Fine tuning the minimum wage?

Tim_MontgomerieTim Montgomerie- the big wheel on the Conservative Home web site ( see our British links) had a an interesting piece on “The ( London ) Times” a few days ago. The gist of it was that that the weekly wages of the low paid in Britain have gone down in Britain by £50 a week since the financial crisis- the biggest drop since the 1860s, and that consequently the minimum wage should be increased. Moreover, he goes on to add, a system of fine tuning the minimum wage should be introduced so that it was increased when the economy was doing well and decreased when things got more difficult in order to cut unemployment.

There is obviously a lot here to discuss. Mr Montgomerie is right when he places the problem of poverty at the centre of the Conservative agenda. Contrary to what the our libertarian friends and the left say, there is nothing incompatible between being a Conservative, and wanting to use the power of the state to help those in difficulties. That much at least should be obvious. But in doing so Conservatives should not emulate the egalitarian claptrap of the left. Economic growth is the great enemy of poverty. And economic growth is driven by individual initiative. It is no coincidence that in the late nineteenth century huge new fortunes were createdLynnewood Hall 002c; and at the same time the working class prospered as never before. Poverty can only be alleviated by a general prosperity. Perhaps the most important objections to suggestions such as Montgomerie’s is that they obscure this absolutely critical fact.

Talk about the minimum wage also serves to distract attention from two other conservative suggestions for the relief of poverty. The first is the proposal for a negative income tax, ( an idea always associated with Milton Fiedman)   which would replace all other state benefits with a single subsidy paid directly to those on low incomes. But there are difficulties here. The root of the problem is that as Henry Hazlitt, who originally favoured the idea, pointed out is that a negative income tax which is large enough to do any good, also creates a powerful incentive in those getting it from earning any more money. The lure to laziness of a small unearned is considerable. Ask the rich!  There is also at least the possibility that the negative income tax may be associated with family breakdown, which is, of course, itself closely associated with poverty.

This leads us directly to another conservative “take” on poverty namely that it is caused not by some inherent flaw in the economic system, but by individual failures which are best dealt with individually. And that therefore the granting of benefits from the state should be conditional on the “clients” making changes to their way of life. There is clearly some sense in this. But there are also difficulties. Human behaviour is not easy to change.  Such interventions are certain to be expensive to arrange, and just how effective are they likely to be? Moreover are we really comfortable with the idea of making social welfare payments dependent on, for example not drinking? And how on are we going to enforce such conditions without a veritable army of snoopers? The poor deserve their freedom and their dignity too!

In these matters the prudent policy maker will avoid both complacency and optimism. The current arrangements do not seem to be satisfactory, and they are certainly far too complicated. But it is less easy to see how they might be improved. Fraud must be suppressed. But at the same time we can hardly blame to poor for playing the system in same way that tax payers do! But beyond this we need to realise that there is no administrative “magic bullet”  which is going to “get them off welfare.” But if the system cannot be transformed it can be adjusted, and in such changes the long term goal must be to do everything we can to reward initiative and not sloth. What for example is being done to encourage street trading of all kinds?

But what of Mr. Montgomerie’s proposal to change the minimum wage in the light of macro economic conditions? Well, as may be imagined, I am no fan of price controls. If rent controls are, as has been said, the most effective way of destroying a city except for bombing, imagine what minimum wages do to the labour market. We should never forget that a minimum wage can price those with very low skills out of a job. But that said, there is a case for some minimum wage to prevent people from being grossly exploited. But should the minimum wage rate become a tool of economic management like interest rates, as Mr. Montgomerie proposes? At first sight the idea has some attractions. Shouldn’t we be doing every thing we can to keep people in jobs when the economy gets into difficulty?

Well…yes…but lets do a john Lennon and imagine… Mr. Montgomerie envisages these changes being made by the Low Pay Commission, the statutory body which sets the minimum wages in The United Kingdom. What though he does not see is that if the Commission really started to act in the way he suggests that it would become a kind of shadow central bank, no doubt with its own team of economic forecasters.

