My most unpopular blog ever

fullsizeoutput_141c

I write my blog in WordPress, and I can check out how many reads I get for every blog.   Sometimes you get surprising insights  –  there is someone in Canada who binge reads my blog every few months for eample. 

Breezy businessy blogs written from a vaguely leftish perspective are popular, some subjects less so.  The most unpopular blog I have ever written had a long section on female participation in the Indian Labour Market

https://jon-chadwick.com/2017/09/09/modi-thatcher-reagan-morrissey/

I won’t tell you how many people read this blog, but it’s not many.  I don’t know whether it was Modi, Thatcher, Reagan or Morrissey which put people off.

For those those who didn’t read it India is one of the few countries in the world where female participation in the workplace has fallen over recent years.  As India has become more prosperous woman have left the workforce and gone back to more traditional roles in the home. This is a pretty unusual phenomenon  – in most other developed or fast growing economies female participation in the workplace has increased greatly. 

This isn’t the case in big cities like Delhi or Mumbai, where economic growth has created job opportunities for large numbers of women.  It is largely a phenomena in rural areas where women were engaged in marginal roles often doing little more than carrying heavy loads, and where Conservative social attitudes still prevail in many households. 

In general I believe that measures that raise incomes encourage Labour Market participation and I am puzzled and a bit fascinated that India is going in the opposite direction.

There was plenty of debate a few weeks ago when I wrote  about Universal Basic Income.  UBI remains the pet project of lots of Liberal and left wing politicians.

One of the least popular politicians among Western Liberals is Nahendra Modi.  Most Western lefties who have an opinion regard him as an arch Conservative, and a reactionary.  I have written about Modi before, and it is worth reminding ourselves that as well as promoting some socially conservative ideas under his Premiership the Indian Supreme Court has passed 2 notable Liberal judgements, on divorce and gay rights:

https://timesofindia.indiatimes.com/india/muslim-women-hail-triple-talaq-bill-seek-ban-on-polygamy/articleshow/62298393.cms

http://www.independent.co.uk/news/world/asia/india-homosexuality-legalise-law-gay-lgbt-couples-supreme-court-ruling-a8148896.html

India is currently considering introducing UBI across the whole country -the proposals are contained in the Indian Finance Ministries last annual report – a cracking read for people who like really long books full of numbers and graphs.   

India also has a large number of anti-poverty programmes which are not well regarded, as well as a complex series of subsidies which distort prices.  India currently spends 2.07% of GDP on subsidies, mainly in food, fertiliser and petrol, and another 1.38% of GDP on social welfare and anti-poverty measures.   

The Indian Finance Ministry proposes replacing these subsidies and anti-poverty programmes with a single UBI payment to the 75% poorest of Indians, paid electronically into bank accounts. The Modi government last year embarked on a radical programme of demoneterisation – taking large amounts of paper currency out of circulation, ostensibly to tackle corruption, but also to increase the use of bank accounts, and electronic direct cash transfers.   

This would raise the incomes of all but the very poorest of Indians above the Tendulkar Poverty Line. 

This is a very different ambition to the plans for UBI in the West, which would cost a much greater percentage of GDP.  It is also worth noting that while the UK economy grows at 1.5%pa India is once again the Worlds fastest growing major economy – over 7.5%pa.   

One of the criticisms of UBI schemes like the one the FinMin are contemplating is that they encourage people to drop out of the Labour Market.  Given that the people leaving the Labour Market over recent years have been women in rural areas it is hard to see why a socially Conservative Government would object to this. 

There is a final element to Modi’s policy mix that is worth mentioning. The Indian Government is introducing the Aadhar system – the world largest biometrical ID scheme.  Over 1bn Indians are already registered with it, and it has widespread, but not universal support.   This goes way beyond the ID card proposals that were developed by the last Labour Government.  The controversy was such that David Cameron was able to scrap the project on what he claimed were civil liberties grounds., in particular the way the project brought together data from different Government Departments.  That most Government Departments went ahead with these databases anyway, but contracted them out to companies like Experian wasn’t made clear to the public. 

https://uk.reuters.com/article/uk-india-aadhaar-breach/critics-of-indias-id-card-project-say-they-have-been-harassed-put-under-surveillance-idUKKBN1FX0FQ

I really do hope that India goes ahead with a large scale UBI experiment before they think about national implementation.   This would potentially be a transformative programme for many Indians, and the economics of it would be very different to trying the same programme in the UK.   I just don’t think that people should assume that this is a Liberal or left wing project, it is the work of a socially Conservative and at times Authoritarian administration.

http://pib.nic.in/newsite/PrintRelease.aspx?relid=157804

http://mofapp.nic.in:8080/economicsurvey/

https://en.wikipedia.org/wiki/Suresh_Tendulkar

24 Hour Politics People P2. More on Laffer curves, and maybe I was too harsh on Jeremy Corbyn?

fullsizeoutput_1fbd

As a follow up to yesterday’s blog I wanted to say a tiny bit more about Laffer curves and whether or not they work in the real world.   I feel that I dismissed a huge idea in modern economics without giving it time of day, but I didn’t want the whole blog to be about the myth of self funding tax cuts.

The basic problem with applying Laffer curves in real life is that the financial relationship between the state and the citizens is incredibly complicated.   The state takes money from the citizen in many ways, direct and indirect taxation, fines, student loan repayments, licenses, child maintenance charges, excise duty, with a range of deductions and exceptions depending on whether you are employed or self employed, married or single. 

