“A good economist is one who can understand both the “seen” and the “unseen” consequences of policy. It is the proponents of this policy who are ignoring the complexities of the issue. `Britain deserves a pay rise, let’s give it one’ is hardly the height of sophistication when it comes to economic and political analysis.”
Philip Booth, who was unimpressed by how Iain Martin, of the “popular capitalist” blog CapX, wrote in defence of George Osborne’s atrociously-conceived “living wage” idea.
When you have a writer of an allegedly pro-free market blog such as Martin arguing for state fiat control of wage levels, and who belittles those who argue against such things as ideological nit-pickers, there is a problem. What also gets me is that this foolish idea was introduced by a government that does not need to pander to leftist economic illiteracy. The Tories don’t even have the feeble excuse of having to placate coalition partners after having won power outright in May.
There may be some good features of Osborne’s recent Budget (the upward rise in inheritance tax thresholds was welcome, although the system remains unnecessarily complicated) but there is far too much political gamesmanship from Osborne for anyone who supports free markets to take him all that seriously as a friend of capitalism and freedom. If or when the costs of a far higher statutory minimum wage start to really hit small and medium-sized firms – as they will – will he have the balls to admit this has been a foolish mistake? I am not betting on it – he’ll probably have moved on by then.
He’s no friend of freedom or capitalism. He’s a c*nt, and not much else besides that.
The abolition of the dividend tax credit was a large increase in tax on small businesses. Osborne will be repaid in lower growth.
The ‘human point’? Seriously? Someone on CapX is in favour of making the least productive people in society not just unemployed but unemployable?
So let me tell you, Iain Martin, THIS is what the ‘human point’ looks like after the state decides to make labour at the low end more expensive. Note the paucity of ‘human points’ on one side of the counter. And to make matters worse this preposterous article is not just wrong, it is nauseatingly sanctimonious.
By preserving the minimum wage Osborne has proved he is no friend of the poor either.
For a party that a few months ago was hoovering up all of UKIPs anti-immigration promises, this goes right against a policy of discouraging immigrants, both legal and illegal, the former will come here in greater numbers for the higher pay, and the latter will come here for the inevitable increase in the amount of (illegal) jobs that undercut the higher pay.
There’s not an intelligent point anywhere in the article. The amount of economic ignorance in this world is staggering.
By “this article”, of course I meant Iain Martin’s. I hope this didn’t cause anyone confusion.
Was the point of the minimum wage hike not a quid pro quo to get rid of the arcane system of tax credits which do trap the lower paid within the welfare system and mislead in regards to the economic cost benefit analysis of employing a member of staff.
With just one policy tool, the minimum wage, I would hope its interference with the economy will be more obvious and so enable the policy to be strangled to death over time.
This of course all rests upon them getting rid of the tax credits.
There is also the raising of the tax free allowance, but it still seems like a moral abhorrence that you tell people what a living wage is and then tax them on it.
Sounds like Iain Martin is part of the problem, where the problem is the disinformation brigade attacking capitalism. Capitalism is free enterprise. Free enterprise is “free” from government machinations and attempts at steering “for the greater good”.
No doubt Martin is simply a fan of some limited aspects of capitalism and only because it’s good for most of the collective most of the time. In other words, I’d bet a dollar to a donut that Martin is a utilitarian.
Economics 101: Raising price floors creates surpluses. In the case of wages, a surplus of unemployed.
I wrote a response to Iain Martin’s article. I’m sure it’ll never see the light of day.
Laird wrote:
In my response to the blog, I somehow managed to not call him a goddamned idiot. Perhaps there’s hope for me yet. lol
Capitalism has few friends in modern government. The de facto thrust of the contemporary leader is biased towards an expansion of their power. Socialism is the perfect vehicle for this aim.
Tell us how you really feel, Mike. LOL. Kidding. I’m a fan of plain speaking and clear understanding. In a world filled with PC politico-speak, it’s good to hear someone every now and again call someone a straight up cunt.
