Stumbling and Mumbling

Do we deserve a good start?

Graham Brady complains about the lack of grammar schools:

Thousands of young people are being deprived of the start in life that they deserve. Politicians owe it to the public to get angry about this appalling state of affairs.

But why is it appalling that talented people don’t get opportunities? Two separate lines of thinking suggest it isn’t.
Line one is the utilitarian objection. This says that most people adapt to their circumstances, with the result that differences in well-being are small.
This paper (pdf) explains. It shows that people with high education and high income are happier than others. But the difference is small. It’s only around one point on the 36-point Likert scale. To put that in perspective, three-quarters of the population fall between a score of 20 and 30.
The loss of happiness caused by depriving people of opportunities is therefore small – as is the gain from giving them opportunities.
My biography corroborates this. I’m exactly the sort of person Graham thinks benefited from a grammar school; mine took me from a poor single-parent family to Oxford and thence to a highish income. But this came at the price of social isolation. Grammar school certainly raised my income, but I’m not sure it raised my well-being; the happiness literature suggests that marriage and friends (pdf)  matter more for well-being than quite large incomes.
You might object here that adaptation is an argument against many policy reforms; if people adapt to their circumstances, these will have low pay-offs. True – but this is an argument Conservatives have used for centuries. It’s ironic that they’ve begun to abandon it just when empirical social science has produced evidence for it.
The second line is the libertarian one. Why should tax-payers be coerced to pay for what a talented youngster deserves? We could add the Rawlsian argument – that as people don’t deserve their natural talents, they don’t deserve what flows from them, such as a grammar school education.
Put it this way. Say my innate talent at age 11 entitles me to a chance of good education and the great wealth that possibly flows from it. Why, then, shouldn’t my talents entitle me to the full fruits of my labour thereafter. Why should I have a right to an opportunity – paid for by coercing others –but not a right to an income paid by voluntarily by my employer? There’s an inconsistent attitude towards self-ownership here.
So, to support Graham’s position you must be neither a Rawlsian, nor a libertarian, nor a utilitarian. So what must you be?

Endemol's opponents: wrong

There's something that stinks about Endemol's programme  in which a dying woman chooses whom to give a kidney to.
No, the stink isn't the programme itself. What stinks is the sanctimonious hypocrisy of Endemol's critics.
There are four things I object to here:
1. The careless use of the word "unethical." Many seem to mean by this: "eek, I don't like it." It's unreflecting emotivism.
2. Their failure to recognize liberty. You might object that it is wrong for programme makers to exploit the desperation of people who need a kidney transplant. But these people benefit from appearing, because there's more chance of getting a kidney from the programme than there is from the ordinary waiting list. Why should anyone complain about the free decisions that people make, which make them better off?
3. "Shooting the messenger." Tom Watson says Endemol is "sick." No, Tom. What's sick is that people are dying because of the shortage of kidneys - a shortage exacerbated by the refusal of our managerialist rulers to consider using markets. Endemol is merely publicizing this fact. Whilst there is such a shortage, kidneys have to be rationed somehow. In practice, this means doing so by luck and by medical protocols that discriminate against the mentally ill. It's not obvious that rationing according to popular vote is much worse than this.
4. Closed minds. Endemol raise genuine and important issues: how can we increase the supply of kidneys and how should we allocate scarce ones? These questions deserve consideration. But then, so many people prefer glib judgmentalizing to serious thinking.
None of this, of course, is to defend Endemol. They're doing it just for the money. But we've known ever since Adam Smith that, sometimes people who are motivated by money can inadvertently do good. 

Seeing what we want

Last month, Patricia Hewitt said it was "completely untrue" that the NHS is using maternity support workers to do midwives' jobs. And it looks like Patsy was wrong, corroborating the allegation that she's the English Comical Ali, living in a world of her own.
But I don't think we should be too hard upon her. All of us have a tendency to see what we want, for (at least) three reasons:
1. Wishful thinking. It's natural to look on the bright side. There's always a frisson of excitement at a football ground when the quick winger gets the ball in space, even though history tells us he'll end up on his arse with the ball in row Z. 
2. Ego-involvement. The moment we say something, it becomes our opinion and we look for corroboration of it. Economists who have forecast economic recovery often see more evidence later of recovery than do economists who have forecast recession.
3. Framing. We tend to see what we expect. I suspect quite a few of you misread the words in this triangle, suggesting a failure to see even basic English. And if our expectations are formed in part by ideology, and not just experience, the difficulties will be even greater.
All these problems  afflict us in everyday life. But they are magnified in a hierarchy, as subordinates have countless reasons to withhold information from bosses: they don't want to rock the boat, trouble him with unimportant detail, look like failures themselves. The upshot is that bosses end up living in imaginary worlds, believing their own Powerpoint presentations.
So, what's the solution?
Replacing hierarchy with markets is only part of the solution. Even in financial markets, where competition is intense, "noise traders" don't get eliminated quickly - if at all (pdf) -  by their smarter rivals.
For me, then, Hewitt is not to be criticized for being stupid; we all fall short of perfect rationality (whatever that is). Instead, she is to be criticized for pretending that she's not.

