staff, risks bankruptcy.
If you don’t like the pay and conditions in your current employment, get your lazy arse to City and Guilds, the Open University or whatever, and call your head-hunter. Yes, be prepared to move, if necessary. But if you want to enjoy the moral high-ground of “serving the public” in tax-funded (secure, well-paid relative to the private sector, and enjoying a gold-plated pension) public sector, please don’t expect me to have any sympathy when, following the strike, you’re outsourced to the lowest bidder. For that is the logic of strikes.
If you’re on strike, feel my contempt for your spiteful, economically illiterate, selfish stupidity. 

Gary Barlow, Pfizer & some Increasingly Common, but Stupid & Illiberal Ideas

Gary Barlow, formerly of take that invested in a scheme which has subsequently been ruled offside by HMRC. As did Jimmy Carr. Neither of these individuals is a finance professional. They were advised that these schemes were legal, followed advice which subsequently turned out to be wrong.

Upon losing the case with HMRC, the investors in these schemes will get presented with a bill for the tax they avoided. If they pay up, with interest, that is that. No criminal proceedings. Tax is complicated, and there are a lot of grey areas, especially when you have multiple streams of income from royalties, employment, investments and so-forth. This is why people employ accountants to ensure you pay the taxes you owe, and not a penny more.

Calls to strip Barlow by Labour MPs (including from Lady Margaret “the Dodge” Hodge, whose own tax affairs have been called into question) of his OBE are therefore grotesque and vindictive. I am sure this is entirely unrelated to the fact Barlow is a Tory supporter. Tax is not a moral issue. You pay what you owe, and if HMRC and your accountant disagree how much you owe, then the dispute is settled in court. This is what courts are for. Tax should always be seen as a strictly legal issue. Morality doesn’t come into it, however much lefties wish to invoke morality to ensure that more tax is paid (by other people).

Almost no-one pays extra tax voluntarily. But you can lefites; put your money where your mouth is or shut up.

Pfizer is attempting to buy Anglo-Swedish pharmaceutical company AstraZeneca, and they intend to move their Brass plaque to the UK too. Labour are worried about asset-stripping, amid high-minded waffle about something called “the UK science base”. AztraZeneca has about 15% of its people in the UK, and has itself been closing labs, due to the fact it faces a patent cliff. If you don’t know what a “patent cliff” is, then you shouldn’t be having an opinion on the takeover at all.

It is unlikely anyone buying AstraZeneca would close good, productive labs, especially ones close to a large and internationally respected university like Cambridge, at the hub of a Pharmaceutical and Biotech cluster called “silicon fen”. Indeed that lab, in which AstraZeneca has recently invested is one of the things that would be worth keeping. And if Pfizer don’t want it, if it’s that valuable, it can be sold to someone who does.

The UK listing is another. The US charges tax is a perverse way – money earned overseas, on which tax has already been paid may face further taxes should the company wish to bring profits onshore. Broadly speaking No other countries do this. The US has been able to get away with this for now, because the US is so important. But companies like Pfizer, and Apple whose “problems” with their enormous pile of useless overseas profits will only grow may choose to move their head office to a friendlier regime in order to sidestep this problem.

This means US business will still get taxes charged in the USA. But all other profits will be charged and taxed in the non-US jurisdiction (in Pfizers case, the UK) and the movement of profits for investment will not face US taxes that no other jurisdiction would think to charge. Yes Pfizer is “tax-dodging” but the beneficiary of this is HMRC who’re simply less vindictive and stupid than the IRS.

Despite this vast inward investment (£26bn or so) that Pfizer is making in the UK, Ed Miliband invokes fears of “Asset Stripping”. Indeed all asset-stripping is, if done profitably, is selling assets to people who value them more. Being against this process is just left-wing flat-earthism. Much like the cant about Gary Barlow’s tax affairs.

There’s a kind of Hysteria in which anyone who gets into a dispute with the tax-man, or who seeks to quite legitimately reduce their tax bill is seen as a “tax-dodger” and so beyond the pale. It’s stupid, it’s illiberal and it harms business and prevents investment. A Miliband-led UK will be a great deal poorer as a result.

The Post Office IPO

Most of the objections raised in the media concerning the sale of the Royal Mail are spurious. Most IPOs get away at a discount. Investors are taking on significant risk in buying a share for which there is no established market, and therefore price. Get it wrong, and your investors lose a great deal of money. No further money can be raised by the business in future except at high costs of capital.