Barry Sheridan wrote:
Capitalism has had few friends in ANY government. Capitalism is about freedom, freedom to choose, to trade, to engage in contract or to not, to earn or to not, to choose to compete to cooperate or not. Whereas government is about control, the opposite of freedom.
IMO, the two books that are likely to change the reader’s life are…
1. The virtue of Selfishness by Ayn Rand, and
2. The Government Against the Economy by George Reisman.
Both are somewhat short and sweet, and both are excellent.
If you’re interested, Mr. Reisman’s magnum opus is titled Capitalism. ‘Over a thousand pages of detailed explanation of everything to know about capitalism. ‘Not for the faint of heart.
Perry wrote “Human point?”
Automated push-button elevators date back to 1892, but the concerted effort to mass produce fully automated elevators for the public didn’t occur until 1948 when elevator operator UNIONS pushed for higher wages. Gone was the manually operated doors, gates and variable potentiometer speed control levers. And gone were the union employees who pushed for their own obsolescence.
“There is nothing new under the sun”
http://www.zerohedge.com/news/2014-01-12/meet-smart-restaurant-minimum-wage-crushing-burger-flipping-robot
I know, my grandfather designed automation systems, but it is unfortunate when state action is the driver for automating certain jobs into redundancy.
Yes, because customers prefer to buy things from humans than use those touch screens. But only up to a certain price.
Free enterprize has Capitalism as a subset of possible actions, but not the only one. You are also free, like the Salvation Army, to spend all you money on others. So let’s never assume that they are identical.
And ‘popular’ capitalism sounds more like populism than capitalism, just as ‘social’ justice sounds more like socialism than justice.
Oh, and a happy Bastille Day for yesterday, not! Aside from the French going power-mad and trying to ‘export’ their republican constitution at the point of a bayonette, it also didn’t do much for France- they didn’t embrace the Industrial Revolution until Britain had shown the way and gained the most advantage.
I sometimes speculate about what would our world be like now if Napoleon had conquered Russia, but not the British Empire. When he died, the Empire would also have broken up, since only someone like Napoleon could have held it together, but it would have been a Europe of kingdoms, like Alexander’s empire.
There was a steam powered bus built by free enterprise at the time of Waterloo, it failed due to poor design, but the idea was clever for the times.
“It must feel good to be pure. While others make messy compromises, the hardened ideologue, convinced he or she at all times has unique insight into a central universal truth, can sigh and shake their head at the supposed idiocy of those who think the world is a shade more complicated than that.”
Actually, it doesn’t. It’s a much easier, much more comfortable existence in many circles to just say “I think the poor should have £15/hr min wage” than to argue against it. Because at the most shallow level, it’s the nice option. It’s the one where you show what a sweet, considerate person you are. If you’re against a minimum wage, you will be attacked for being a bastard that hates poor people.
And what’s the compromise here? This isn’t like the laffer curve where you balance tax rates – too low and you don’t collect enough, too high and people stop working so hard. There isn’t an optimal minimum wage. Raising the minimum wage destroys jobs. It never creates jobs. The only people who get richer are people doing min wage jobs mandated by the state (like care home workers). And for those people, that effectively means that other tax payers pay them more. In other words, it has the same net effect as just lowering taxes on the poor or giving them some extra benefits.
At the same time, it will damage jobs the competitive sector. All over the country, managers will be pushing a new number into spreadsheets for the next 3-5 years. Sums will be recalculated and now, that capital investment is a penny cheaper than the staff costs, and a function where a customer calls in is now a function they’re offered on the website. Shops will roll-out more self-service tills.
Are we not confusing capitalism (which implies the existence of capital as a force) and free markets here? Capitalism is as close to free markets as we come, but I would argue that it will itself be the enemy of free market, as capitalism requires banks and corporations to function.
And in the respect that capitalism produces producer interests, Mr Osborne is clearly a capitalist, even if one inclined towards those producers (higher labour costs are a barrier to entry to markets remember).
