Picking Losers

Economists from the Institute for Fiscal Studies (IFS) have slammed the government’s new grant system to be introduced next year to university students. The reforms are aimed at attracting the poorest students to university by handing out grants worth hundreds of millions of pounds a year - something the IFS has described as a waste of time. They claim that taxpayers' money would be better spent on improving the school results of youngsters from poor homes. They also cited universities as coming out of the deal worse off since they would have to give bursaries to more students.

Government

The latest publication from the IEA landed through the letterbox yesterday (I can't say plonked or thudded, because the IEA publications are always of eminently digestible proportions). It is on one of the most important subjects of modern policy and economy - happiness.

There is an increasing tendency amongst academics and politicians to decry policies that deliver simple economic freedom, and to talk up policies that try to deliver social benefit, usually at the expense of economic freedom. The pretext is a growing body of work that argues that prosperity and happiness are not linked, and suggests alternative approaches to maximising happiness (most commonly, though with little empirical or logical justification, the reduction of income inequality). In these demotic times, what modern politician can resist the call to maximise the public's happiness? Certainly not most of our bunch of intellectual lightweights.

The IEA booklet, Happiness, Economics and Public Policy, by Helen Johns and Paul Ormerod, tackles this body of work head-on, in its own terms. It examines critically the statistical merits of the happiness data, and the claims that standards of living are unimportant to happiness, and that other factors such as economic inequality are more important. It finds most of the happiness literature wanting.

This is a necessary counterweight to the burblings of politicians like David Cameron and "economists" like Lord Layard on the need for policies to try to maximise General Wellbeing (GWB) or Gross National Happiness (GNH), rather than Gross Domestic Product (GDP). It is to be hoped (but not expected in the race to the wishy-washy centre-ground) that politicians will read this booklet and stop sniffing Layard's glue.

With a few exceptions contemporary commentators on economic problems are advocating economic intervention. This unanimity does not necessarily mean that they approve of interventionistic measures by government or other coercive powers. Authors of economics books, essays, articles, and political platforms demand interventionistic measures before they are taken, but once they have been imposed no one likes them. Then everyone - usually even the authorities responsible for them - call them insufficient and unsatisfactory. Generally the demand then arises for the replacement of unsatisfactory interventions by other, more suitable measures. And once the new demands have been met, the same scenario begins all over again. The universal desire for the interventionist system is matched by the rejection of all concrete measures of the interventionist policy.

So wrote Ludwig von Mises in his 1929 book, A Critique of Interventionism. He could have been writing of the state of our political and academic debate today.

The Sunday Telegraph reports that "Gordon Brown is drawing up plans to vary the minimum wage region by region across Britain". The original intervention - a standard minimum wage for the whole country - has been judged by academic economists to be too blunt an instrument. Although the call is for more flexibility, the proposals are not simply to remove or reduce the minimum wage. Instead, they propose that we should tell each region the level of pay below which jobs should not be offered. That's an interesting definition of increased flexibility.

What the academics intend is that the minimum wage should be reduced in those parts of the country where a national-average minimum wage exceeds the level at which people might be willing to work and able to sustain a reasonable quality of life (though this is made literally and figuratively academic by the punitive nature of the means-tested withdrawal of nationally-harmonised benefits on the effective marginal rate of taxation). The objective is to allow some jobs to be created or legitimised, which currently cannot be afforded in compliance with the law.

Gordon, however, cannot reduce the minimum wage in those parts of the country, because the unions will not wear it. So it is suggested that, instead, he will raise the minimum wage in London and possibly the South-East. Because, from a socialist perspective, this is not about allowing people to find jobs, this is about micro-managing the economy to ensure that no one is getting more or less than they deserve.

The result, if implemented, will not be an increase in flexibility and the creation of jobs in areas of the country where costs-of-living are lower, but a reduction of flexibility and the destruction of jobs in areas of the country where costs-of-living are higher. Genius.