The state also gives people lots of money too.   Benefits, rebates, subsidies.   

Because of this each individual’s marginal tax rate – the amount the state will take of the next £1 you earn over your current income varies hugely.  Someone who is self employed with no student loan can pay a much lower marginal tax rate than someone on the same income who is employed and has student loan repayments or a child maintenance liability, or both.  I can be sat in the pub with someone who earns an almost identical income to myself, but who pays a marginal tax rate 5 or 6 times higher.

That’s why applying the simple notion of the Laffer curve doesn’t work with income tax.   

I also think that the elasticity of income in response to changes in the tax rate is more complex than the Laffer curve allows for.

If you are rich and you are faced with a short term increase in tax you can manipulate your income, moving funds around, to avoid the higher tax rate.   George Osborne announced in advance that he was cutting the higher rate of tax, which meant that lots of people deferred their income until after the tax cut came in.  This gave the appearance of a increased tax take, but was really just the same income moving from one time period to another.    Once that one off increase was over the tax take was lower because the tax rate was lower.   This is why he discovered that his extra cash evaporated quickly leaving him with a whole in his budget.    This is a familiar story – Reagan championed self funding tax cuts throughout his period in office, but doubled the US budget deficit in the process despite big cuts to welfare programmes.  This means that the short term elasticity of income in response to changes in the tax rate is greater than the long term elasticity.

Only the super rich who can move their money around using the kinds of tactics reveals in the Panama Papers have truly elastic income, and can shop around for tax havens.  The rest of us don’t have that option. 

That doesn’t mean that the Laffer curve doesn’t work at all. There are other ways in which the state takes money from individuals – student loans for example – where the higher the level of repayment the higher the default rate and the higher the cost of collection (as the rates get higher complaints, challenges and enforcement costs go up).   Eventually you reach the point where further increases in repayments don’t bring in any more money.   

This isn’t unique.  The Child Maintenance system has lots of debt where the cost of collection is greater than the value of the money to be collected.   The state doesn’t want to publicly write off this debt for moral and political reasons, but fiscally it is a dead loss.

It looks to me that the student loans book is in a similar state.  A sensible Government could reduce the repayment rates on student loans with little or no impact on the total sums collected.  This isn’t quite the same as proving that the Laffer curve is right – after all anyone who has worked with debt books knows that this phenomena isn’t unique to Government income, it is simply a function of the relationship between cost of collection and amount collected, and not a specific function of tax. 

Ramsey MacCorbyn?

In the main blog I was a bit underwhelmed by Corbyn’s plans on Government spending.   The size of the increases in spending were well below those implemented by Wilson, Callaghan, Blair and Brown, and the plans to expand the state were limited.   The last Labour manifesto talked a lot about ending austerity, but actually the difference between the Labour plan to eliminate the deficit and the Tories was pretty slim:

Screen Shot 2018-02-17 at 13.48.34

This graph from the Resolution Foundation shows the Labour Manifesto as the red line with the different Tory plans as the blue lines.   Fiscal Objective was Osborne’s original plan, the dark blue line his revised plan after the tax cuts, and the purple line is Tory Manifesto.   Not a lot to choose between the 2 parties.

This minimal relaxation in austerity isn’t anything like enough to cover the commitments to more funds for the NHS and ending tuition fees.  There were tax increases planned, but this doesn’t explain how big increases in spending could be achieved without an equally big increase in public spending as a % of GDP.

There are 2 answers to this.

Firstly that Labour was quietly banking £7.5bn of Conservative party benefit cuts, which would have hit poor families hard, as this graph from the IFS shows:

Screen Shot 2018-02-17 at 14.04.29

Labour’s tax hit on the rich was matched by a Tory style reduction in the incomes of the poorest.

But secondly because Labour is planning a big increase in the role of the state in running the Railways and key utilities, but claims that this can be done “off balance sheet”.   John McDonnell was questioned about this on the Marr show and the Robert Peston show over the last few months:

https://www.youtube.com/watch?v=UZ4rL5_EkEk

(the nationalisation stuff is from 5minutes in)

The proposals which Labour has are to issue bonds to the private sector to fund the nationalisation of utilities, which will then pay out to the bondholders. The purchase prices will be set by the Government, presumably at a discount.

This effectively means that it is a leveraged buyout, with the discount taking the place of a cash investment from the Government.   It also looks spookily similar to the kind of off balance sheet PFI transactions that got Ken Clarke, Gordon Brown and George Osborne into so much trouble.

I’m not as hostile to PFI as some people, but they only work when the Treasury Cost of Capital rate is high.  At the moment the Government can borrow at close to 0% interest, which makes any kind of PFI pointless.   Labour are planning to borrow more expensively than they need because they don’t want to show the true impact of the plans.

The privatised utilities, as McDonnell points out, also have substantial debts of their own, in addition to the debt which will be loaded onto them by the nationalisation process.  

These debts have to go onto someones books somewhere, and if they have been nationalised this can only be on the Governments books, including any pension liabilities.  Which means that they can’t be off balance sheet.   I honestly can’t work out how this impacts on Labours plans for deficit reduction, and I suspect that is because they haven’t worked it out either.   Nor am I convinced that the National Audit Office will allow the nationalisation costs to be treated as off balance sheet, given that they wouldn’t allow Network Rail’s liabilities to be treated as off balance sheet either. 