That said, the Osborne budget has done one useful thing – it has shifted the territory of the debate so that it is not about state intervention versus capitalism, but about capitalism with limited state intervention (as done in the budget, and effectively accepted by most political parties who are not environmentalist nutters) against more freedom. He has in fact shifted the ‘middle ground’ towards free markets by simply removing the more populist planks of the alternative narrative. And this sort of shifting of the ficticious middle ground (which can only be an average of peoples views on a range of subjects…) tends not to go as designed – so it may in fact shift the whole debate to the free market side, as those opposed to it from a socialistic point of view are now mainly opposing out of principle (they have no strong arguments – strong here being taken as in their own terms, not mine – because their key planks have been removed), so the voices people here putting forward alternatives will more likely be those of the free market. Indeed, it is possible that Labour may even have to adopt a market-based approach to government to put together a coherent opposition narrative…
Optimistic maybe, and the budget is hardly great. But remember when dealing with arch-politicians like Osborne that they are thinking ahead – and are probably smart enough (sorry – these people are smart even if they are wrong) to not believe they can control all the effects. So bear in mind that when they do things like this, they are not only ambushing their political enemies, but will have an idea in which way things will fall afterwards. My worry is they will fall towards capitalism in its less free manifestations, but there are opportunities there.
This site has form,
Take a gander at this piece of cockspanking rentier nonsense
http://www.capx.co/there-is-no-uk-housing-crisis-and-there-never-was-one/
Just beggars belief, supply strangled by state fiat. Smallest houses constructed in Europe, new builds in Germany and the Netherlands are 50% bigger
http://www.telegraph.co.uk/finance/property/10909403/British-homes-are-the-smallest-in-Europe-study-finds.html
Nice one Joe B.
I wonder if it is possible to plot the growth of London and the growth of its house prices* (and sizes) against the growth of fiat money in the UK from, say 1910 onwards. Not that an economic law comes out of it, but an illustration of fiat money, green belt and planning laws all coming together to make a perfect storm.
Headline: “The Bank of England got rid of more housing space in London per capita than the Luftwaffe“?
* Not that it would be like-for-like, but still.
Watchman,
“He has in fact shifted the ‘middle ground’ towards free markets by simply removing the more populist planks of the alternative narrative.”
The problem with that sort of argument is that it’s the sort of thing that sketchwriters like Iain Dale and Guido Fawkes are about: the stupid schoolboy club of Westminster Village chicanery and gamesmanship that matters to them: who won at PMQs, who is seen chattering to whom. But it’s just silly, short-term games that pass very quickly.
Osborne might have knocked the wind out of the sails of Labour temporarily. He’s muddled what “living wage” means. But in concrete terms, what has he actually done? He has shifted the range of acceptable debate around the minimum wage leftwards. He should be at worst, sticking with the Low Pay Commission, next best, letting inflation get rid of it, best, scrapping it. His opponents won’t know do a 180 and want to scrap it. So, they will be distinctive by demanding an even higher minimum wage, because Osborne has given them the room to go even higher.
One horrible thing is that when the Credit Bubble economy collapses and the new “Living Wage” produces mass unemployment, people will be pushed into blaming “capitalism” and the “greed” of the “Tories”.
Recommended action?
Sadly I have none – after Mr Cameron and Mr Osborne understand politics and I do not.
We are similar ages (although I look much older) and look at my position compared to their positions.
Their misunderstanding of economics and so on (whether sincere or a pretence) has been highly beneficial for them.
Leading to great success in the world.
Ideas may be false, but wildly popular.
And if ideas are wildly popular (for example monetary expansion or increasing wages by issuing edicts) then it is to the advantage of people to believe these ideas.
Or to pretend to believe them.
Still I must not be paranoid.
There is no reason to believe that Mr Cameron and Mr Osborne do not sincerely believe in every policy they advocate.
After all they have been educated to believe these things.
The Stigler,
I’m not sure how this pushes the debate leftwards – the entire point of the living wage as presented was to use it to cut a dependency on state benefits, so now people either have to propose to bribe people with benefits and the living wage in some increased combination (the sort of offer that the British electorate tend to reject in favour of lower taxes) or concede the point (or come up with some other clever case – this is after all politics, which is an extension of real life…).
