Stumbling and Mumbling

Slavery, and inheritance

Some of the arguments of the last few days have strengthened my support for inheritance tax. Here's what I mean.
1. The communitarian argument: sharing our historical legacy. Calls for the UK to apologize for the slave trade rest upon the idea that we have significant links with our ancestors, by virtue of our shared membership of society. Some who oppose such calls claim variously: that slavery did not leave such a bad legacy; that the UK spent a fortune restricting the slave trade after 1807; that some Africans were slave masters or traders themselves; and that there were countless other historic injustices - enclosures, highland clearances, child labour, exploitation, state-sanctioned monopolies and price-rigging.
What both sides here agree upon is that wealth and poverty today are the result of history.
For me, this gives us an argument for inheritance tax. It's wrong that some should benefit today because of past injustices. And the principle of insufficient reason suggests that, as we can't identify  precise winners and losers, we should tax inherited wealth and redistribute it equally.
It's a way of acknowledging that we are a society which is shaped by the past.
2. The atomistic argument; people are independent of history. Others who oppose apologizing for slavery do so on individualistic grounds; it's just dishonest to apologize for  things we personally have not done.
This too suggests a case for taxing inheritances. After all, if you've no connection with your forebears, how can you complain when you don't get their money? Longrider, who's expressed the individualist argument well says: "I plan to keep what I’ve earned."
But don't think  you can keep what others have earned.
3. "You can't blame people for their past." The Conservative Party Reptile and  Mary Ann Sieghart agree that  we shouldn't hold it against David Cameron that he comes from a privileged background. Mary Ann says:

Since nobody chooses their parents, it is as unfair to tease someone about their class as it is to pick on them for being black or ginger-haired.

But why is the above statement correct but the following one wrong:?

Since nobody chooses their parents, it is as unfair to allow someone to be wealthy because of their class as it is to allow them to be poor because they are black or ginger-haired.

If we shouldn't impose costs upon people because of something they are not responsible for, why should we tolerate them getting benefits? Again, there's an argument for inheritance tax.

Genes matter

What matters more: nature or nuture?  Here's a fantastic paper (pdf) that  gives an economic perspective.
Everyone agrees that there's a strong correlation between parents' socioeconomic status and that of their children in later life. But does this come from genes (wealthy parents have "good genes" that they transmit to their kids) or environment (wealthy parents encourage schooling and give children confidence to learn and get good jobs)?
To find out, the authors looked at the link between parents' years of schooling and childrens' years of schooling for children brought up by their biological parents, and those brought up by adoptive parents.
If genes were all that mattered, you'd expect the education of biological parents to affect children's outcomes whether they were adopted or not. If nurture were all that mattered, you'd expect biological parents' education to have no effect on the outcomes of adopted children.
So, what did they find? That biological parents' education mattered even for adopted children.
For adopted sons, an extra year of biological fathers' education added 0.12 years to their own education. This is over half the effect (0.2) of sons raised by their biological fathers. And it's bigger than the coefficient on the adopted fathers' education (0.08).  Biological mothers' education has twice the effect upon adopted sons' education as adoptive mothers' does.
What's more, the effects of biological fathers' education upon adopted sons' earnings are twice as big as the effects of the adopted father's education.
The message here seems to be that pre-birth factors (including genes) are more important than upbringing.   
And here's the punchline. The data come from Sweden, where the government has traditionally made more effort than most to raise the life-chances of people from poor backgrounds. Draw your own inferences. 

If I were PM...

A reader emails some interesting questions:

If you woke up one morning as Prime Minister, would you end up just like our current lot of leaders? Would you react to the same incentives as them? Would you turn to spin rather than go to all the effort of implementing good policies?