If the accounting of the liabilities is opaque then how the revenue activities of the newly nationalised utilities and railways will show in the National Accounts as even vaguer.  If they are counted as public sector spending then Labour will be increasing public spending as % of GDP by a much greater amount than their last manifesto indicated, in fact it would make public spending a great proportion of GDP than any previous Government Labour or Tory. 

All of which means that Labour under Corbyn might actually have a more radical plan than I gave them credit for.  They just haven’t worked out how to account for it, nor have they learnt any lessons from the last 3 waves of PFI deals.

http://www.resolutionfoundation.org/app/uploads/2017/05/The-deficit-the-election-forgot.pdf

http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/19111701.pdf

http://www.telegraph.co.uk/finance/2832095/Statisticians-wrangle-over-Network-Rail-accounting-treatment.html

 

24 Hr Politics People; Why Laffer Curves and Universal Basic Income have become 2 of the most influential daft ideas of the modern age.

fullsizeoutput_1f8aIn case anyone had missed it we live in a 24/7 media culture.  Politicians rise and fall based on their ability to shape or react to a continuous churn of news.

This has created a bias for action not ideas.  Tough new measures rather than well thought out policies. Clampdowns on pretty much everything.  An endless parade of action oriented political virility.   More tough new measures.  A raft of tough new measures. 

Sometimes it doesn’t even matter if the new measures mean anything.  When David Cameron was PM he would regularly announce radical new measures with no intention of actually implementing them.  Renting out surplus Government Offices to entrepreneurs was one such phantom policy, allowing start ups to trade share options for workers rights was another.  Both were announced with a fanfare and then totally forgotten.   Blair would announce the same policy multiple times to create the impression of action.

In such an environment complexity and compromise are treason and treachery.   In all the noise across traditional and social media simple ideas and slogans shouted loudly cut through more easily than thoughtfulness and nuance. Take back control! Build the Wall! For the Many, Not the Few!

All of this has created a bias in favour of the rapid implementation of rubbish ideas.

Some ideas in politics and economics are better if they are never implemented.  Sometimes ideas work best as concepts – something to help people think through complex problems, but which aren’t really meant to be acted on.   Maybe Cameron instinctively knew this, or maybe he was just shallow and lazy and couldn’t be bothered seeing things through. 

You can decide which for yourselves. 

If that seems a bit philosophical think about the Laffer curve.   This is one of the most influential ideas in modern economics – the idea that if tax rates rise too high it will disincentivise wealth creation and lead to a lower tax take.   

The concept was explained by Arthur Laffer to Donald Rumsfeld and Dick Cheney by drawing a simple graph on a napkin at a dinner party.   It was meant to be a simple way of understanding the concept of the elasticity of taxable income in response to changes in tax rates. It was soon taken up by right wing politicians to justify the idea of the self funding tax cut.  Most recently George Osborne claimed that his reduction in the top rate of tax had increased the tax take:

Screen Shot 2018-02-17 at 10.08.34

It is worth noting that although Osborne was claiming in March to have brought in an extra £8bn in revenue thanks to the Laffer curve only 4 months later he abandoned his plan to eliminate the deficit by 2020 due an unexpected deterioration in public finances. 

Screen Shot 2018-02-17 at 10.09.14

In fact every time a claim has been made for self-funding tax cuts based on the Laffer curve there was an unexpected deterioration in public finances shortly afterwards.

Laffer himself was surprised that politicians thought this was a policy to be implemented, and would have been baffled that anyone might think that it was possible to recalibrate the income tax rate of a major economy using this simplistic device.  The way the individual interacts with the state is too complicated for such crude policy measures to work. 

Often these simplistic concepts are the hardest to pin down and disprove precisely because of their simplicity.  They sounds truish, and because they were never meant to be taken that seriously there is little there to disprove.  The Laffer curve was popular among a particular group of politicians and economists because it gave an easy to understand and simplistic solution to a complex problem.  Laffer curves fit a right wing world view that believes in cutting taxes and shrinking the state, things that are popular with a core group of voters and political donors.   

One of the biggest ideas right now in political economy is the concept of the Universal Basic Income (UBI).  The basic principles of UBI are that it is an unconditional payment made to everyone, regardless of current income, to allow them to live at a basic level, whether they are in work or not.

UBI is an idea which has proponents on both sides of the political divide.   Left wingers like it because it looks like a simple solution to problems of poverty and inequality.  Right wingers like it because it provides a way of managing social welfare systems without intrusion into peoples lives – in fact it started off as an idea on the Libertarian Right.   It is also one of the pet projects of Tech billionaire Elon Musk, and has lots of support among the very rich.

Recently it has jumped from being a right wing idea to being a left wing idea.  It appeared in the 2015 Green Party Manifesto, is being trialled in Scandinavia, and has a planned trial in Scotland.  Bernie Sanders flirted with putting it in his manifesto, and it will be a key policy aim of Yanis Varoufakis’s new political party when he can decide what it is called. The Guardian even claimed that failure to embrace UBI cost Hilary Clinton the Presidential election.  Even the Labour Party, who are normally anxious of any policy ideas more modern than 1979 have started to think about it.

The attraction of UBI as a left wing policy isn’t hard to work out.  While the National Minimum Wage has revolutionised the wages of people at the lowest skills level in the Labour Market it has also led to a group of workers being pushed into unwilling self employment, where income is often well below NMW levels.   UBI would be as transformative for self employed workers as NMW would be to employed workers.