I can’t see the living wage is any different from the minimum wage in terms of political positioning (or indeed in the principle that both are undue interference in freedom of action), so there is no shift to the left from that point of view (towards more state control – it is only the level that has changed).
What has changed is that the idea that the government exists to supplement your income is being challenged. Although the government is now interfering in that income even more, this does not appear to be a major change so much as a balancing detail. I suppose this is perhaps an almost academic discussion, in that what actually counts is a variety of individual reactions to this now and in the future, but as I earlier acknowledged (unlike any Westminster-focussed writer I’ve seen) that the shift in the middle ground is purely a vaguely average view of what is acceptable changing, my comment acknowledges that – and although there is no tangiable value to a change in this, any change towards a point where employer, not state, is the provider of income is surely beneficial?
It doesn’t matter what the rationale was or is. The inescapable truth (from one who has actually owned and run a business) is that if you drive up overhead costs (of which salaries are a major if not the largest component), then prices must perforce be increased as well. If consumers resist the higher prices (by not giving you their custom) then you have to reduce the salary cost by hiring fewer people and making the others work harder and more productively (ironically, making the higher wages more justifiable — although that was not what the proponents of the higher minimum wage were seeking).
The economics texts which carry an unreserved recommendation: anything by Thomas Sowell, who is quite easily the greatest living economist. And he writes not in impenetrable jargon, but in plain English.
Sadly the ability to write in plain English is undervalued. Ideas expressed in plain English seem to lose some of their power. It is almost as though a large part of the population sees a dense wall of jargon and thinks “wow, I don’t understand it and therefore it must be incredibly clever and good”. Agree about Sowell, he is excellent.
I agree that this is just the minimum wage rebranded but one thing I do like about this policy, is if we are going to have a minimum wage (which apparently is not up for discussion in polite society at the moment) then I would much prefer this version. Which should have the effect of proving to everyone that minimum wage policies are job destroyers, rather than the version we previously had, which disguised the effect with all manner of tax credits etc., which increased the value of the minimum wage via the back door.
*sigh*
How is it that employer paid “free” health “insurance” came to be?
The seen and the unseen?
How many “anecdotal” travesties of (admittedly debatable) “unintended” consequences have to be
so thoroughly documented, and “peer reviewed”, before giving them a new “working title” is NOT enough for them to be “proclaimed” new ideas, with “potential unseen consequences”?
But the employers are getting something back, with even lower corporation taxes. Also companies are just one component to society they can’t have everything all their own way. They loved the old tax credit system as it meant supplied them with countless people willing to work for low wages as the state made up the difference. And the private sector moans about new restrictions on immigration as it means it can no longer (so easily) import cheap skilled labour from abroad.
Oh no maybe they have to start offering higher pay, or spending more on training and apprenticeships. Maybe some, in certain, companies will have to start employing English people again.
It is completely pointless to debate with people who think that prices (and wages are prices – the price of certain forms of work) should be determined by government edicts, rather than by supply and demand.
Such people worship force and reject reason – so trying to reason with them is (I say again) pointless.
“But Paul – when they see the mass unemployment they will change their opinions”.
No they will not – they will just blame “the rich” and “big business corporations”.
They worship force (violence), they reject reason.
Period.
As for the government pandering to such people by policies in which Mr Cameron and Mr Osborne do not believe – but think will be popular.
I have nothing polite to say about the government concerning this matter.
So I will stop here.
Paul Marks said,
Indeed, and this is brought into bas-relief when one attempts to explain the difference between voluntary gov revenue (like lotteries) and coersive armed theft by gov (taxation). They pretend to not understand the difference. It’s as if they’re in a cult and programmed to not see the difference between volunterism and a mugging. When John Doe proudly claims G-men committing armed “redistribution of wealth” as a moral high-ground, then we know that John Doe is not playing with a full deck. It’s like arguing with a creationist.