A lot is being made of the advice as to the price range:

At the time of the flotation, and more specifically the book-building process, there were significant threats of industrial action. This faded as the floatation day approached. At 330p, the top end of the range, the shares yielded 6% or so, which appears about right for a floatation of a regulated utility the sale of which was driving the trades union movement nuts. SSE at the time yielded significantly more than that and 5% or so is about normal. 290p was cheap but 330 looked about right to me at the time.

Setting the price too high would ensure much less demand. And there are big magnifying effects at work.

There are known problems with the book-build process. The main one is that it is inflexible should demand prove higher than expected. And it was massively over-subscribed. Politicians running round telling everyone it’s undervalued might have something to do with this. There was an immediate buzz, as everyone tried to get as much as they can. This flattered the figures for demand. Once it is clear the demand is greater than supply, this creates more demand and so on in a virtuous circle. It became clear, as I endured my busiest week ever that everyone would get substantially less than they put in for. This in turn encouraged retail customers to bid for £20,000 in the hope of getting £3000 worth, further flattering demand.

So was the demand really 24 times over-subscribed by institutions as reported by the National Audit Office? No.

If the issue was priced at £5, just over 10% below the trading range it established following the flotation, it’s unlikely, at a yield of around 4% that I’d have been recommending it to clients. There would have been no politicians running round telling everyone how under-valued it was, and in the absence of the excitement, there wouldn’t have been people putting in for significantly more than they actually wanted. The issue may have been a flop, and been pulled. The Government would have been left with egg on its face, and the price it could achieve in future may well be worse than the 330p it actually achieved for the 60% of the company it sold, if it could get it away at all. This is of course the real objection from Labour and the Unions, who simply object to any and all privatisations.

Could the Government have got more than 330p? Yes, but not much more, and at significant risk to a successful flotation.

People are objecting that institutions which took part in the flotation have sold some or all of their holding. Well why shouldn’t they if they think as I do that at 560p, at a yield of 3.7%, Royal Mail is over-priced? I simply don’t understand this fetish for long-term holders. Royal Mail is a successful flotation with a deep and liquid market in its stock and so as a result, can if needs-be raise money at a low cost of capital. Those institutions which put in for the flotation early did so at some risk. They have been paid for this risk handsomely and early, as have the 600,000 or so retail investors, many of whose holdings of 227 for which they paid £750 are worth well over £1200. I don’t regard this as a bad thing. If you think the shares were sold off cheap, you could have bought some (unless, of course you were overseas, or an MP).

Should more have been made available to retail investors? Yes. But at the cost of securing the IPO, when it was not at all clear what demand for the shares was out there. Could a different flotation mechanism be used in future – an auction perhaps? Yes but these are a great deal harder for retail clients to understand and access. And if there are to be privatisations in future, we want to allow retail clients – individual British people to take part.

These quibbles aside, the IPO was a great success, and most of the objections to it are mere left-wing cant. The risk of owning Royal Mail to the tax-payer has been reduced. You can still post a first class letter from the Scilly isles to Shetland. Private money now underpins the business, and thanks to a hugely successful flotation, the Government can, at a time of its choosing, sell some of the remaining stake for which it will get a better price. The National Audit Office made an estimate of the value to the taxpayer of keeping the company in public ownership of £1. Labour is not making much of this figure. It has been sold to people who value it significantly higher. This is why capitalist, free-market economies are richer than the kind of economy Labour MPs want: everyone is better off now the Royal Mail is privatised and no-one is worse off.

Isn’t capitalism marvellous?

McJobs, long-term unemployment and the Minimum Wage

Labour love to decry insecure jobs on low wages, of which flipping burgers for McDonalds is the archetype. The insecurity of self-employment, contracting or “zero-hours contracts” (what I used to call “temping”) is another.

It’s terrible, the lament goes, these jobs don’t pay a living wage…

There are some truths buried in the mountain of cant written on the subject. Some, perhaps even most people in “zero hours” jobs, or flipping burgers for McDonalds would rather be doing something else. Many self-employed are under-utilised, and underpaid, at least at first. This is a small truth, but a big error.