UBI is also being promoted as a solution to the potential labour market problems arising from new technology – what happens if large numbers of manual or even white collar jobs vanish over the next decade?  How could our current democratic system cope with lots of structurally unemployable people?

This fear of technological change is really a restatement of an age old fear that the middle classes have about angry unemployed working class people coming to get them, combined with the dreams of lots of burnt out middle aged middle class people who would like do something more rewarding like retrain as yoga instructors, grow organic parsnips, or become boutique Gin producers.    

I like UBI it because it offers the opportunity to reduce the costs of administering benefits, in particular it reduces the costs of administering conditionality.  It is the increasingly complex and irrational rules around conditionality that are at the heart of much of the cruelty in the modern benefit system. 

I also like that UBI might be a way to give economic value to caring for people, but this is such a huge issue that it needs is own blog.

There is however a massive reactionary problem at the heart of UBI, which explains why it started out as a right wing idea. 

To illustrate this lets start by looking at the proportion of GDP taken up by Government Expenditure:

When the Attlee Government came into power in 1945 Government Expenditure was over 60% of GDP. This isn’t surprising as the UK was a wartime siege economy.  While Attlee is famous for nationalising lots of things in reality most of the industries nationalised by the post-war Labour Government were already controlled by the state, and had been for some time; coal and steel for examples.   Rail had come under increasing state control from WW1 onwards.   

Attlee shrunk the size of the state from 65% to 35%, where it remained for about 20 years.   From Wilson onwards Government spending as a % of GDP starts rises due to the extension of the Welfare State, for example the introduction of universal child benefit, and the costs of the oil price crisis, hitting 45% by 1979.    

Thatcher had an ideological desire to bring down Government Spending, but struggled to achieve her target of 35% due to the high costs of unemployment.  Major achieves little of note.

Blair and Brown increased the size of the state to 47.5% – the highest ever peace time share of GDP. This increase was largely driven by spending on the NHS and a big expansion of the benefits system through the introduction of tax credits.  Oh, and they spend a fair bit nationalising the banks. 

Cameron and Osborne tried but failed to get spending back down to 40% of GDP, while the current Labour leadership are committed to push up Government spending very modestly to roughly 43% of GDP, a bit short of New Labour or Harold Wilson. 

Using 2016 data (we don’t have all of 2017 data in yet) state spending was £747bn or 41% of GDP.   Government income was slightly lower than this which is why we are still running a small budget deficit. 

Of this £258bn was social protection, the largest component of which was pensions at £108bn.   This means that the state spends about 15% of GDP on supporting the incomes, mostly of older people, and people on lower incomes.   

This is where  universal incomes, average incomes and Government spending start and collide.

If the UK scrapped all social protection spending, pensions, benefits, everything but set a UBI at 25% of average income Government Spending would increase to over 50% of GDP – it’s highest peacetime level, but this would give a UBI of less than £6k per year, which would do little for the poorest in society.   

To achieve a UBI of £10,000 a year Government Spending would have to increase to 60%+ GDP, which is roughly the kind of siege economy we ran in WW2, an era of food rationing. 

This looks like a massive burden to taxpayers, however this is a big mistake – the Universality bit of UBI means that is transfers wealth away from people who are currently in receipt of means tested benefits and gives the money to people currently too rich to access them.    UBI would in fact be hugely regressive, which is probably why it started off life on the right of politics, not the left.   

For anyone interested in progressive politics this should be a fatal flaw.

The same problem occurs with proposals to make tech companies to pay for it.  A recent proposal in the Guardian suggested levying Amazon, Google and Apple to pay for a UBI of £10,000.  The article rightly points out that at the moment high tech companies with substantial development costs who operate in multiple tax regimes find it too easy not to pay tax.  But same problem exists with this proposal.   

Google’s turnover in the UK is £1bn, Amazon is the same.   I tried to find out Apple turnover for the UK, but all I got was recipes for fruit based pastry treats. 

Screen Shot 2018-02-17 at 11.01.19

Lets assume that we were able to squeeze £1bn extra tax pa from tech multinationals operating in the UK, this is several 100 times what they currently pay. 

That £1bn would be enough to pay £10,000pa to 100,000 people.    As there are 52m people in the UK aged over 16 this is nowhere near Universal.

Anyway you cut budget the Universality bit is unaffordable and helps the rich more than the poor, but his doesn’t mean that UBI is a bad idea.   It just means that it is a helpful way of thinking about whether the current benefits system needs means testing, or conditionality, and how we give an economic value to caring, particularly for people caring for other family members. 

I don’t have a particular problem with means testing benefits, believing that without means testing we can never achieve a welfare system that meets the criteria of:.

“from each according to their ability to each according to their need”

I do however have a massive problem with the huge industry which has grown up around conditionality, making people jump through daft hoops to access small sums of money.  The cost of running the massive bureaucracy of DWP is disproportionate to the work they do in managing public funds.    We could scrap all of Job Centre Plus, make basic payments unconditionally and use some of the savings to set up a government wide counter fraud service that would tackle the relatively small numbers of benefits fraudsters across Government.   The limited range of support to job seekers that DWP do offer could be delivered locally by charities, small businesses and Local Authorities. 

UBI is a brilliant though experiment, a way of thinking differently about how the state spends money and what it values.   If for example we took the £1bn levy and used it to pay 100,000 young people to set up new businesses how would this change the economy?   What if the state funded ecology activists to work on challenging new projects to tackle climate change? What if the state funded talented young writers and musicians from working class backgrounds to make the pop charts less awful and TV more interesting?  What if we recognised the economic value of caring and the state paid for it directly?

