Any trade agreement with the USA will be one-sided

I have always read reports from the Institute of Economic Affairs with some interest, even if I rarely agree with them.  I was disappointed by the desperately superficial report released last Monday about the wonders of a trade agreement with the USA.  It said little more than the sort of thing one might find in the Daily Mail: US firms will invade the NHS, they’ll want private justice and they’ll lower our health standards.

Those objections are all real, but there are other concerns, too.  The USA is a federation of states each of which has its own laws.  The States of the USA strictly license occupations, and 30% of  all of its employment is restricted by this kind of licence.  A licence to operate in the USA is not a licence to operate in each state – as universities,  bankers, and even the likes of florists and barbers can attest.  This is critically important for services; and services, not manufacturing or agriculture, now represent the core of the UK economy.

TThe UK is not without its own restrictions of course; nearly 20% of all UK occupations are now restricted.  My source for that statement is the Institute of Economic Affairs, in a comment they released on Thursday.  But the UK is a unitary state with its own unified market, so one licence generally serves for all the UK.  To get parity, UK services would have to negotiate not just with the US federal government, but separately with each of the 50 states.  Any trade agreement with the USA will be one-sided.

Protecting the fundamental right of EU citizenship

I’m supporting the attempt to mount a legal case in the Dutch courts to protect the fundamental status of EU citizens who happen to be British.  The detailed legal argument is given in this article, which cites the ECJ’s view that “citizenship of the Union is intended to be the fundamental status of nationals of the Member States. ”

The substance of the crowdfunded case is based on a similar argument to the one I’ve made in my petition to the EU Parliament, which is still active. If EU citizenship is a fundamental right, it can’t be taken away.  Do please support the petition, even if you can’t pledge to support the legal case.

The Work and Pensions Committee is less critical of Universal Credit than it merits

The House of Commons Work and Pensions Committee has been reviewing the Project Assessment Reviews of Universal Credit, and their report was published yesterday.  In a nutshell, the plans are gobbledegook, there is no evidence, but the DWP assures us it is on track and that things have greatly improved.  The press coverage picks out some of the critical comments, but to my mind the report is remarkably restrained.  The project was, and remains, years behind schedule.  With billions spent, it still has not submitted its business case.  The management documents that have found their way into the public domain  substantially fail to relate to the task in hand – see John Slater’s comments on my blog.  The Committee has had clear evidence that they were deliberately misled about previous progress.   Universal Credit was, and is, a national scandal.

A visit to Poland

I’ll shortly be leaving for a semester in the University of Łódź in Poland.  It’s an adventure – an opportunity to learn about a country I’ve not been to before,  to learn a language I don’t speak, and to get a different perspective on life.  It comes at a time and the effect of Brexit on rights to travel and work in the EU may well mean that it would be much more difficult to do anything of the sort in a year’s time.

My other work includes books on collectivism (close to completion) and on poverty, where I’m currently waiting for input from my collaborators.  I’ll continue to watch and comment on issues in the UK, such as the development of social security in Scotland.

Progress on the Social Security Bill in Scotland

A large number of amendments to the Social Security Bill have been tabled by the Scottish Government, along with a smaller number from opposition parties.  The Scottish Government amendments, which are more likely to pass, include:

  • a duty to promote takeup
  • provisions relating to aid and advocacy
  • the constitution  and operation of an independent Scottish Social Security Commission, which will scrutinise proposed regulations
  • qualification of the provision to allow some benefits to be paid in kind, so that it will be dependent on the consent of the recipient
  • clarification of rules for reconsideration (but not, regrettably, the two-stage mandatory reconsideration)
  • not reclaiming overpayments from people  innocently receiving them,
  • rules about appeals, and
  • uprating for inflation.

Other constructive amendments from opposition parties are less likely to pass, but they are constructive: they include, amongst other things:

  • extension of the general principles to cover the relief of poverty and the protection of rights
  • definition of the functions of the  Scottish Social Security Agency
  • reporting issues
  • the power to create new benefits, and
  • a duty to inform people about their entitlements.