The force of the questions arises from the fact that power can enslave rulers. But it's not just institutional pressures that give us the politicians we have. There are also selection effects -  politicians, by definition, differ from me because they've chosen a political career and I haven't. These differences mean I might be a different PM, in four ways:
1. I'd reject mediacentrism, and communicate directly with voters via the web. My hunch is that the belief in the importance of the MSM is a fragile illusion; everyone believes it merely because everyone else does.
2. I don't believe in a perfectible world. So I wouldn't offer to manage away all problems or respond to each passing MSM-inflated public panic. And I certainly wouldn't pretend to be the public's friend. Instead, I'd focus on a handful of important issues: tax and benefit reform; abolishing useless government agencies and functions; turning schools and hospitals into co-ops; reforming the exam and electoral systems.
3. I've less ego than the average politico, and no interest in foreign affairs. So I'd be less likely to be distracted by world matters; my foreign secretary would have a lot of autonomy.
4. I don't want to be popular - which is just as well - or powerful. So I'd not worry about opinion polls, or even about elections.
And herein lies the problem. I would be unaccountable. Add to this the fact that I'd be much less driven and motivated than the average politician, and it's not obvious I'd be a better PM.

Big government=bad government

Government has become so incompetent that it cannot even give money away. That's the message of this report from the Environment, Food and Rural Affairs Committee, which reckons the failures of the Rural Payments Agency could cost £500m.
The report says:

A culture where ministers and senior officials can preside over failure of this magnitude and not be held personally accountable creates a serious risk of further failures in public service delivery.

This, of course, is not a forecast - we've already had countless failures in public service delivery.
What's the solution? Wat advocates more Tesco government.  But this raises the question: if ministers are only appointed after they've proved their competence, how will we ever fill the jobs?
I suspect all this merely vindicates the prediction made by John Stuart Mill back in 1848 - that big government is bad government:

Every additional function undertaken by the government, is a fresh occupation imposed upon a body already overcharged with duties. A natural consequence is that most things are ill done; much not done at all, because the government is not able to do it without delays which are fatal to its purpose; that the more troublesome and less showy, of the functions undertaken, are postponed or neglected, and an excuse is always ready for the neglect; while the heads of the administration have their minds so fully taken up with official details, in however perfunctory a manner superintended, that they have no time or thought to spare for the great interests of the state, and the preparation of enlarged measures of social improvement. (Principles of Political Economy, Book V, Ch11 para 8)

I'd like supporters of Polly Toynbee to note the last clause. If they do, there's a faint chance that thinknig about the role of government might progress more in the next 159 years than it has in the last 159.

Incentives for the long-term

It might take decades for changes in incentives to affect behaviour. This is the thought prompted by Bryan Caplan's question: "Did tax cuts in the '80's spur Internet entrepreneurship twenty years later?"
I'd add other ways in which there might be long lags between changes in incentives and behaviour:
1. One reason why New Labour has been so keen to reduce the numbers of workless households is the belief that if children grow up in homes where neither parent works, they'll believe it's normal to be without work, so they won't look so hard for it when they grow up. Reducing worklessness, it thinks, can therefore raise labour supply in 10-20 years time.
2. Incentives  can affect social norms slowly, as Assar Lindbeck argues here (pdf). For example, if a society has a strong work ethic, the introduction of sick pay or high marginal taxes might not reduce labour supply much immediately. But as the generation with a strong work ethic retires and is replaced by one more accustomed to generous sick pay and high tax, labour supply might fall.
3. In the 1980s incentives  (and opportunities) to work in the public sector fell relative to incentives to work in the private sector. The upshot is that many people of my generation (early-mid 40s) who would have become academics or  civil servants in earlier times went into the City. This might have created a supply of entrepreneurs and hedge fund managers that would not have existed otherwise.
My hunch is that changes in incentives are much more important in the long-run than short-run.
But that's all it is - a hunch. As Bryan says, it's hard to say for sure using formal empirical methods . And this raises a question. Why, when the full effects of policies are so uncertain, are so many people so dogmatic about their likely effects? Are introspection and common sense really sufficient to justify strong beliefs?

Wisdom in crowds?