These are all the kinds of solutions which a limited form of non-universal basic income might unlock.   Just don’t actually try to implement UBI in it’s crude form because it doesn’t work!

I do have one final problem with UBI which I wanted to highlight.  I think it is popular because it avoids having to answer the really difficult question – how to create meaningful jobs for people.   

People writing policy on left and right are so far divorced from the actual world of work that they are unable to meaningfully conceive of what work looks like for most people.   Even the Trade Unions are really just white collar civil service staff associations ruled by a small clique of left wing bureaucrats. 

The problems in the UK Labour market are about the decline of the dignity and security of Labour.  It is easy to blame this on Government policies, cruel and heartless Neo-liberals. In fact individuals rights in the workplace have increased not decreased over the last 20 years, largely due to the legislation passed in the late 90s and early 2000s.  The increased Labour market flexibility that has led to low employment isn’t due to taking away peoples rights as a small group of right wing politicians and economists have claimed, but by enticing them into the workplace with greater protections, more support.

Blaming the awfulness of politicians is just as daft as blaming immigrants for the problem.

What we are experiencing is a huge fall in demand for manual labour, disguised by the National Minimum Wage, mass underemployment, bogus self employment and zero hours contracts.   All of this is taking place at a time when employment and business investment are both very low.   This would indicate that far from technology displacing low income employees we have an artificially high demand created by lack of investment in high tech.

If things are this bad now think how bad they will be if Business investment starts to increase?

It seems to me that people, particularly on the left, are talking about UBI because they don’t know how to create meaningful jobs for people in the future, nor have they thought about the extent to which people get a huge amount of their identity from work, a sense of purpose in life.   

UBI dodges these questions and instead dumps people with some money and tells them to make the best of it.  If you have built up enough capital in life to afford gym membership, or travel, or have a wide social network, and are engaged in clubs and hobbies having the time to persue them paid for by the state sounds great.   Being able to devote your energies to charity work, or helping to save the environment

But this isn’t the reality of life for lots of people on low incomes.  And for people who are already lonely UBI looks like a way of making life even more isolated.   I wrote a while ago about the way that obesity, prescription opiates and guns were killing white Americans in rural areas at a prodigious rate.   This growth in despair and the decline of jobs which support an American lifestyle go hand in hand, and we are starting to see the same decline in life expectancy in parts of the UK with high levels of manual employment.

So, at the end, why does this matter?

Because the way ideas in economics are portrayed in the media dumbs things down, and simplify things which means that good but subtle ideas don’t get airtime and simple but daft ideas thrive.   That’s why austerity, which was a deeply stupid idea, prevailed for years, even when it was palpably failing.   Good ideas and bad ideas get jumbled together in a way that discredits the good with the bad.

Ultimately Laffer curves and UBI share 2 qualities – the are both regressive fiscal measures that transfer funds from the poor to the rich, and they are both popular polices because they avoid the need to think about really difficult issues – how do you stop the erosion of the tax base while cutting taxes (Laffer curve), and how do you deal with a structural over supply of manual labour, and the decline in jobs which give a sense of meaning to peoples lives (UBI).

http://www.resolutionfoundation.org/publications/the-minimum-required-minimum-wages-and-the-self-employed/

https://www.theguardian.com/uk-news/2017/dec/25/scotland-universal-basic-income-councils-pilot-scheme

https://visual.ons.gov.uk/uk-perspectives-2016-spending-on-public-services-in-the-uk/

https://www.theguardian.com/commentisfree/2017/sep/15/the-guardian-view-on-universal-basic-income-tax-data-giants-to-pay-for-it?CMP=share_btn_tw

http://www.independent.co.uk/news/uk/politics/labour-sets-up-working-group-to-investigate-radical-idea-of-basic-income-john-mcdonnell-reveals-a7563566.html

http://uk.businessinsider.com/elon-musk-universal-basic-income-2017-2

https://www.theguardian.com/commentisfree/2017/sep/15/the-guardian-view-on-universal-basic-income-tax-data-giants-to-pay-for-it?CMP=share_btn_tw

https://www.theguardian.com/society/2017/feb/19/basic-income-finland-low-wages-fewer-jobs

What if all Government Data is wrong?

fullsizeoutput_1efa.jpegThis is short update in advance of next weeks full blog.  I am trying to stick to one longer piece a month, with some shorter blogs in between

Last year I wrote about the way that Unemployment Statistics are collected:

https://jon-chadwick.com/2017/03/18/unemployments-rising-in-the-chigley-end-of-town/

In particular I highlighted problems with the way the Labour Force Survey captures data about the UK Labour Market.  In a world of zero hours contracts, part time working and high levels of self employment the LFS is no longer an accurate tool to measure unemployment, which could be a lot higher than we think it is.   This was based on my own experiences as part of the LFS survey cohort.

One of the big questions that troubles economists looking at the British economy has been the decline in productivity.  Despite apparently everyone working harder we are much less productive than neighbouring nations. The French have a shorter working week, longer holidays, longer lunches, and more wine and yet still manage to have higher productivity than us Brits.   