Self-employment is for example largely a self-selecting sample – those who’d rather be in another job, will continue to look for one while contracting or working odd-jobs. Of these, those who can, will get another job. Those who can’t will continue to struggle on. This leaves self-employment being mostly those who can’t cope with a job, and those who don’t want to work for someone else. The middle-ranking self-employed don’t exist. They’ve got jobs. Temping is ideal for people (recent arts graduates for example) who don’t know what they want to do for a living. And a living wage isn’t far from the minimum wage, before tax. Why are we taxing the low paid?

Nor is it  the job-market’s attitude to the unemployed. If you’ve been out of work for more than 6 months your chances of a call-back plummet. Again the lefties would prefer to blame the employer rather than look at why this is the case. Human behaviour is flexible, and people get accustomed to unemployment. So people who’ve been on the dole for 6 months are more likely to be absent, call in “sick”. The HABIT of work is a qualification in itself. Please note “more likely”, not “all of them will”. I am NOT saying the unemployed are lazy and feckless. I am simply describing how the world IS.

Another common lament is “there were 700 applications for every vacancy”. But if 600 of those are from people who’ve been out of work for 6 months or more, employers will simply file them in the round filing cabinet, and focus on the remaining 100 who will be more likely to turn up on their second day. Effectively what this means is the unemployed are not in the workforce, even though they may not have yet dropped out of the statistics into “economically inactive”. Thus the labour force is shrunk, and the bargaining power of those still in work goes up. This is, broadly the mechanism by which the European social model has ensured crippling levels of youth unemployment and a total inequality between protected, hard-to-fire insiders who can strike at will for better pay, and a youth population who will NEVER enjoy those privileges if they ever get a job at all.

The problem is therefore a dearth of jobs which can take the unemployed and give them the evidence of the habit of work,which might make them attractive to potential employers. McDonalds does this. Zero Hours contracts enable zero-risk hiring to the same end. An employer seeing a school leaver with a year’s burger-flipping might think “this guy wants to work, and now wants to get on” and offer on-the-job training. The same employer might see a graduate who’s been “looking for work” for a year as too proud and lazy to work, who’ll jump ship as soon as the city starts hiring again.

The left often lament job insecurity as a terrible thing. It is. But this is a small truth concealing a big error. First  Far, far, far worse than job insecurity is unemployment. I know of no man used to earning a wage whose relationship with wives and children survived long-term unemployment, intact. Without the means to provide men (especially men; this is less true of women) are rendered worthless not just in the eyes of their wives and children, but increasingly so in their own. Unemployment has catastrophic mental health implications. Unemployed people, and men in particular, become suddenly very much more likely to commit suicide.

Thanks to the minimum wage and job protection legislation, the kind of insecure, temporary jobs which require minimal training and make use of a casual workforce are simply not economic any more. Thanks to the bureaucracy of claiming benefits, no long-term unemployed person would reasonably take seasonal work which is why vegetable-picking is so often done by foreigners.

This is not such a problem during a long expansion. People get jobs. The minimum wage was introduced during a long expansion, has been untested in tough times. But it appears to have denied many young, inexperienced, and unlucky people who have a six-month gap on their CVs a chance of work, not just now, but ever. Many of these then handily (for Government statistics) drop out of the workforce altogether. Workfare, zero hours, low minimum wages, no fault dismissals are all decried by the left, and are all means to reduce the risk of hiring. Statutory job protection is not the same as job security; ultimately the best protection for an employee is a deep and liquid job market.

Lefties prefer to ascribe malice to people who favour supply-side reform to combat unemployment. I am not encouraging a “race to the bottom” for the benefit of “my rich banker mates and shareholders”. I just think the burden of the minimum wage is borne by those who will never get a job.

Do I want to do boring menial work for a pittance. No.

Have I done boring, menial work for a pittance? Yes.

It’s cruel to deny people the means to develop their skills. The Job-ladder: everyone’s got to start near the bottom. Some start nearer the bottom than others and some never climb very high. But lets not put that bottom step out of reach of anyone.

Angry Public Sector Workers Shout At Me.

What you have in the comments here, is a circle-jerk of indignation from people who enjoyed public spending (largely paid for by the taxes levied on banks bankers by Labour…) which, when the golden goose was killed, suddenly dried up. The public sector are now having a 2 minute hate against the people, like me and millions of others who pay taxes but don’t take much back.

The profit motive is not bad, nor does it lead to worse outcomes than any alternative. Lord save us from the good intentions of public-sector busybodies. CS Lewis put it best:

Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.

