Stumbling and Mumbling

House prices and the dollar

The Beeb reports that UK house prices are rising sharply and that the pound has hit a 14-year high against the dollar. What it doesn't say is that these two facts are related. Our chart shows that there's a strong correlation (0.53, R-squared = 28% since 1995) between annual changes in the $/£ rate and relative house price inflation in the two countries.
When UK house prices rise relative to the US's, sterling tends to strengthen against the dollar. There's probably a simple reason for this. When house prices rise, so does wealth (house prices are a measure of permanent income) and hence the demand for money. And rising demand for money should strengthen a currency.
Most pundits reckon UK house prices will continue to rise relative to US ones for a while; this is the message of strong UK mortgage approvals and the high inventory of unsold US houses.  This suggests the dollar could continue to weaken.
Personally, I'm surprised by this, and a little sceptical. Exchange rates can't be this predictable, can they?

Muggers' motives

Muggers, it seems, are motivated by fun rather than money. The Devil’s Kitchen reads this as evidence that Polly is wrong to claim that poverty causes crime.
I’m not sure. Put it this way. I’d find it fun to beat up public schoolboys or Guardian writers in the street. But I don’t do it. This isn’t because I’m a decent person. It’s because the cost of getting caught would be high for me, as I’d lose a well-paid job and prison would entail a significant loss of utility.
By contrast, someone in poorer circumstances might well feel that the fun of the attack outweighs the cost, as he’s got less to lose.
In this sense, poverty causes crime, even if the criminal is motivated only by kicks rather than the desire for his victims’ money.
Here’s a nice discussion of the notion of rational criminals. It was well put by the vastly under-rated Slaid Cleaves, in his song Something to Lose:

Give me something to lose
Give me something to live for
I’ve done my time and I’ll do the crime
Until you give me something to lose.

Strictly speaking, of course, Slaid is wrong. Even if poverty does cause crime, it doesn’t follow that relieving poverty is the best way to reduce crime. Maybe it would be cheaper to put criminals in the pillory.
The case for relieving poverty lies elsewhere.

Plato, Machiavelli and the status quo

Daniel Finkelstein makes a profound point here, without either justifying it adequately or drawing the right conclusion. He says:

Politicians who offer sharp departures from current practice are often seen by voters as threatening, even if the very same voters could later be persuaded by a governing party that the very same policies were a good idea.

This is true, but probably not for the reason he gives. Voters’ preference for the status quo probably owes less to anchoring than to, say: the endowment effect; loss aversion; the mere exposure effect; or pseudo-certainty.
Whatever the reason, Daniel is hinting at a deep truth – that practical day-to-day politics consists in the manipulation of people’s irrationality.
This means there’s a dichotomy between two questions – think of them as the Platonic versus the Machiavellian.
One asks: how should we be governed? The other: how can we win power?
The two questions are very different.
It might save some confusion if readers remember that I am only interested in the Platonic question, whilst the dead trees and some popular blogs seem interested only in the Machiavellian one.

Relative poverty vs inequality

Here’s a question about poverty and inequality.
Imagine three people with the following incomes:
A = 50
B = 100
C = 200.
If we follow the convention and define relative poverty as an income less than 60% of the median, A is poor.
Now imagine 30 units are taken from B and given to C, so the new distribution is:
A = 50
B = 70
C = 230.
Relative poverty has been eradicated – no-one’s income is below 60% of the median.
But is this society really better than our original one?
If your only interest is in relative poverty – as Cameron claims – the answer is yes.
But if you care about inequality, the answer’s no.
So, which is it, and why?
Don’t duck the question by claiming that the example is impractical. I’m interested in the theoretical point, of whether we should care more about relative poverty or inequality.