Partly this could be the function of changes in consumption.  Barrista coffee is more labour intensive than Mellow Birds, my Distillery makes less Gin per employee than Gordons – but that is the point – people want more human input into the products and services they buy, and the more human input the more they value it.  We want to spend time with our GP, and our hairdresser.

https://jon-chadwick.com/2017/04/17/productivity-is-rubbish-inefficiency-rules-why-craft-gin-is-better-than-united-airlines/

We are moving from an economy which is highly resource intensive to one that is more service oriented. This isn’t a bad thing – our resource consumption has fallen dramatically over the last few years, which is great for the environment.

This explains part of the output gap, but  I just don’t think we are drinking that much expensive coffee, artisanal cheese and craft gin. 

If the unemployment data is wrong then the productivity gap might be smaller than we think.  But what if the UK output data was rubbish too?

For the last few years we have been part of the Small Business Output cohort for the Manufacturing Output Survey.   While in theory all small businesses are registered with Central and Local Government in reality the state, locally and nationally knows less than it should about the small business manufacturing sector.  Lots of small businesses are reluctant to send their details to Government bodies, and the state doesn’t have the resources to track them down.   

When Durham County Council set up their Manufacturing and Engineering Taskforce one of the task forces first tasks was to find out what manufacturing businesses actually operated in County Durham.  One of the businesses they found built wind tunnels.  Hard to imagine how no-one had spotted that before.

I’m not great at filling in forms, and only actually filled the form in at all because it has lots of scary warnings on.   Eventually I got fed up and this week I rang the ONS and told them we weren’t filling their forms in any more.   

It turns out that a business should only be in the survey sample for 12-15months, after which they are meant to refresh the sample to make sure it is up to date and randomised.    We had been in the cohort for over 3 years, because they don’t have the resources to keep the sample up to date.  Instead of using a proper randomised sample they have just been collecting the same date from the same businesses.   LFS has the same problem – the sample size they use is much smaller than they really need to be statistically valid.  

Which means that all of the output data we have been looking at to measure productivity is as rubbish as the unemployment data.  It’s not hard to imagine a scenario where new, and highly productive manufacturing industries enter the market are under represented in the survey, while older established businesses with less productive technologies are over represented. 

Looking at LFS the Unemployment data has been wrong since 1997, although in the early years the mistake was small.   After the credit crunch the data got worse, and from 2010 onwards has become increasingly divorced from reality.   

It is harder to tell how long the Manufacturing Output Survey has been rubbish, or how far out it is.

But if Ministers no longer care whether what they say in Parliament is true or not then it no longer matters whether the data being collected is right either.  If the Minister doesn’t care about the truth then why should the Senior Civil Servants who brief them care if they are giving the right data?   If the SCS don’t care if the data is right why should the less well paid Civil Servants who manage performance care either?

It’s not just our news that’s fake.  Our facts are too.

https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2015

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/bulletins/labourproductivity/jantomar2017

Saturday’s Kids: The decline of Schoolkids with jobs, and the increase in Exam Results.

Welcome to my first blog of 2018. 

I plan to write one blog a month, but look at each issue in a bit more depth.  Over the last year I found that I wanted to go into some subjects in more detail than a fortnightly blog allowed.

[[

I had started writing a blog for January about the UK Labour market part when a friend of mine posted an article on Facebook about the increased numbers of University students graduating with a First.  This feeds into a narrative about the younger millennial generation, a rather unflattering narrative.   Given that my own daughter is going through the University applications process 30 years after I did I thought it would be good to bring forward something that I had planned for February.

For a long time I have been wondering about the sharp decline in the number of children with Saturday jobs.   When I say Saturday jobs I mean any kind of employment while studying including paper rounds, shop work, bar work, etc..   I started working when I was 13 or 14 asa pot collector at Ramside Hall, working my way up to waiter and then barman, running the bar for weddings at the Pemberton suite.    My guess would be that more than half of my year at Belmont had regular or irregular paid work.   

My money went into building a large collection of LPs and singles, buying mod clothes, and running a Vespa scooter.  Even by the 1990s 40% of school children were “earning while learning”. 

 

Today only 18% of children have Saturday jobs.   Looked at from the employers perspective the decline is even more dramatic.   Employers who want to hire people who are still in education need to register with the Local Authority.   In 2011 Middlesbrough Council issued 101 permits for children aged 13-15 to work – by 2015 this had fallen to 7.  

As a small business this shift is very notable.   The younger the employee the less likely they have been exposed to the world of work, and the more they have to be shown how to behave in the workplace.  The basics of how business works, how to deal with customers, how to solve problems when the boss isn’t around, how to fill the time in on a boring shift are alien experiences for lots of young people.

Some of these changes are due to a fall in demand.  The most popular Saturday job in my era was delivering newspapers.   The reduction in the number of people getting papers delivered everyday was the main reason for the fall in employment permits in Middlesbrough.

The changes in the UK high street have also impacted.  The companies who offered the most opportunities for Saturday jobs were people like Woolworths and BHS, companies who just don’t exist anymore.  Where companies are still trading they are automating jobs like check out assistants reducing opportunities further.   

There has been an attitude shift towards suitable employment for young people.  A friend of mine had a Saturday job at Cheveley Park shops where their main task was selling cigarettes. People don’t buy as many fags as they used to, and allowing children to sell fags and booze is no longer acceptable.

As well as the demand side change there has been a supply side change among young people – the pressure to do well at school is much greater, and there is a lot of anxiety that time spent working and earning should be spent studying.  The pressure to get good grades and succeed at school is radically different to my era, where slacking was pretty commonplace.

