Samizdata

“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.

The story of rent controls has been the same everywhere they have been tried. Until they were abandoned, rent controls in Seventies Britain led to a catastrophic fall in the number of rented properties available, and they did nothing to stop unscrupulous Rachmanite landlords. Rent controls accelerated the woeful degradation of much of New York’s housing stock, and in so far as there has been a boom in New York property, it has taken place in housing not subject to rent controls.The Swedish economist Assar Lindbeck has said that rent control is “the most effective technique presently known to destroy a city – except for bombing”; and the reason he has come to that conclusion is that experience has shown that it is an idiotic way to tackle the problem of high rents.

– Boris Johnson, Mayor of London, and newspaper columnist.

I should add that one of the things I notice about Ed Miliband, the Labour leader – and many others who share Miliband’s views – is not so much ignorance of economics, as hostility to the idea that humans act as they do. The assumption seems to be that to bring about desirable objective X, one should pass a law to ensure X happens, and if it doesn’t, then evil intent has caused it. So, if you want to raise pay, you pass a minimum wage law decreeing that employers must pay staff so much money; if you want to hold down the cost of rentals, you pass a law banning landlords from pushing up rents above that level, and so on. And the fact that landlords and employees might alter their behaviour as a result or that unemployment and crap rental housing might ensue is the fault of evil people, not the forseeable result of interfering in the market. And on housing prices, as Boris mentions, the main problem is that supply in the UK is artificially suppressed by planning laws. (It should be noted that people of all political persuasions favour these, either for aesthetic or more narrowly self interested reasons.) But to admit that is, for the Miliband mindset, unthinkable: the State cannot have caused a shortage of something, surely! It must be because bad, uncaring people have somehow failed to provide enough housing!

To put it even more simply, with the Milibands of this world, we are dealing with the mentality of a child. Now, I don’t care whether Miliband looks or sounds odd, or is a tosser who knifed his brother in the back, so to speak, although I suppose these things do matter. What, at root, terrifies me about the idea of this fuckwit taking power is that he is a fuckwit, and alas, insufficiently self aware of his fuckwittery and inability to deal with reality. Or perhaps another way of seeing this is that he is an example of a mindset that goes back to JJ Rousseau and further back: the idea that what matters is that one is sincere, one cares, rather than reflect on the actual results of what one does.

The Labour Party has stirred up the usually rather complacent wealth management sector in the UK by vowing to end the so-called “non-dom” system under which a foreigner who wants to spend some time in the country can avoid paying tax on all his/her worldwide income and capitals gains so long as this money is kept outside the UK. If such a non-dom has lived in the country for seven years, they must pay an annual levy and depending on the duration, that annual levy is as high as £90,000. A study by University College, London, published in 2013, concluded that the system brought in more revenue for the UK than was being lost by the absence of such a system.

At face value, the non-dom system might look like a great deal for a person who is worth tens of billions of pounds, dollars or whatever and who “only” pays several thousands per year to live in the UK. But if such a person’s wealth has been largely generated outside the country and is kept outside it, what is unfair about this position? If Mr Stinking Rich brought those billions to the UK, he would have to pay a thudding great tax bill. Ed Miliband, leader of the Labour Party, must know that, or if he doesn’t, he is being reckless. The whole idea that a person should pay tax to the country of his/her birth regardless of having not lived there for a period – as is the case with the odious worldwide US tax regime – cuts against the idea that one should pay taxes that focus on where you actually live.

Matthew Sinclair has a good piece here on the issue.

From a point of narrow party politics, I suppose Ed Miliband and his colleagues think they are being clever at playing the class war card and hope to trap opponents by having to defend the non-dom system. I notice that whenever a weapons-grade knob such as Miliband makes such a crowd-pleasing proposal, it is seen as a “trap” and that therefore the other side are told that it isn’t wise to oppose it. But this sort of cowardice-as-a-tactic approach merely favours the bully. A braver, and ultimately better, argument is to state that it is in the UK’s interest to encourage internationally-minded investors and entrepreneurs (so long as they are not criminals and jihadi nutcases) to come to the UK and enrich themselves and everyone else. To pander to the zero-sum, dog-in-the-manger mindset of Miliband and others is also foolish.

There is also a broader point to be made here: such attacks represent, at the margins, part of a rollback of globalisation, of the free movement of capital and people, a process from which London, as a global financial centre, has been a mighty beneficiary.

Far too many people in the banking and financial markets more broadly have fought shy of voicing their concerns about the demented nature of so much “banker-bashing” and attacks on inequality recently. Consider the respect granted to Thomas Piketty’s fatally flawed claims about inequality and his call for draconian taxes on capital. It is sometimes stated – I heard such a statement recently at a gathering – that “neo-liberals” (ie, classical liberals) have “won” the argument and that we now need to move on. How complacent that is. The arguments for freedom and capitalism are being lost in the UK, or at the very least, they aren’t being made very effectively.