This doesn’t deal with all the issues I’ve previously raised;  I am still concerned about the adoption of the Mandatory Reconsideration, and the lack of reference to alienability or diversion of benefits – but the overpayments rules and the provision for detailed scrutiny are much better.  It speaks well of the government that they have listened to many concerns, and of the opposition that the amendments are considered and show an evident desire to make the Bill better.

 

 

My role as a straw man: no, I don’t think that poverty is the fault of the poor

There are times when I wonder what is the point of writing academic arguments – it doesn’t seem to matter what you say, because people will just make it up anyway.  In the course of the last year,   I’ve commented on a couple of references which have set me up with positions I don’t hold.  Today I’ve come across a paper written for a conference in Indonesia which says this:

Paul Spicker argues that poverty is an individual issue caused by the weakness and choice of the individual concerned. Poverty will disappear if market power is expanded to the maximum and  economic growth is driven to the highest possible level.

For the avoidance of doubt, I do not hold this position, and I have never held it.  I cannot imagine why anyone who has read what I do write should suppose that I might think this way.

 

Rent control doesn’t do what basic economic theory predicts. Little does.

An article in Bloomberg claims:  “Yup, rent control does more harm than good:  Economists put the profession’s conventional wisdom to the test, only to discover that it’s correct.”   The reference to the conventional wisdom – “Economics 101” – refers to two basic precepts of economic theory.  If prices are restricted, it reduces supply and increases demand.   If prices are not set at a market level, it reduces the efficiency of the allocation, leaving people worse off than they might otherwise be.  On the face of the matter, that is what the paper seems to confirm.  I’m not currently able to access the paper, but what the abstract says is this:

“we find rent control increased renters’ probabilities of staying at their addresses by nearly 20%. Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase.”

I’ve no reason to dispute that finding.  What I do dispute is the idea that this constitutes a general proof of the application of basic economic theory in this field.  San Francisco is one city, with one type of policy.  In most of Europe, the private rented sector is larger where there are rent controls: see R. Arnott, 1995, “Time for revisionism on rent control?”, Journal of Economic Perspectives 9(1) 99-120.  In the UK, the removal of controls in 1957 led to a radical reduction in supply, as landlords took the opportunity to shift to alternative investments.  The removal of controls in 1988 had very little immediate effect: leaving aside stock transfers from the public sector, much of the increase in private renting has taken place since 2007, reflecting low rates of return on alternative investments.  Putting it bluntly, we already know – or should know – that Economics 101 doesn’t reflect what is actually happening out there in the real world.

The central objection to applying basic economic theory in this context is simple enough: it’s much too basic.  It works on the idea that “other things are equal”, and they never are.  Rental markets are invariably complex.  Rent controls are not the only determinant of rents; they’re one factor of many, including the ability to pay and the existence of alternatives (such as low cost owner-occupation).  No less important, a landlord’s decision to rent is never, repeat never, determined by rental levels alone.  It has to balance that factor along with capital values (“rates of return” are a relationship between the two), alternative uses of capital, the implications of holding an illiquid asset, and the prospect of capital gain or loss. So the report that some landlords are converting rented flats into new condominiums is not a reflection on rents; it’s a reflection of a complex calculation, which may work out differently in different places at different times.

Tunisia’s social security scheme expands

Tunisia is reported to be improving its social security system. They’ve aimed to offer a stable minimum income, comprehensive coverage and provision for decent housing.  The amounts being offered are not large: an increase from 70 dinars a month (less than $29) to 150 dinars earlier this year and now 180 dinars (a bit under $74), a little extra (10 dinars) for each child in school, a fund for loans to house buyers, and exemption from fees for medical care (but I don’t know enough to say how that is actually going to work).   The national GDP per capita now seems to be in the region of $10,800 (USD), so the benefits are not likely to be enough to live on.   Having said that, the commitment to extended  coverage is a big deal: Tunisia has previously been reported as having something on the region of 80% coverage, and the people not covered before included agricultural workers, domestic servants and unemployed people.