As an employer however there is another rather obvious reason not to hire school kids to work on a Saturday.  Under the Modern Apprentice scheme we could hire a school leaver full time on £3.50 per hour. We would even get a grant from the Council in case that pay rate was too much of a burden for us.   It is hard to see why I would hire a nice middle class kid one day a week for £5 per hour, when I can have a permanent employee for less.   Wage rates for under 21s have been deliberately driven down by the Government to such an extent that it is not attractive for kids to take Saturday jobs. 

If this sounds a lot like a 1980s YTS scheme it is because it is a lot like a 1980s YTS scheme.  The terrible pay rates for under 21 Apprentices aren’t particularly well known, and would be a shock to lots of people.

A while ago I wore about trends in drug use.  Not only are young people working less they are doing drugs less too.

https://jon-chadwick.com/2017/12/08/how-close-are-we-to-legalising-drugs-are-the-tories-more-liberal-on-drugs-than-labour-will-boris-johnson-be-remembered-as-the-man-who-decriminalised-cocaine/

In the mid-90s 30% of 16-25 year olds had taken illegal drugs in the last year.  This has fallen to 18%.  We need to be a bit careful because the definition of young people in the drugs survey is different to the definition of young people in the labour market, but there is enough of an overlap to make a comparison. 

The fall in the quantity of drugs is mirrored in the decline in alcohol consumption.  The total number of units of alcohol consumed in the UK has fallen in most years since 2000.  This will come as a surprise to people given the number of headlines about the impact of alcohol on A&E attendances, but we are all drinking less.   Under age drinking has fallen hugely.   Back in the 80s, 62% of children aged 11-15 had drunk alcohol.  Today that has fallen to 38%.    The same is true when we compare the youngest category of drinkers (16-24 year olds) to my generation; Less than half (48%) of those aged 16 to 24 reported drinking alcohol in the previous week, compared with 66% of those aged 45 to 64.   The number of young people who are teetotal is much higher than my generation, increasing the rate of non-drinkers in the UK to roughly 20% of the adult population. 

There is evidence that young people are having their first sexual experiences at an older age however I am reluctant to research this due to the rather obvious problems of using the internet to look for information about young people and sex.   An easier area of statistics to look at is the teenage pregnancy rate, which has fallen from 55 per 1000 population in the early 70s to 23 today.  They have fewer fillings and better teeth too.

As a final statistic about how sensible young people are DVLA records show a decline in the number of young people with driving licenses.  In 1995/97, 43% of those aged 17-20 held a full licence, compared with a low of 27% in 2004 and 35% in 2010.   

Whether these numbers confirm or confound your view of young people depends on what your preconceptions are.   There is however another popular media stereotype about young people that I thought would be worth testing.  In this year’s General Election a large number of young people registered to vote and voted for the first time, boosting support for the Labour Party.  A tiresome number of press articles have been written about the popularity of “oooh Jeremy Corbyn” among young people.   

These stories are rather at odds with most of the research on the subject.  Young people have much harsher attitudes towards welfare, crime and income redistribution than my generation, who have much more typical left wing attitudes. In particular their views towards “benefit scroungers” are very much harsher.  In fact the Labour Party’s shift to the left has coincided with an influx of older members, not younger.  Typical old Labour policies like re-nationalisation of utilities are less popular with my daughters generation than mine.   While partisan pro-Corby websites claim that the average Tory is in their 70s and the average Labour members decades younger the reality is that there is only 4 years between the average age of a Conservative party member and their Labour equivalent (53 to 57).   The rise of Corbyn has made the Labour Party membership older, richer and whiter.

There are 2 key areas where younger voters are different to the older generations; they are much more socially liberal and far more pro-European. 

While all of these generational changes have been going on educational attainment has been increasing markedly, which has caused a huge amount of debate about the dumbing down of British education particularly in newspapers like the Times and the Telegraph.  Every increase in GCSE or A Level results has been greeted by wild claims of dumbing down.

I am instinctively sceptical about these claims.   All of my experience as a student and then a Dad leads me to believe that young people spend more time studying, are more sensible, drink less, and do fewer drugs, and that this is likely to be a very significant factor in improving grades.  

Bloody millenials eh?  Walking round like they rent the place.

There may be a special case around University degree classifications as we went to University at a time when a large number of former Polytechnics and Technical Colleges were gaining degree awarding status or converting to become Universities.   Liverpool now has 4 universities, Liverpool, John Moores and Edge Hill and Hope.   It looks to me the increase in the percentage of students getting a first coincides with the expansion of the number of organisations awarding degrees.

For those who disbelieve me, and who think that education has been dumbed down here are a selection of O Level and GCSE History papers.  Assessing which paper is easier is always a bit subjective, but I found the 1980s paper the hardest, then the GCSE papers, and the older papers by far the easiest. 

If you don’t believe me try them for yourself….