Brown vs Hayek

Yet another complaint I have about Moving Britain Forward is its ignorance of both Hayek and the possibility of government failure. This comes across in a chapter based upon this speech, on the question of what should be the relative roles of market and government provision of public services.
He devotes lots of attention to market failures such as imperfect information and barriers to entry. These failures, he says, justify state provision of health services.
There are two possibilities he doesn’t mention:
1. Markets are not merely technical devices for maximizing welfare, in the Arrow-Debreu sense. Instead, as Hayek emphasized, they are discovery mechanisms (pdf via here), devices for discovering facts that would previously be unknown. This means we simply can’t predict the consequences of introducing markets into public services – because the point of markets is that they find out new things.
2. Governments fail as well as markets. Brown tells us that there’s a risk of abuse of monopoly power in the private. But there’s also this risk in the public sector. This leads to an obvious absurdity. Brown says:

Because the costs of treatment and of drugs are now much higher than ever, and the risks to family finances now much higher than ever…the need for comprehensive insurance cover of healthcare is much stronger than ever.

Brown thinks this is an argument against private insurance. What he fails to say is that the state itself sometimes refuses to pay for costly treatments.
His juxtaposition of failing markets versus perfect state provision is just a fiction; the question is one of imperfect markets versus imperfect governments.
What’s annoying here is that Brown just doesn’t even consider Hayek’s view of markets or the possibility of state failure. He’s as ignorant of Hayek as he is of Oakeshott.
This matters, because Hayek provides probably the strongest arguments of all against Brown’s centralizing tendency.
That Brown fails to even show any awareness of his thinking suggests that he is scared to have his own ideas challenged. As I said, his supposed erudition is merely the search for support for his own prejudices.

 

A 1980s throwback

Here’s a letter of quite staggering imbecility in the Times:

The Conservatives now wish to eradicate “relative” poverty, defined as those living on less than 40 per cent of average incomes. Simple arithmetic shows that, as you increase the incomes for the relatively poor, the average income would rise, promptly putting some back into the relatively poor category.

There are at least two errors here. One is that relative poverty is defined an income below some fraction of median income. And the median doesn’t change just because the incomes of the very poor rise.
And many would argue that raising the incomes of the poor would reduce average (mean) incomes, because they imply higher taxes upon the rich, who would reduce their labour supply.
Of course, imbecilic letters to newspapers are common.  What’s revealing about this is that it purports to come from Lord Young of Graffham, a Cabinet minister in the Thatcher government. If this is true, it just reminds us how crassly ignorant some Thatcherites were. It's almost enough to make me believe in progress.

Costing Blair's managerialism

Here's a marvellous article by Bryan Appleyard on how management consultants have ripped off the tax-payer. The conclusion:

The whole thing has simply been the result of a collective delusion: that there are quasi-scientific, objective ways of managing human affairs that transcend all considerations of culture, ethos and environment. Consultants sold this lie, government bought it, and we’re paying for it.

Here's the book the piece draws upon. Another book criticizing New Labour's managerialism will be published in the spring.

Immigration vs indigenous births

If we're going to restrict immigration, shouldn't we also stop some people from having children?
I ask because there's a close parallel between immigration and indigenous births. Both increase the labour supply, which could (arguably) force down wages. And both introduce into society someone who might over a lifetime be a net cost to the rest of us.
So, if we're going to restrict one, why not restrict the other?
One reply won't do - that we can better predict which immigrants will be a drain on the tax-payer. New Labour thinks we can also predict the indigenous births that will be costly:

Tony Blair has said it is possible to identify problem children who could grow up to be a potential "menace to society" even before they are born.