Religion in egalitarian politics

Johann Hari raises a tricky question. Writing of Brown’s “social Christianity” as the basis of his commitment to egalitarianism, he asks:

I think faith is a dangerous form of bad thinking - it is believing something, without evidence or reason to back it up….Yet at the same time, when there are so many Murdochian pressures on a British Prime Minister dragging them to the right, pressing him to fellate the rich, isn't it good to have a countervailing pressure to help the poor - even a superstitious one? If religion drives Brown's best instincts and whittles down his worst, should we still condemn it?

I say yes. It’s just incoherent to use religion to argue for equality, into three senses.
First, religious-based arguments don’t permit the possibility of persuasion. If a Christian says: “the Biblical prophets tell us to help the poor” an opponent could reply: “the Bible has no authority, as God doesn’t exist.” And the debate stops there.
Redistributive policies then become merely a way of the Christian imposing his private beliefs onto others. Other people therefore become tools of his own will, rather than moral agents in their own standing, with beliefs of their own which we should address. This is an odd thing for an egalitarian to do.
Secondly, religiously motivated arguments assume that one party has superior access to a “truth.” This surely is a strange thing for an egalitarian to believe.
Thirdly, religious appeals undersell equality, as there are countless secular ways to argue for it; see here and the papers collected here.
I should stress here that my beef is not with religion as such. It’s about the role it should play in politics. In an egalitarian polity, in which people should be persuaded rationally of policies, religion should have no place – even if it is true. Religion might motivate political beliefs, but it shouldn’t, and needn’t, be the public justification for them.

For openness

With some honourable exceptions, people have been sufficiently critical of Alastair Darling’s opposition to freedom of information. He writes:

The FOI Act, as it appears, prevents us from protecting robustly and across the board advice from officials to Ministers. Here again we should be able to guard more effectively against the incremental harm to the policy development process that must inevitably arise from the disclosure of individually innocuous submissions.

But why should openness harm the development of policy?
Put it this way. Why has scientific knowledge progressed so much in the last 350 years? It’s because the process of discovery is open. Ideas and results are published and so can be widely criticized or built upon. How would limiting disclosure increase the growth of knowledge?
Indeed, even bad ideas can be useful. Take an absurd extreme: an advisor suggests that the best way to reduce packaging is to nationalize supermarkets.
Even this advice is useful, because a considered rejection of it would remind us of the benefits of secure property rights, the efficiency of private ownership, and that taxation or regulation are superior to state ownership.
Useful reminders.
So why would it be a bad thing if such advice were published?
The answer, I guess, is that a headline “Government considers nationalizing Tesco” would seem embarrassing.
But of course, the government would have done no such thing: the true story would be the rather duller “Government rejects nationalizing Tesco.”
The embarrassment exists only because people are moronic enough to think misleading dead tree stories are important. But then, a government which thinks newspaper coverage is a measure of policy success is that moronic.
What hope is there for an open society when politicians are stupid and the media so venal?

Against Parris on democracy

Matthew Parris, one of my favourite dead tree commentators, says we can't trust democracy; "the majority is often wrong." I'm not convinced.
Several of his objections - the problems of unpopular minorites, "peoples within a people" and clashes of interest - are strong ones. But they suffice only to show what all reasonable democrats accept - that democracy is not the only value. Liberty matters too.  It puts boundaries upon what governments can do.
Another objection - that democracy allows "the living to enrich their lives at the expense of the unborn, who have no vote yet" - is a mere theoretical curiousum.
What's interesting is that this just doesn't happen very much. Budget deficits - the way in which we can impoverish future generations - are typically much smaller than bond markets would tolerate. This might be because voters do care about their children. Or it might be that the (irrational) taste for "good housekeeping" offsets selfishness.
It's here, though, that Matthew errs most:

My final problem with democracy is rooted in the possibility that through ignorance or folly, the public may simply be wrong. There are issues (appeasement in the 1930s was one) where the crowd misunderstands, grabs the wrong end of the stick or wilfully refuses to meet its responsibilities.

But this is a quite terrible example. It actually demonstrates a great merit of democracy - that it allows us to correct our errors swiftly and peacefully.
Matthew continues:   

There are matters of great complexity where decisions may have to run ahead of public understanding: for or against nuclear power, for instance, or for or against GM crops.