Just how wise are crowds? We might be about to find out the hard way.
Todays figures (table I of this pdf) show that net household borrowing - borrowing minus savings - hit a record high of £10.15bn in Q4.
Granted, this is partly payback for low borrowing earlier in the year. Even so, net borrowing in 2006 was 2.1% of GDP. Though less than in 2004, this is comparable to what we saw at the peak of Nigella's dad's boom in 1988.
There are two flatly contradictory ways of interpreting this.
1. It's a vote of confidence in the future. Consumers are borrowing because they anticipate higher incomes in future. This is one implication of the permanent income hypothesis and wisdom of crowds thesis.
2. It's a sign that consumers are feckless and irresponsible. When the bills come in, they'll have to curb spending, possibly causing recession and falling house prices.
The empirical evidence here is ambiguous. High borrowing in 1988-89 did indeed lead to falling spending and house prices, and the improvement in household finances in the early 90s led to stronger spending.
However, before 1988 and since the mid-90s, the link between net borrowing and subsequent moves in spending or house prices has been weak.
We're therefore thrown  back onto our  prejudices about the wisdom of crowds.
And a big issue here is: are individuals' irrationalities correlated or not?
The wisdom of crowds hypothesis assumes they are not, so for each spendthrift, there's a miser. Which raises the question: what sort of mechanisms can cause irrationally high spending to become correlated across people? How strong are they?
In this sense, macroeconomic forecasting is an issue in crowd psychology.

Poverty: always with us?

Yesterday's news that the numbers of children living in poverty rose last year (p19 of this pdf) prompts this  statement at the Difference magazine:

By the very definition of relative poverty there will always be poverty.

This is plain false. The definition of relative poverty is such that it can be eradicated almost overnight. By simply setting benefits equal to 61% of median equivalized household income (the poverty line is 60%), you could lift everyone out of relative poverty in theory. The only problem would be the administrative one of ensuring benefits were taken up.
There's only one legitimate reason why the government doesn't do this - it fears that such high benefits, and the taxes required to pay for them,  would reduce work incentives and so cut average incomes. People would then be absolutely poorer, but there'd be no relative poverty. If everyone lived on a dollar a day, there'd be no relative poverty at all - by definition.
The Difference goes on to make another strange claim:

The more significant question...is not whether everyone has equal wealth, but whether everyone enjoys equality of opportunity. That surely is the definition of true poverty.

Now, it's trivial that we are a long way from equality of opportunity. What's more, it is impossible to achieve equality of opportunity - though we can easily make great strides towards it - without a horrible loss of liberty. True equality of opportunity requires that no parents gives their children more advantages than others. This would require the state to criminalize good parenting.
So, the Difference has got it 100% wrong. Relative income poverty can be abolished easily - albeit at a cost. It's genuine equality of opportunity that's impossible to achieve.

Does punishment deter?

Blair's review of crime policy proposes more non-custodial sentences but not, generally, tougher punishments. It's probably an accident, but this has some economic justification, because tougher punishments might not deter.
The reason for this is simple. It's expensive to impose tough sentences; it costs around £40,000 a year to keep someone in stir, and £100,000 to build a prison cell.
Because it's costly to impose sentences, criminals might believe the government won't enforce them. And this expectation of less enforcement might raise crime, thus offsetting the tendency for tougher penalties to  deter it. This point was originally made by George Tsebelis, but it's expanded in this recent paper (pdf) by Rimawan Pradiptyo.
It's easy to see how there's a trade-off between punishment and enforcement. When sentences are long, prison overcrowding leads judges to let criminals off. In the 18th century when people could be hanged for trivial offences, juries were reluctant to convict. In Islamic law, serious  punishments are only inflicted after very high standards of proof are met.  By contrast, lighter punishments can be more rigorously enforced, because it's cost-effective for the enforcer to do so - look at speeding fines.
There's another way in which tough sentences can raise crime. Sending drug-dealers to prison for a long time raises the monopoly profits of other dealers, thus increasing incentives to deal.
These considerations suggest longer prison sentences might not be cost-effective, so the government is right to consider cheaper options which increase the probability of enforcement.
This doesn't, however, mean the review is entirely valid. For one thing, one form of cheap punishment - corporal punishment - is not even considered, despite its theoretical appeal. And for another, the spread of non-custodial sentences, use of special units for mentally ill prisoners, asset seizing and attempting to identify criminals in advance represents an extension of the illiberal managerialist-therapeutic state.