Not only would the The Bank of England hardly be likely to applaud the development of an institutional rival, but if the level of the minimum wage really were to become an instrument in the government’s tool box for regulating the economy then, then the decisions taken about the minimum wage  would become highly market sensitive. Put more particularly if, for example, the Low Pay Commission were to cut the minimum wage ( the accelerator that Mr Montgomerie talks of )  then would not the markets begin to think that The Bank was soon likely to cut interest rates. And in that case the Bank might start putting pressure on the Commission if that was not the impression that it did not want given. Perhaps I am missing something, but the idea of an economy being run by what might almost amount to two central banks seems to me to be a recipe for confusion, and an arrangement which would be unlikely to last for long.

0702Alternatively if the decisions about the minimum wage were handed back to the politicians then one has to imagine a minister standing up in the House of Commons, and saying that he was cutting the minimum wage; thus announcing that economic storm clouds were ahead. No politician I have ever met would want to do that…. So No, I DON’T REALLY THINK SO TIM!

 

Leonard Liggio ( 1933 – 2014 )

liggiointerviewLeonard Liggio was a man of deep personal kindness. But more than this, while he was a committed libertarian, convinced of the value of human and economic freedom, he had an acute understanding ( grounded in his remarkable capacity for personal sympathy) of the way in which the case for freedom should be made with, rather than against, the grain of history. He was no dogmatist, and was all the more persuasive for not being one.

. I do not think that he ever visited our shores, but his Catholicism lent him a fondness for, and a  true insight, into the Irish situation. While our thoughts must be with his family and those who worked more closely with him, we at The Edmund Burke Institute can best honour his personal qualities and his achievements by continuing to make the case for freedom in our country. May he rest in peace.  R.M.

The lessons of the by-elections

By Richard Miller.

TvMbEn1-_400x400Two countries, four by-elections, and three dissident candidates elected- and with another one only missing out by six hundred odd votes! What’s going on? Whether they live in Clacton or in County Roscommon- there is obviously something that the voters don’t like about the mainstream parties. That much is clear. But what is it? Obviously there are local factors involved. Turf cutting and water charges were not big issues in Clacton. But despite the local variations across the two countries, a pattern can, I think, be discerned.

The mainstream has become bland and uninteresting, and when eloquent as it sometimes can be, it sounds over rehearsed and unengaged? It is as if we are hearing an echo of our voices, and yet at the same time we seem to be hearing whispers from another planet far removed from our concerns. How can this apparent paradox be explained?

The key is surely to be found in the way in which professional polling experts are dominating the language of the larger parties. The root of the trouble is the part played by marketing companies in modern politics. More particularly the blandness of much recent political language can be attributed to the way in which these marketing companies, which are now almost universally employed by politicians, rely for their information on the results of focus groups. The idea, although it isn’t put quite like this,  is the ensure that the politicians do not get too far out of touch with the electorate by sampling what the voters are really thinking. To do this, groups of voters, selected so that they represent the demographic make up of the electorate as a whole,  are carefully interviewed about their concerns. The trouble is though that all the parties are doing same thing. And since all the participants of focus groups are selected by the same criteria, and since they are interviewed by the same sort of people, who have themselves been the subject of the same cultural influences and education, then unsurprisingly the concerns expressed by focus groups all turn out to very much the same. Indeed if it should happen that the result from a focus group were to depart too far from the norm it would be dismissed as a “rogue” and ignored. In short all the parties are getting the same information, and consequently they all start saying much the same thing.

We have here an almost perfect recipe for a political process that has been denuded of content. “They are all the same” or even more pointedly “You’re all the same!” say the voters, and to a great extent they are right!

And then comes along some like Douglas CarswellConservative MP Douglas Carswell Defects To The U.K. Independence Party or Michael Fitzmaurice. And what ( honestly now! ) are the electors supposed to do?- especially in a by- election when they are specifically NOT choosing a government, and when they know full well that they are going to have another vote in few months time. The choice between a human being who has perhaps taken considerable personal risks to be a candidate, and someone whose political persona has been largely moulded by marketing experts is not difficult. And as recent events prove the voters on both sides of the water are increasingly taking the easy option!

As is often the case diagnosis here is relatively easy. But it is more difficult to suggest any possible solutions, especially as to ban marketing techniques from politics would merely drive them underground. Nevertheless my thoughts would be though, that if the mainstream political parties are to flourish once more, they need to:-..

1) …focus to a far greater extent than they have recently done on political education of the kind- which in living memory- was practiced by The Conservative Political Centre.