Screen Shot 2018-01-13 at 15.15.53

http://www.cambridgeassessment.org.uk/Images/1957j-history-olevel-questionpaper.pdf

http://www.f-g-s.co.uk/documents/gce_papers/1963/o_level/history.htm

Screen Shot 2018-01-13 at 15.19.57

 

http://www.cambridgeassessment.org.uk/Images/1984j-history-olevel-questionpaper.pdf

Screen Shot 2018-01-13 at 15.20.29

http://www.cambridgeassessment.org.uk/Images/2000j-history-gcse-questionpaper.pdf

Sources:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/8933/nts2010-02.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/435285/15.06.15._DOTSJ_Report_design_final_EDIT.pdf

http://www.bbc.co.uk/news/business-41989185

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/564760/drug-misuse-1516.pdf

https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/drugusealcoholandsmoking/bulletins/opinionsandlifestylesurveyadultdrinkinghabitsingreatbritain/2014?lang=welsh

https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/drugusealcoholandsmoking/bulletins/opinionsandlifestylesurveyadultdrinkinghabitsingreatbritain/previousReleases

https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/methodologies/opinionsandlifestylesurveyqmi

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/8933/nts2010-02.pdf

https://www.cambridge.org/core/journals/british-journal-of-political-science/article/div-classtitlethatchers-children-blairs-babies-political-socialization-and-trickle-down-value-change-an-age-period-and-cohort-analysisdiv/38664695516495C5A6C08BC656EEAB20

https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/uufxmyd8qm/InternalResults_170518_nationalisation_privatisation_W.pdf

http://britainthinks.com/pdfs/The-Year-Ahead_Breakfast-Briefing-Slides_09.01.18.pdf

http://www.qmul.ac.uk/media/news/items/178403.html

Hunt vs Hawking. Both are wrong, and things are worse than we thought

For the first time in weeks I have no work this weekend, so I wanted to catch up with a couple of topics that I had written about previously, and which were finding their way back into the news.

For those who follow such things my old pal the Jim Reaper has left Whitehall and returned to Northumbria Healthcare to resume his roles as CEO.   When he left Whitehall he let rip at the oversized centralised bureaucracy that has sprung up since the Lansley reforms.  

Screen Shot 2017-12-17 at 11.51.28

The Conservatives made a big noise about reducing the size of the NHS management cost, but have instead created a dysfunctional centralised system, which adds nothing to patient care. 

https://jon-chadwick.com/2017/11/11/nhs-managers-are-great-lets-hire-loads-more-of-them/

It is axiomatic that when an ambitious right wing politician announces a change programme that will reduce bureaucracy there will be more paperwork and more centralised administration afterwards.  The more ambitious and right wing the politician, the bigger the pile of paperwork.   

The Trust that Jim is returning to is part of one of the first Accountable Health Organisation pilots:

https://www.kingsfund.org.uk/projects/supporting-new-nhs-care-models/northumberlands-accountable-care-organisation

I am optimistic about ACO’s because they start and unpick the expensive management structures which sprung up around the internal market, and which have been a feature of the NHS from the Thatcher era onwards.   I don’t for one minute think that this is something that Jeremy Hunt would have chosen ideologically, but the shortage of cash in the NHS is driving change in directions that the Government might not have chosen.   The changes to drugs policy I wrote about last week is another example.   

ACOs aren’t universally popular and Stephen Hawking has joined a legal action to try and stop the ACO pilots.   They are the latest management vehicle to be accused of being part of a secret agenda to privatise the NHS:

https://www.theguardian.com/society/2017/dec/08/stephen-hawking-lawsuit-foiling-jeremy-hunt-nhs-shake-up?CMP=share_btn_tw

 

I don’t for one minute agree with the basis of this legal challenge, and I think that Prof Hawking is badly misinformed here.   The ACO structure doesn’t encourage or discourage private sector involvement in the NHS, it just reduces the costs to the system of maintaining a commissioner and a provider management team.  It is just as possible to use ACOs to reduce private sector delivery as increase it, and I don’t agree that private sector involvement in healthcare delivery is always a bad thing…. it has been part of how the NHS has operated since 1947.   The problem is that the companies who are getting the contracts are among the worse private sector providers while some of the really good private sector organisations are being locked out.    This is giving private providers a bad name.

Apologies for writing so much on healthcare topics.   I intend to revamp the blog in January, and return to more business and labour market issues. 

The reason for so much health policy recently is because I am afraid that the NHS is entering into a period of profound crisis, which neither main political party really has a grip on, and which Brexit will make a lot worse.

To illustrate the impact this slow motion crisis is having I want to return to something I wrote about in the Summer about the impact of austerity on life expectancy.   For some groups in society improvements in life expectancy had stalled and were starting to be reversed.

https://jon-chadwick.com/2017/07/15/does-austerity-really-kill-if-so-how-many-how-can-it-if-we-are-all-living-longer/

The latest ONS data on life expectancy is much much worse than I expected.

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2014to2016

The ONS are remarkably calm about this, but it looks like pretty much all of the increase in life expectancy since 2017 has been reversed.  The predicted average life expectancy for a man is now below 90 years again.

 

Screen Shot 2017-12-17 at 13.42.56

It is tempting to suggest that maybe there is a limit to how much we can increase life expectancy, and that the rate of increase will slow as we reach that limit.   Japan, and Scandinavia still live much longer lives than us, and the reverses that we are experiencing aren’t happening there.

We do know that life expectancy links close to wealth inequality.  The richer you are, the longer you live.  The gap in life expectancy between the riches and poorest wards in Local Authorities like Westminister or Kensington and Chelsea are as big as the gap in life expectancy between the US and India.

http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)00150-6/fulltext

There is no real need to construct elaborate theories about this.  If you take a poor population and you make it poorer, less well fed, less securely housed, and colder you will increase the rate at which they utilise health resources and reduce their life expectancy.   

For anyone interested in actuarial tables this means that the data which was used to raise the state pension age is now wrong, and the justification George Osborne presented no longer holds water.   I doubt that this will change the decision.  

I will be back next week with a longer blog, and a scary story for Christmas…..