Apologizing for slavery: a puzzle

Should Britain apologize for its role in the slave trade? There's something about this that puzzles me.
Put it this way. Crudely speaking, there are two conceptions of society.
1. We're just a collection of atomized individuals. Though associated with libertarianism, this is also the Rawlsian view.
2. Society is an organism with a history. It's a "partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born." The quote is Edmund Burke's, but this position seems also that of Gordon Brown, who speaks of a "golden thread" running through history.
Now, you'd expect adherents of position 1 to think it absurd to apologize for slavery, as Longrider does. But supporters of position 2 would be more likely to apologize, because they regard slave traders as a part of British society and tradition.
However, when we look at who's apologizing and who isn't, we see no such correlation. I'd guess that Ken Livingstone would favour the atomized conception over the organic one, but he's apologized. But Simon Jenkins, who I'd expect to have more sympathy with the Burkean view, rejects the apology.   
This isn't, I suspect, a mere quirk of these two men. I suspect Rawlsian liberals are more likely to want to apologize than Burkean conservatives.
Sadly, I suspect there might be an easy explanation for this. Livingstone (and other "liberals") wants to curry favour with ethnic minorities.  Tories don't want to draw attention to the fact that their inherited wealth is dirty money.
Crude self-interest beats intellectual consistency.

Alan Johnson inverts Marx

Alan Johnson's proposal to extend the school-leaving age to 18 is being widely criticized. What's not been so much noticed is that this idea rests upon a particular assumption about human nature, and an inversion of Marxism.
The assumption is that all people have "potential", an an innate capacity to be more than the unskilled drones they'll be if they leave school at 16. Everyone, therefore, can benefit from education or training.
This assumption isn't one of Alan Johnson's idiosyncrasies. It underpins much New Labour thinking and policy - for example in expanding higher education, and in setting up Sure Start.
Brown is especially keen on the idea:

Our history is the story not just of great creative genius in action, but of men and women of talent or even genius who might have been so much more: poets, philosophers, scientists doctors inventors but were forever denied the freedom to develop their potential.
Perhaps in a pre-industrial or an industrial society we could afford to disregard that loss; but in a post industrial society where what gives you competitive advantage and wealth is your creative ability, prosperity will depend upon our ability, through investment in education, to tap the potential and bring out the best not just in the few but the many.

This vision of human nature can be found in Marx. Perhaps his main objection to capitalism was that it stunted human nature:

Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole. (Capital vol I ch 25 sec 4)

And this is where New Labour inverts Marx. To Marx, it was the capitalist system itself that was responsible for preventing people realizing their full potential. New Labour, however, seems to think people themselves are responsible for this failing - hence the plan to force them into training or schooling.
This inversion of Marx is, I think, false. Whether it is or isn't, it has two unpleasant effects.
First, it's illiberal. Rather than aspire to liberate people from capitalism's worst features, New Labour ladens them with extra burdens.
Second, it's inegalitarian. The natural effect of holding people responsible for developing their potential is to respect more those who have developed it. The upshot is a cringing deference towards "distinguished" people, a faith in experts and managers, and a distinction between "VIPs and ordinary people", to use Fatty Falconer's expression.       
In short, what New Labour's conception of potential forgets is this:

Just because someone doesn't have any formal qualifications does not mean they are a bad person or are a deadweight on society, they can still an active and important role in society.

So says the Reactionary Snob - who on this point is more egalitarian than New Labour.
Which goes to show that when the Left abandons Marxism, it becomes just mushy anti-egalitarian drivel.