2)  ..develop distinctive political themes…

3)…which express themselves in policies which embody and popularise these themes- in the way – for example-  in which in the early eighties, the Tory policy of selling council houses made real conservative ideas about a “property owning democracy.”

4) Moreover the parties need to ensure that the results of such focus groups as are NOT used for formulation of policy, only to help in its presentation.

5) Those who commission research by marketing companies need to be fully aware not simply of the value of such research; but more crucially of its limitations.

6)  More particularly they need to make certain that such focus groups as are used ( and they should be relatively few), are REALLY  representative of the electorate as a whole. ( I suspect that this is a real weak spot in politically marketing as currently practiced.)

7) The parties concerned also need to train their own canvassers to listen far more effectively to what the electorate is saying. This would provide them with an additional source of information with which to check the accuracy of what the marketing companies tell them is going on in the focus groups.( They should also remember that the marketing companies have an interest in rubbishing canvassing returns.)

8) In order to further bridge the gap between politicians and voters, the parties need to make sure that their own governance is as democratic and transparent as possible. The fewer secrets the better in politics. Moreover all political parties should at least consider the introducing open primaries. This is especially particularly important in the case of by- elections.

Just in from Scotland!

I do not for a moment suggest that adopting all or  any these proposals will make surprises in by- elections impossible. Orprington man is a remarkably resilient, and now an international a  figure. But unless we take some such steps to revivify our democracy, we may well run greater dangers….as there are ugly people all too keen to take advantage of the frustrations of the electorate with excessively bland politicians.

Unbuilt land to be taxed into use.

Properly planned housing ;the work of experts.

Properly planned housing ; the work of experts.

Michael Dwyer 

It is an unavoidable problem with representative democracy that the people who get elected, the people who wield power are active types. They are people who like to do things. Worse they are people who find it very hard to sit on their hands and do nothing, when nothing is very often a very good thing to do. Junior minister and Labour party sparkler, Alan Kelly is a man intent on doing things.

 

All the world, that is Leinster House and the papers are agog and fearful that we maybe on the road to another housing boom. It seems that the price of houses has gone up and this is scaring the horses. At the same time there is a shortage of housing in Dublin and a real dearth of cheap rental accommodation.

 

Well one very good reason for steep and rising rents is that fact that a government not long ago made cheap rents illegal. Across Europe it is understood that the first home young folk have after leaving mom and pop will be small and basic. In Italy , the monolocale , or one room apartment is what you get until you move up the earning ladder or get another income in to help. Twenty five or thirty square metres of cosiness. In Ireland we had the bed sit. Which in truth was rather more squalid than designed, but it was cheap and they were plentiful. Now they are in practice illegal and this has substantially contributed to the problem of housing in cities. Now students and young workers compete with local income families for the same types of property and after the crash no one has been building even those.

 

Why is no one building? Well reason might be that average second hand prices are, even after the up surge, in and around what it would cost a builder to build a new house. What is one the highest cost components in building? Land. Why is land so expensive? Because of the murky mad lottery system which we called planning permission. Yet the new proposals give more power to local authorities and planners. It is a recipe for corruption.

 

 

 

The idea that idle land should be taxed into use tells us so much about the mindset of our rulers. They call hoarding what we call saving or investing. They already punish people who hoard money in savings accounts or pension funds. Now they will punish those who buy land as an investment but refuse to sell it when the county council thinks they should. Of course we all know that county councils will know far better than the market what prices should be and where houses should be built. If we learned nothing from the crash it is that you get bad outcomes if you allow the hoi polloi to live where they want and in whatever kind of house they want. No it is time for full on fascist management of this industry. Experts will decide from now on.

 

 

Leaving to one side the fact that once again mortgage payers are being stiffed with the bill for social housing, and letting alone the inevitable malinvestment and misdirection of resource that will occur how depressing is it that here we are seven years down the road and still not one person in power seems willing to understand what caused the housing bubble. No, we are stuck in the magical mud of animal spirits and greedy developers.

 

So we are going to be cursed many times over by our politicians desperately solving problems that don’t exist and in ten or twenty years time we shall have another crisis and be amazed and shocked. But don’t worry even twenty years in the future we will have a Dail full of men and women who will leap into the breach and do something.