Low skill and criminality, he's said, are "often passed down the generations."
And remember - the costs to society of indigenous births can be much larger than that of immigrants, as we don't have to pay to put the latter through school.
Nor is it clear that arguments about liberty justify a distinction. Liberty suggests a case for free immigration - people have a right to live where they want, hire whom they want, and choose the tenants they wish. But it's not obvious that there's an equally strong case for giving people unrestricted freedom to breed, as this is an other-regarding action. John Stuart Mill was clear on this: 

The fact itself, of causing the existence of a human being, is one of the most responsible actions in the range of human life. To undertake this responsibility—to bestow a life which may be either a curse or a blessing—unless the being on whom it is to be bestowed will have at least the ordinary chances of a desirable existence, is a crime against that being. And in a country either over-peopled or threatened with being so, to produce children, beyond a very small number, with the effect of reducing the reward of labour by their competition, is a serious offence against all who live by the remuneration of their labour. The laws which, in many countries on the Continent, forbid marriage unless the parties can show that they have the means of supporting a family, do not exceed the legitimate powers of the State.

You might think there's an argument from practicality. It's just wildly impractical to stop the underclass from breeding. Maybe. But it's also expensive to curb immigration. It costs £1.6bn - and rising - to try to do so, and with limited effect.
Now, I'm not calling for the state to limit births. All I'm saying is that advocates of immigration control should - if they wish to be consistent - consider controlling indigenous births, because there are parallels between the two.
In fairness, the Stupid Party has seen this. Its recent document (pdf) on immigration said "we should certainly consider" "a wider population policy" (p30).

Brown and the halo effect

There are two other things I don't like about Moving Britain Forward. One is that each chapter is introduced by some pompous bigwig: Trever Phillips, Al Gore, Alan Greenspan, Kofi Annan and the like. It seems Brown needs the endorsement of the supposedly "great and good" to create a halo effect.
Also, there is nothing in the 274 pages of the tome that even looks like a joke or witticism. Brown is hoping that by being boring, people will think he's serious.
These two failings are related. Brown is terrified of letting his thoughts speak for themselves, or his arguments stand on their own merits. So he needs other tricks to persuade the reader, sub-rationally, that he is a credible figure.
He is, of course, right to be terrified. He's an insecure man, with much to be insecure about.
Another thing: one of Brown's endorsees is someone called Lord Ralf Dahrendorf. This is, of course, a solecism. Only younger sons of Dukes or Marquesses prefix their first name with "Lord". Dahrendorf is not one of these. In a book praising the "golden thread" of British history, the error jars.

That caravan metaphor

You should never argue from a metaphor, only to one. The Stupid Party's adoption of Toynbee's caravan metaphor shows the truth of this advice:

I described society as a caravan moving across a desert. All may move forward, but how far behind do the poor at the back have to fall before they cease to be part of the same caravan at all?

This metaphor fails for at least five reasons:
1. We care about people at the back of the desert caravan because if they fall far behind, they face a certain death. No such fate awaits the poor in the UK.
2. The UK is not an enterprise association in which we are all travelling in the same direction with a common purpose.
3. Why should I privilege my caravan above others? Why should I want to help a Scouser more than a Somalian? Toynbee verges towards the racist in caring more about the British poor than other poor people.
4. The metaphor assumes that there is a stable rank order, so some are always at the front and others always at the back. But this is not true, at least for many of the poor. There's a lot of mobility between the very poor (having no job) and the poor (having a low-paid, insecure job). One problem the poor have is that, in (relatively) good times they are unable to insure themselves against bad times - because they are taxed heavily, robbed by the rich, or simply lack the means to insure against unemployment.
5. The caravan metaphor invites us to think of the poor as weak or slow and the rich as strong and quick. This is a foul lie. Toynbee and Cameron are at the front of the caravan not because they have any skills, but because they have rich parents. At best they're just lucky and the poor are unlucky. I say "at best" because in truth, some people are at the back of the caravan because those at the front have stolen their camels. The poor are poor partly because the rich have - down the centuries - arranged that this be so. They stole the property of the poor, arranged that they get bad education, exploited them in work, benefited from rent-seeking in the state and in companies, and constructed an ideology which says that the rich need big wages to attract and motivate scarce "skills."
And herein lies the biggest weakness of all in the caravan metaphor. It perpetuates the illusion that the poor need help. Most of them don't. They need justice.