The extension of coverage in low to middle income countries in recent years has been remarkable.  In a recent lecture, Minouche Shafik of LSE pointed to the rapid growth of a range of welfare measures across the developing world – more than 80 have social security pensions, more than 120 have some unconditional cash transfers.  Around the world, she argues, the “state” is coming to mean a “welfare state”.

 

Bogus arguments about Basic Income

Martin Ravallion has put together several arguments against ‘straw men’ used to criticise Basic Income (he calls it BIG, for Basic Income Guarantee).  The points he particularly tackles are assertions that

  • BIG is too expensive
  • There are better ways to eliminate poverty
  • Targeting is good enough
  • A BIG would destroy work incentives
  • BIG diverts attention from health and education.

Most of his arguments are good ones.  Expense is a matter of how we choose to organise ourselves; targeting doesn’t work; Basic Income is neutral about work incentives.  However, not all the arguments are as strong.

The first problem is his assumption that BIG is there to eliminate poverty; most basic income schemes are providing a limited foundation income, not an adequate one. There are good arguments for considering what Basic Income can do for women, for example, which are about something else.  Ravallion is also right to say that “A BIG should be among the options to be considered by any developing country in a package of antipoverty policies ”  The situation in developed countries is different, in so far as Basic Income is seen as substituting for an existing benefits system.  In the case of the UK Basic Income wouldn’t favour the poor – the effect of eliminating benefits would mean that the Basic Income would exclusively help people who do not currently receive benefits, most of whom are on higher incomes.  Nearly all the schemes I’ve seen leave some poor people worse off.

The second problem is the assumption that what gets paid for education can be treated as part of the income package – it can’t be.  The money spent on BI would have an opportunity cost (as he acknowledges); many of us would like  more to be spent on other things (such as child care, disability benefits, public services, infrastructure, environmental protection) which either favour particular categories of recipient, or can’t be attributed as personal income.

Lots of the objections to Basic Income are ill-founded – there are other “straw men” he might have picked on.    One is the argument that the whole thing is likely to be unexpectedly complicated.  We know from the administration of universal, categorial benefits like Child benefit that it doesn’t need to be.  A second, which overlaps with that, is the accusation that the idea is “untried” – it has been, just not comprehensively. The third is the argument that it would call for a penal rate of taxation.  Taxation is done by convention, some countries have much higher rates of income than others, and income tax is not the only way that governments can raise funds.

Having said all this, there are bogus arguments and straw men being set up in favour of Basic Income, too.  Among them are the arguments that

  • We need Basic Income because there will be no work to do.  There will always be more work to do, and presently we have major shortages of activities that we just aren’t ready to pay for – among them social care, the maintenance of the public environment, security, child care, and many others.
  • There’s no harm in some people living off others.  This is Philippe van Parijs’s argument for supporting ‘surfers’.  It greatly underestimates the capacity for resentment and hostility – especially when people who deny the legitimacy of the community that is funding them use violence and intimidation to impose their values on others. 
  • We won’t need tax thresholds if there’s a Basic Income.  Yes, we will.  Taxing every penny people make threatens to become an administrative nightmare.
  • We won’t need existing benefits if there’s a Basic Income.  Yes, we will.  Benefits don’t just provide people with a basic income.  Among them are income smoothing, housing finance, economic management, support for special needs, and many others.

The “Experiments” that are being tried out won’t, and can’t, settle these issues.  When old age pensions were introduced, it took more than sixty years before we could get a clear idea of the impact on how they had changed people’s lives.  The Scottish experiments should reassure us about practicality, but I’m doubtful that they can tell us much about long-term shifts in behaviour.