Category: Politics and economics

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.

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.

Academics ought to be able to discuss colonialism and empire without flinching

In September, I commented on the controversy about a paper on The Case for Colonialism.  This week, a similar argument has exploded in the University of Oxford.  A proposal for a series of seminars on  the ‘Ethics of Empire‘ has been established in the University’s McDonald Centre.  It states that ’empire’ can mean many different things, that both “apologias and critiques” of  empire need to be tested against the historical evidence, and that there are lessons to be drawn for contemporary engagement by the Western Powers. (Note that it refers to “apologias” rather than “defences”; this is not an agenda that puts arguments for and against empire on an equal footing.)  The seminars that have taken place to date have considered the Assyrian, Roman and Chinese empires.

In reply, a letter to the Guardian has been sent by a large and assorted collection of 58 academics, mainly historians, who object to the premises of the proposal.  They claim that that the project is based in ignorance of current scholarship and proposes a “crude cost/benefit analysis” of empire.  (I cannot comment on the first, but if it is true, then a dedicated series of seminars featuring presentations of historical empires by international experts  should help to diminish the scope of the organisers’ ignorance.   I do know something about cost-benefit analysis, and I think I can say more confidently say that there is nothing in the proposal, either explicitly or implicitly, which does argue for such an approach.)  The objectors are on stronger ground when they write:  “Developing a ‘Christian ethics of empire’ is not an intellectually sound, let alone an academically robust, endeavour ”.  The suggestion that the project will offer “a nuanced and historically intelligent Christian ethic of empire” seems to imply that there can be such an ethic, analogous to the idea of a just war; that is controversial, and it may indeed be “political” in the terms criticised in the letter.

It hasn’t helped that the Daily Mail has now stuck its oar in.     The objectors are advocates of an “ugly totalitarianism’, and to prove the point the Mail digs out any mud that it can throw: some of them are opposed to Brexit, five are anti-Israel, and several are (gasp!) supporters of the Labour Party.  The Mail‘s article, by Guy Adams,  is rambling and ill-focused, but at the core it does have a point.  The objectors are basically trying to suppress a dispassionate discussion of  issues in an academic context, because it is framed in terms that they disagree with.  If we can’t discuss the Assyrian empire without prior political genuflections, we’re in trouble.

The joint agreement of the UK and the EU

The text of the agreement between the  European Union and the UK is now online.  There are sixteen pages, contaning a considerable amount of detail in some respects (particularly citizens’ rights). The press has caught up with its existence but the details have not been published more widely yet.

Pages 1-6 are taken up with citizens’ rights.  The rights are centred on a “specified” date, which is the date of the UK withdrawal.  It allows for family reunion and marriage for those who are resident on the specified date. There is no other protection for the EU citizenship of UK citizens who are in the UK on the specified date. People  who move between EU countries while retaining UK residence are not protected.

On Northern Ireland (pages 7-9), there will be no hard border but there will be “mechanisms” to protect the integrity of the Customs Union and the single market.  The Common Travel Area can continue, by neogitation between the UK and Ireland.

On financial arrangements, the UK will continue to contribute to the EU as if it was a member until 31st December 2020.    In other words, the UK government chose the wrong date for its notice.

Police and judicial cooperation will continue under EU law.   Other continuing arrangements will “closely mirror” EU arrangements.

 

Is the Irish dilemma beyond a solution?

The problem for the UK government seems to rest in a choice between two unacceptable options.  On one hand, they can treat Northern Ireland wholly as part of the mainland, implying the return of a hard border.  On the other, they can treat  Northern Ireland is treated differently from Great Britain, allowing for regualtory alignment with the Republic of Ireland.  The UK government seemed posed to accept the latter, but it has been resolutely rejected by the DUP:

“We have been very clear. Northern Ireland must leave the EU on the same terms as the rest of the United Kingdom. We will not accept any form of regulatory divergence which separates Northern Ireland economically or politically from the rest of the United Kingdom.”