The fact is the profit motive has delivered consumer goods to the masses in plenty only royalty in previous societies could possibly imagine. The profit motive is best at allocating resources to those who can use it most efficiently. The alternative to resources going to the most efficient, is they go to the most powerful. And that is why socialism, in its command-economy, market-hating form tends to lead to an enormous pile of corpses.

But because markets ain’t perfect we use taxes to fund that which is necessary, but unprofitable. Dealing with recently released criminals for example. And there is a legitimate argument to be had about we spend on such things. Tories, broadly want to spend less than labour. And especially when there’s been a financial crisis, and the shoulders which bore the the burden of paying for the lovely state spending are now smaller, and fewer in number. There is less money, broadly because Labour taxed all it could, during a boom, and wondered why the money dried up suddenly.

Let’s get some facts straight

  1. The bank bail-out cost the taxpayer almost nothing.
  2. The big increase in the deficit was caused by a sudden and sustained drop in the tax take as banks suddenly became less profitable or loss-making. Such is the scale of the loss, it will be a decade or more before the tax take from financial services returns to pre-crisis levels.
  3. The mechanism by which 2. results in lower tax-take is NOT avoidance.
The toxic, tribal hate-fest shown in that comment thread is based on shaky foundations. The banking and broader financial services industry has lost over 200,000 jobs or something like 20% of its workforce. The idea the Financial services workers have not suffered or learned from the crisis is ridiculous. There is no comfortable parasitic elite, earning off the poor down-trodden worker. It’s been pretty tough for everyone, and pointing at someone’s (imagined) pay packet helps no-one.
And by that I mean “look. They have an iPhone, so they can’t be poor” as well as “he earns £100k, so what does he know about anything”.

Academics are Left Wing because…

Chris Bertram is professor of Social and Political Philosophy at Bristol, he tweets as @crookedfootball and blogs at Crooked Timber. In Today’s post he argues that “Squeezing the rich is good, even when it raises no money“. Essentially his argument boils down to the left’s new theory of everything – that inequality is bad.

This may, or may not be the case. But the argument that punishing the wealthy ends up hurting the poor, by shrinking the pie, is not even considered as valid. There are so many near lies, distortions and pure hate for people who do things an academic political philosopher doesn’t understand, that the article is worth looking at in more detail.

However, the feature of the discussion I want to write about is the assumption, generally taken as decisive by the commentariat, TV interviews and the like, that if such a tax would raise little or no money then that should count against it decisively. On this view taxes are an unfortunate necessity, required to finance state expenditure and to be minimized whereever possible: a tax that raises no money is therefore pointless, imposing needless pain for no benefit.

The art of taxation wrote Jean Baptiste Colbert, is “maximum pluck for minimum hiss”. The top rate of income tax has been set at 40% for a generation. The rich are willing to pay 40% in a way they’re not willing to pay 50%. Thus rich people who might have settled in England to do business, settle instead in Spain where the weather’s better, or Geneva, or Monaco. At a stroke you’ve deprived the exchequer of £100,000 because you’ve asked for another £12k. For very little extra pluck, a 50p rate probably does in the long run, see the economy smaller than it might have been, and causes a great deal of hiss. No-one is better off.

But this view is just plain wrong, for several reasons. First, in a complex society structured by all kinds of institutional rules, the idea that people have full liberal property rights in their pre-tax income is unwarranted. They participate in a co-operative venture with others in society subject to certain conditions, and those conditions include one that part of “their income” already belongs to the wider society, via the state. This point, hated by libertarians, defeats the widespread view that people are having “their money” take off them: it wasn’t theirs to start with. Though I think such an argument, with some caveats, is correct, it is a second and third consideration that I’d want to rely on here.

This view seems dangerously close to the totalitarian view that all your money is the state’s except that which they let you keep. This man is a professor of Political philosophy. Be afraid. Be very afraid.

The second consideration is that inequality is deadly for democracy, and for the equal political status of citizens. Because the power and influence high earners derive from their income threatens such status equality, there is a strong public interest in constraining it, even if doing so raises no money at all. It isn’t just that the rich come to own media outlets or that politicians are swayed by their donations to parties, it is also that the prominence their cash gives them gets them listened to and taken seriously by opinion formers. Their experience matters and shapes public policy, that of an unemployed teenager in the North East doesn’t: we need to shift the balance of voice in favour of the unemployed teenager and against the City trader.

