Purnell's market confusion

It’s common for some people to have excessive faith in the power of markets. It’s also common for others to be excessively hostile to them. Congratulations, then, to James Purnell - because, in a fantastic example of triangulation, he has committed both these errors. He says:

Markets are a wonderful tool: innovative, wealth-generating and elite-busting. But sometimes they don’t serve society. We should bring back the old usury laws so no one need fall victim to loan sharks. We should campaign for a living wage so that no one who works hard ends up in poverty.

These are silly proposals. If we outlaw usury, we won’t abolish loan sharks, but encourage them. Banning usury means that legitimate lenders won’t lend to bad risks such as Corrie’s Joe McIntyre* - because they‘ll not be able to charge a high enough interest rate to cover the risk of default. Such people will therefore turn, as Joe did, to loan sharks. If you criminalize sub-prime lending, criminals will become sub-prime lenders.
Nor is it obvious that a living wage will be an unmixed blessing to the “hard-working poor.” If you raise the price of anything, people will buy less. Some workers will therefore see their jobs and hours reduced. And those who don’t will see much of their higher wages taken away as tax credits fall.
However, if Purnell has too little faith in markets in some senses, he has too much faith in them in others. He says:

Real power [to parents] would mean abolishing catchment areas and having pupils apply two or three years in advance. Oversubscribed schools could then expand, or new providers start up… Parents could be guaranteed one of their top choices.

This, though, assumes that a good school can expand easily without any loss of quality - that the elasticity of supply is high. But is this the case? What if such expansion is limited by the lack of availability of premises? Or what if teachers’ performance deteriorates when faced with larger class sizes? Or if the school hires more, but worse, teachers? In such cases, parents might find that a good school has turned bad by the time their children go there. In such cases, a market in school places mightn’t work as well as Purnell thinks; he gives us no evidence to assuage such concerns.
There is, I fear, a theme in these apparently contradictory attitudes. Purnell seems to believe that it is an easy job for politicians to both intervene to over-ride markets and to build new ones. This, though, is just the rationalist hubris of managerialism.
* Father of Tina, played by Michelle Keegan, pictured.

Comments

[Paul]

Excellently gratuitous use of a cracking photo there. Good work sir.

[Tom]

I've been reading your blog religiously for about a year now. This is my favourite post.

[Mike Woodhouse]

So you're unemployed and you're offered a job that involves moving house, which you're reluctant to do because your child is only 18 months from leaving primary school and all the good secondary school places where you'd have to live have been allocated over a year ago. So you decide to borrow the money for a private school place but your credit rating's poor because you're unemployed but you can't legitimately get a sub-prime loan any more so you go to a loan shark.

And this was a "talented" minister. God help us if the talent-challenged are now running the place.

[charlieman]

As much as I despise target strategies, I struggle to comprehend market based education policy.

If we assume that there is some elasticity in the supply of talented administrators and teachers (eg that some people have left the profession but would consider returning), a market strategy might increase their numbers. Standards might improve and intakes increase in order to meet the demands of pushy parents.

But the non-pushy parents don't matter in an education market. They don't impose standards on a school, they aren't involved in the school's activities, they are consumers of a product in which they have no interest.

Perhaps market based education might provide more choice for pushy parents. At the same time, perhaps standards in some popular schools might decline. And the unpopular schools will carry on as before.

[Russell]

Just found your blog and read this article - very interesting and will be back to read more.

[McGazz]

"If you criminalize sub-prime lending, criminals will become sub-prime lenders"

Arguably, some sub-prime lenders are criminals already. 183% APR?
http://www.telegraph.co.uk/finance/personalfinance/borrowing/3172990/The-high-cost-of-doorstep-loans.html

Would an anti-usury law that set a maximum APR on loans (say [base rate + 20]%) be such a terrible thing?

[NomadUK]

Ummm.... What?

[Nic]

Could you please not use a gratuitous photo of an unrelated woman - if you're going to compare to fictional characters, then use their photo, not some tits you think are better. It's offensive, and it means I (and probably a few other women reading your blog) don't take you as seriously. Your liberal, sensible argument is undermined by misogyny.

[kinglear]

Glad you have reverted to the VISIBLE frontage rather than the covered-up. Good article too - and so screamingly obvious you would think the government would do something about it.. oh, hang on, its too obvious isn't it?

[RH]

"If you criminalize sub-prime lending, criminals will become sub-prime lenders"

One does not necessarily lead to the other.

Otherwise one could equally say that,
because sub prime lending is not criminalized, sub prime lenders are occupying the space that would otherwise be occupied by criminals.

[Sam Jones]

Just came across your blog, Private Schooling can be expensive but if you think the school will be right for your child then surely thats invaluable. Great blog!