Those "for or againsts" are precisely the point. We can't be sure that experts do know more than the public. And even if they do, the question only arises: why, in such cases, are experts incapable of persuading the public?
What's more, Matthew makes two great omissions. First, there's no mention of the big fact - that the proportion of democracies throughout history that have delivered liberty, justice and prosperity exceeds the proportion of any other form of government that has done so.
Second, he doesn't ask: if voters are - contrary to the wisdom of crowds - ignorant and foolish, what mechanisms could there be to stop them being so? Most of you would mention better education or a decline of our monstrous mass media. I'd, of course, add demand-revealing referenda; making people pay is a way of making them think.
In this sense, I agree with Matthew: "Real democracy is a shockingly new idea, hardly tested." So, why not test its better forms before rejecting it?

Reid and rights

What are rights? John Reid's threat to suspend article 5 of the European Convention on Human Rights - the one that speaks of a right to liberty - suggests he doesn't know, in two senses.
Sense one. Rights, if they are to be meaningful, are not merely something that governments grant to people through legislation. They have moral force; laws reflect this force, but do not create it.
When we speak of North Koreans, Zimbabweans and Darfur refugees as having human rights, we usually mean that they have moral rights, whatever the laws of their nations say.
This common sense tells us that if Reid insists upon souped up control orders, contrary to Article 5, then he is violating rights. He can abolish law. He cannot abolish morality.
Sense two. Rights are trumps. They over-ride other goals, even success in war: this is why we have rules of war.
The only thing that can trump a right is another right. Reid might argue that the British people's right to safety trumps the right to liberty of shady characters. But in the case of the three men who absconded whilst under control orders, he cannot use this claim, as he's said the three do not pose a direct threat to British people.
Indeed, the success of Operation Crevice shows that the terrorist threat can be countered by good, professional policing.
So why is Reid so keen to violate rights? Is it because he has no confidence in the police and security services? Or is it because this former communist and friend of a war criminal has never had any respect for rights anyway?

What determines wages?

Why do I get paid? The fact that I blog shows that I'm happy to write for nothing. So why does someone pay me to do so?
The crude neoclassical view is that I have a positive marginal product, and wages should equal marginal product.
But this probably doesn't apply to me - indeed, it might not apply to anyone. My employer hasn't the foggiest idea what my marginal product is. And it's competition that forces wages to equal marginal product, but competition is lacking in my case. My relationship with the IC is more like a bilateral monopoly. I'm pretty much the only person they know who can do what I do, and they are pretty much the only people who think I'm employable.
Instead, there are two reasons why I get paid.
One is the norm of reciprocity. In blogging, I'm happy to write for nothing because I get something back - other people's blogs. I'm helping contribute to a public good, a sphere of open egalitarian discourse. But I'm not happy to give something for nothing to a capitalist bureaucracy, as there's no non-pecuniary benefit. So there has to be a pecuniary benefit. To satisfy my enormous self-regard, I have to be paid more than most people.
Employer-employee relations are, in part, an exchange of gifts. Our employers pay us more than the bare minimum wage required to get us through the door. And in exchange, we do more than the bare minimum of work - that's efficiency wages.
What determine's the size of the gift? In part, it's Adam Smith's theory of compensating advantages.
Though writing on economics is not a disutility for me, employment is. I have to live in London, and waste time traveling to work. And I have to submit to the constraint of not writing on large swathes of economics. These are disadvantages which the gift exchange requires I be compensated for. I'm not paid for working - I'm paid for not working.
Because I need an income, I'm happy to accept these disadvantages.
This isn't, I hope, mere navel-gazing. The message is that marginal product is, for many people, not very relevant to how their wages are set.

England 1, America 0

Kevin Grier asks if there are any "cool female econ majors"?
In doing so, he highlights one way in which England is a better country than the US. Because here, we have Konnie Huq. I offer the picture - obtained after assiduous research - merely in the solemn pursuit of truth, and to show that it is possible to be cool and hot at the same time.
Here's  a clip of her on Blue Peter, which helps explain why 2.7 million Britons prefer to claim incapacity benefit than look for work.
Konnie studied economics at Robinson College, Cambridge, where Ruth Kelly was a tutor for a term. I like to think she studied under Ruth. But that takes you too far into the darker recesses of the Dillow mind.

Job insecurity: who's to blame?

Who's to blame for the insecurity faced by American workers? Two recent papers undermine the popular view.
First is this paper (pdf) by Devashish Mitra and Priya Ranjan. They show that, in a general equilibrium model, offshoring can increase wages and reduce unemployment simply (and here I do violence to the sophistication of their model) because it cuts costs and so raises demand.
These two papers by Mary Amiti and Shang-Jin Wei sugest that there's some empirical evidence for this, or at least against the popular view that offshoring destroys jobs.
Greg Mankiw, it seems, was right.
But if offshoring is not to blame for the weak position of American workers, what is?
Feminization - at least in part. This paper from the Levy Economics Institute says:

The growing incorporation of women into market work during the 1982-97 period contributed to the decline in the aggregate wage share.

The authors estimate that the supply of cheap female labour explains around one-third of the fall in the wage share.
This raises the question. Why are American men so quick to blame offshoring and foreigners for their (perceived) trouble, but not women or exploitative capitalists?