Inequality is sometimes “deadly for democracy”, because it’s often a symptom of extractive political institutions – much of Africa for EG. However that is not the case in the UK. Most people who get rich enough to pay the 45p band are not politically connected. They’re just business people. Where there is a problem, it lies in the quangocrats and state apparatchiks walking through revolving doors on huge salaries with apparently no oversight. Even worse, many of these are superannuated, (mostly labour) politicians, conducting a gramscian march through the institutions. I agree here, in the crony capitalist, and quango state, we could do with some pay restraint.

In any case, the UK is not particularly unequal. Remove London, and it’s international mega-rich, the UK is a pretty bog standard north-European welfare state whose inequality is relieved by direct transfers at least as much as it is in Germany. I fail to see how chasing the International Mega rich who choose to pay a lot of tax here, makes anyone better off.

Third, income inequality makes life worse for the rest of us in real terms. Economists are supposed to believe that utility (whatever that is) matters intrinsically and money only matters instrumentally. But right-wing economists often seem to forget this as soon as they are asked to comment on tax policy and inequality, arguing as if their theorems apply to cash and not to utility. If we’re dealing in cash terms, then a tax that makes some people worse off and nobody better off looks bad, and looks Pareto inferior. But it isn’t necessarily Pareto inferior if we focus on well-being: making some cash poorer may make some others better off, a Pareto incomparable outcome. Here’s one way how: if those on high incomes have too much, they can outbid the rest of us for goods that are intrinsically in limited supply or where supply can’t be quickly increased.

I see, he wants stuff that a political philospher would once have been able to afford, but can’t now. He seems ignorant of the fact that, in general, markets are better at relieving scarcity than making the rich poorer.

If I’m further away from being able to buy a house near to where I work, because house prices are raised in an auction I can’t compete in, then I’m worse off even if my income stays flat. Reducing the purchasing power of the wealthy is therefore good for me (unless I got hold of a house early and can earn windfall gains from the auction). And similarly for many other goods. 

I see. It’s the nice big house he can’t afford that he’s envious of, the poor dear. But house builders cannot respond to demand, because the permits to build are not being issued to cope with population growth. So prices rise. Contrast with Germany, where building is encouraged – house prices haven’t risen relative to incomes. This is a market failure which can be laid directly at the door of the state, and particularly, the left’s beloved councils. The answer is not to drag down the rich, but to ensure greater supply. And markets do this better than any other mechanism.

Unrestrained income for the wealthy also means that they can commit more of their resources to ensuring that their offspring make it to the top in the next generation, thereby harming the opportunities for the rest of society.

State education is rubbish. That is not the fault of those who can afford to escape it. But the education establishment of which Professor Bertram is part, opposes any market mechanisms which may drive up standards in state education.

I could go on and enumerate more mechanisms whereby squeezing high earners is good, even if it raises no money, but the general point should be clear. It should give Labour reasons to go on the offensive (“class war”); it certainly gives the commentariat reason to stop making their stupid talking point. They won’t, of course.

The real reason for this attitude is that the incomes of political science professors haven’t kept up with people like business owners, bankers, corporate lawyers and the like. This is pure envy by members of a profession which feels undervalued.

And it demonstrates a profound misunderstanding of who the payers of the top rate of tax are: there are a number of city traders in there, sure, but the majority are business owners, many of whom will have financed their company with a mortgage, risking their house on their business. As business owners, they often have options to pay themselves in a number of ways – dividends, capital returns, income etc… prudent tax-planning is not avoidance, but this is why the 50p doesn’t raise as much as left-wing academics, who comprehend nothing but PAYE wages, think it should.

This hostility to wealth creators (whoever they are) is simply a lack of understanding, and worse, the sneering of a profession whose people were once able to afford the houses now snapped up by people involved in mere trade.

This left-wing politics of envy, so common amongst academics is pure bitterness from a profession which no longer commands the respect (and money) they think they’re due.

It doesn’t help the poor to tax the rich so much they seek means to pay less tax. For the means by which the rich pay less tax shrink the pie for everyone.

The reason Marxism is doomed to end up murderously totalitarian is that everyone imagines themselves as the planner, not the man condemned to the salt mines to fulfil the plan. The professor of Political Philosophy at Bristol university has not grasped this simple point.

Why the 50p Tax Rate is a bad idea.