There is a third option.  The United Kingdom has three devolved governments, each of which already has partial derogations from laws and rules which apply in England.  If the British government accepted that there could be a derogation of rules for all three devolved governments, it would no longer be the case that Northern Ireland was being treated differently from the other parts of the United Kingdom.    The precise scope of that derogation has to be considered, but the terms and management of the derogation could be delegated to Scotland, Wales and Northern Ireland to resolve.  It’s called ‘devolution’.

Spot the difference

According to the Treasury, “in 2015-16 income inequality fell to its lowest level since the mid-1980s.”  This is from the Treasury’s paper on the distributive impact of the budget:

This, on the other hand, has just been circulated on Twitter by Alison Garnham of CPAG:

This is what the Treasury thinks is happening after the budget, reviewing income in percentage terms:

And this is what the IFS thinks:

As they ask in Private Eye: I wonder if they are related?

A free textbook on economics

I don’t usually post about a book before I’ve finished reading it, but this one is going to take me a time to get through and it’s worth sharing.  The Economy is a free online textbook on economics, produced collectively by CORE, an international group of economists who are concerned about the way that economics has become detached from the real world.  The word cloud in this image is the way they indicate their priorities in the preface.  (My own reservations about economics as a discipline can be found in an article in the Real World Economics Review published last year.)

I’m not going to endorse everything in the textbook, because there are various issues in the way economists think about their subject that  I’ve been critical about. I’ve got far enough into the textbook to be able to make reservations about indifference curves, the subject of the third section, or the applicability of game theory, the subject of the fourth.   (My criticisms of those methods can be found in my book on Reclaiming Individualism).  I do want, however, to welcome the approach, the accessibility of the document, and the determination of the team to make the text available to everyone.

Not austerity, but a purposeful aggravation of inequalities

A report for the EHRC identifies the impact of ‘austerity’ policies since 2010.  The cumulative effect of policy changes has been disproportionately to affect people on low incomes, women, people with disabilities and minority ethnic groups.  This is not about austerity, which has always been a misnomer.  Austerity means spending less; this is something quite different.

The negotiations about Brexit aren’t addressing key issues

Although the EU has been behaving badly about the Brexit negotiations, they have reason to complain about Britain, too.   They’re right, first, to say that Britain’s position papers are too vague to be any use.  Britain offered 16 pages on trade, for example, recently supplemented by another 11 pages on continuity.  It’s not difficult to know what a successful trade agreement looks like.  The agreement with Canada, CETA, runs to nearly 1600 pages.  What  the UK had to do – and it’s had 15 months to do it in – was to begin with those 1600 pages, identify which terms are acceptable to Britain (they are all, after all, already acceptable to the EU), and then work on the differences.  That would still be a lot of work, but at least there’d be a meal on the table rather than a bowl of twiglets.  Britain can hardly complain that trade is  not being discussed if they’ve not offered any points for discussion.

The EU negotiators are right, too, to identify key issues besides trade: citizens’ rights, Ireland and treaty obligations.  The UK’s concerns are difficult to decipher; the latest position paper relates to the confidentiality of official documents, which suggests that government ministers are more concerned with covering their backs than they are with getting on with the business. Where the Commission is behaving badly is to say that nothing else gets discussed.  The EU also has treaty obligations.  Article 50(2) states that

the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.

Whatever happens about the bill, the EU has no right to refuse to discuss the future relationship.

Two of the three items the EU is starting with are, in fact, about that relationship: Ireland, and citizens’ rights.  The Irish border is difficult, but not intractable, because different elements can be separated out and dealt with differently:  for example, Switzerland is not part of the customs union or the EU but is part of Schengen.  Citizens’ rights is much the more complex problem, and neither of the parties has shown any inclination to acknowledge that UK citizens resident in the UK are also currently citizens of the EU, and many will face the same sort of problems with split families, cross-border care, pension rights or interrupted periods of residence that people now in Europe or other nationals now in the UK will face.