The purpose of progressive taxation is to put the greatest burden on those with the means pay more. This makes economic sense due to the theory of the marginal utility of money: a further pound to someone on £100k is worth less than a further pound to someone who earns the median wage of £26,000 or so. means you pay a greater proportion of the 100,000th pound than you do of the first. And for a quarter of a century, the British income tax rates were more or less fixed, apart from an abortive experiment with the 10p starting rate. The rich paid at a marginal 40% and everyone else paid at a reasonable 20%.

And then the Labour party looked like losing the election. And in casting about for land-mines to leave behind (something Tory administrations don’t do, incidentally…) Labour, in their last budget raised the top rate to 50p on income over £150,000 and, in a nasty, spiteful little measure, cut the tax-free allowance progressively on people earning over £100,000. The top marginal rate of tax therefore, on incomes between £100,000 and £116,000 was 60%. And simply so that Labour could have an attack line on “Tory tax-cuts for the rich while they cut services”.  They did the same trick with 90-day detention. The sheer, naked, abusive, corrupt and transparent timing of this measure takes my breath away and how they’re not excoriated in the media for it is beyond me.
Labour, however were overjoyed. They finally got their wish that a Labour government would soak the rich “until the pips squeaked”.
The trouble is, it didn’t work. The rich, you see aren’t very often on Pay As You Earn, so changing tax rates isn’t a simple matter of altering a number in a spreadsheet. The highly paid are very often in control of the exact mechanism of payment. Either as contractors, self-employed in some way, or business owners. They often have multiple income streams. There are many ways to choose the tax-year in which you declare your earnings or whether to take it as capital gain or income, or as many people I know, simply take less pay “so the buggers don’t get it”. They can increase pension contributions or invest in another business. 
All people paying the higher rate have to submit a tax-return and therefore probably have an accountant who will advise them on their options. None of this is illegal, or even contrary to the spirit of legislation, and certainly not “tax avoidance”. All you have done is taken a situation where it didn’t really pay to make a great deal of effort about the tax affairs, to one in which it did because one form of tax is so far out of whack with the rest. And so the 50p tax raised a great deal less than the £3bn expected.
I’m making no great claims about the money raised or not by this measure. The 50p rate probably raised a bit more money than had it not been introduced, at least in the short run, but not much (less than the £3bn promised). And Dropping the rate to 45% almost certainly reduced the amount raised compared to the status quo ante, but again, in the short-run, and by negligible amounts. 
In the longer run though the evidence appears clear. The revenue maximising rate is somewhere between 40% and 50%. A 50p rate is probably nudging into the downward-sloping end of the curve and this is mainly due to investment and incentive effects. It simply becomes less worthwhile, at the margin, to make the effort to get beyond £150k when the Government takes over half. And so fewer people do, many that do will shift earnings over time to less punitive jurisdictions. UK subsidiaries will be shut, or not started in the first place and the economy suffers. Business might still get done, it just won’t be done by people taxed here. It suffers not because an extra 10% of earnings over £150k is a lot of money, but because you’re attacking the people who make the decisions.

Ultimately the mechanism by which the right-hand side of the Laffer curve works is by shrinking the pie, not just for the rich who pay the taxes, but for everyone.

It boils down to this simple statement: a higher rate of 40% is accepted by those who pay it. One of 50% is not. And the people who pay it have options. But it is economically damaging beyond the simple effect on the Exchequer’s bottom line, because those who are going to be forced to pay it feel it’s vindictive. They are really, really angry about it. And for this reason, the economic and social rationale needs to be a bit better than the “Because crisis. Bankers. FUCK YOU, That’s why” that seems to underpin the Labour thinking. 
Not having any sympathy for someone on £250k a year means not having any sympathy for someone who writes a cheque for £92,627 (39%) to pay for nurses teachers and doctors. You think they should pay £102,367 (41%) instead. And if a number of them walk, to Monaco, Geneva, New York, Spain or wherever, instead of “driving them to the airport“, consider where the £92,627 they’d have paid willingly will now come from. That’s before you consider the VAT, CGT, NICs and so forth that “wanker” you’re wishing would just “fuck off” would have contributed.
This is a transparently chippy little bit of class war bullshit that will risk more damage than is worth the paltry sums it might optimistically raise. In supporting it, you’re revealing yourself to be a spiteful, economically ignorant Jack Spart, who is motivated by envy, not a desire to get the deficit down. 
Ultimately the chorus of business leaders making this point will damage Labour’s economic credibility even further, even as a grumpy electorate tells the pollsters they like the policy. The economic recovery is happening. People will not want to risk this over the next 15 months. This is set to become Labour’s new clause IV. It will not form part of the manifesto of the next Labour government.

2014 is going to be the best year in human history.

This time last year, I made some predictions: 2013 is going to be the best year in human history. It was, for most of the world at least. And 2014 is going to be even better, for all the same reasons.

How did I do with my prognostication?

The scourge of war is receding from human experience. Though they are still going on, they involve fewer combatants and kill fewer people. As people get richer, and pass through the dangerous middle-income phase, they have too much to lose by fighting.

Alas Mali and the Central African Republic saw crises rise to the level of war in 2013. The civil war in Syria the ongoing wars in Afghanistan continue to claim lives. There have, however been no big, new wars involving western forces. We missed the window of opportunity in 2012 to prevent the disaster in Syria, and it is now too late. I suspect letting Bashar al Assad win is now the least bad option.

Several states in the US have signalled the abandonment of the war on Drugs (well Marijuana at least)

One country, Uruguay, has fully legalised it. The logic of the War on Drugs is waning. Several successful politicians in North America have been caught using Crack and Cocaine, none of whom look like junkies. Dozens of people who clearly aren’t drug-addled derelicts, self-arguing in underpasses, but who maintain busy and high-profile lives have “come out” as having taken Marijuana or Cocaine. It won’t be long before such people no-longer have to pretend to have hated it, or for it to have been a response to an emotional trauma.

In 1963, “some time between the end of the Chatterley Ban and the Beatles’ first LP” people started to admit they like to have sex, and not just for procreation. Rock & Roll became acceptable when in 1976, Glen Matlock of the Sex Pistols said “fuck” on live TV, at a stroke rendering that nice young Mr (now Sir) Michael Jagger, respectable. Perhaps a TV cook with ample curves might be the person whom we can thank for ending the hypocrisy of the drug war. Unlikely. But someone’s going to provide the moment. And soon. A wise man once said….

The world is still getting richer, even if the squeezed middle in the west isn’t.

The giant emerging economies are creating wealth at a rate unprecedented in human history, by the simple expedient of abandoning the socialist choke-hold on creative economic endeavour.

India and China may have slowed, India especially so, but the truth holds. Their Governments have seen the fruits of economic liberalism and seen it work. India may regret electing someone who seems to be an unrepentant Hindu nationalist, Narendra Modi of the BJP in 2014, but it won’t be for his economic policies which are far more business-friendly than the rather corporatist Congress party.

 The poorest parts of the world are the fastest growing. Even if inequality in the west is rising a bit, and that’s debatable, global inequality is falling. 

This is still true, but less so.

So, to carry the game forward, here are some concrete predictions for this time next year.

Money & Business
The FTSE100 will reach an all-time high, for the first time since 1999, and will continue the bull-run. 7,000 will be left behind.
Thanks to tightening money, The Oil Price will fall below $100 and stay there. The Brent/WTI spread will narrow from 99/111.

UK Politics
The Labour lead will fall from 6-8%. UKIP will win popular vote in the European parliament elections, then their support will drift back to the Tories thanks to a strengthening recovery. Scotland will vote ‘No’ to independence. Ed Miliband will remain a worthless union stooge. The voter-repelling and emetic Ed Balls will remain shadow Chancellor, because his boss is a spineless dweeb, with shit for brains and “Red” Len McClusky’s hand up his bum. Tories will post a lead, but I doubt it will be done consistently.

International
The Syrian civil war will not end, but Assad will regain control of much of the country, leaving an islamist insurgency. The world will continue to look the other way.
China’s growth will slow. The rumblings of dissent new riches have smothered will start to grow louder. The Communist Party may seek to use Sabre-Rattling with Japan to detract domestic opinion from the looming economic crisis.
Something dramatic will happen on the Korean Peninsula.

Happy New Year

There you go. My posts have been sporadic in 2013 as I have less new to say. But I still enjoy writing from time to time, and it’s nice to know my readers, both of you, are still out there somewhere and I hope, whether you come in from RSS or by a random websearch for stewardesses boobs (I still get a lot of hits that way, for reasons that are beyond me) you still think what I say is interesting, provocative, informative or entertaining.

Have a happy new year. And remember risk is to reward as hangover is to party.