The Tories and LibDems, of course, now support the minimum wage too. I wonder what new interventions they will be drawing up to offer their refinements on this "improvement", and what all three of them will propose when these changes also fail to deliver the artificial boost to the incomes of poorer members of society that they all hoped they could compel by legislation, in contravention of the most basic laws of economics. It's so much better fiddling with this sort of superficial, bureaucratic, managerialist, economically-illiterate tinkering than actually doing something about the structural problems, most of which the politicians themselves have created, isn't it?

A couple of months ago, I suggested that the claims for the benefit of the Tory trip to Rwanda might be inflated. In the current mood of dissatisfaction with David Cameron, much of the media and many private commentators are making cynical observations about this trip. Much of this cynicism is simply gut-reaction to an apparently shallow publicity-seeker travelling on another foreign jolly in the immediate aftermath of the exposure of the hollowness of his claims to have transformed the electoral prospects of his party by abandoning principles and moving to the centre-ground. These are not unreasonable grounds for cynicism, but it is nevertheless possible that this trip has genuine merit, despite the troubles at home. It would be useful to be able to judge the trip according to the tests and claims that Team Cameron have set themselves.

You may remember from the earlier post that the key to this trip was that it is "a genuine two-way learning process, with each side leveraging the skills and knowledge of the other", with "targeted professional help in support of the development of Rwanda". The "importance of the projects' legacy" is emphasised. To ensure that the participants actually bring something useful to the trip, "there has been a rigorous interview process of prospective participants to ensure a correct fit between skills and assignments".

I questioned exactly what skills, useful to African development projects, most Tory MPs would bring. Helpfully, Adrian Yalland, the boss of the company organising the trip, responded to my challenge on Iain Dale's site, though he was unable to name names, to enable us to test the claims. We had to wait for the trip, and rely on the Conservatives to tell us who was doing what.

Well, the trip has started, and so far the Conservatives have not given us a list of participants and the particular skills that they are bringing to the projects. But it is possible gradually to extract the names of participants from reports on the trip. So, for instance, we know that Andrew Mitchell is leading the trip, which, as Shadow Minister for International Development, is entirely reasonable. Earlier suggestions that David Mundell and Hugo Swire would be involved have not been confirmed (Hugo may be less keen, now he has been dropped from the Shadow Cabinet). But we learn instead that "Tobias Ellwood, the shadow culture spokesman and former officer in the Royal Green Jackets, shared some of his considerable carpenting expertise with Brooks Newmark, a new whip". So that's another military man, like Swire, of which there is not a shortage in Rwanda. But at least Ellwood has carpenting skills (to accompany his military and City experience), which the Guardian seems to be hinting that Brooks Newmark, a former venture capitalist, lacks.

The excellent Bishop Hill has spotted an announcement by ScottishPower that they are looking to contract farmers to grow energy crops for their Cockenzie and Longannet coal-fired power stations. I can shed (I hope) a little more light on this announcement. It should not be taken at face-value.

The Government thinks that we should be using energy more efficiently. They are right. So guess which sector increased its consumption of electricity the most in Europe between 1999 and 2004. Industry? Households? No, it was the "tertiary sector" - in other words, government, state-funded services, the voluntary sector and commerce.

Industrial consumption was up by 9.5%, domestic by 10.8%, and the tertiary sector by a wapping 15.6%. Were our leaders and bureaucrats getting more wasteful, or were there just more of them? Or both?

If you find ways to save energy in your business, profits are increased and your career or business should prosper. If you find ways to save energy at home, you save money to spend on other things. If you work for the government and you find ways to save energy....you save other people (taxpayers) some money, and your budget gets cut. I wonder why government has been least successful?

Tim Montgomery at ConservativeHome thinks "support for nuclear power" should be a core Tory value. I think, if picking a technological winner like that is a core Tory value, that contempt for Tories should be one of my core values. I am quite prepared to see a new round of new nuclear power stations built if suitable guarantees of safety can be obtained and if they are the most economic option, including fairly-valued externalities, but without provision of subsidy, underwriting of cost, railroading of local opinion, or watering-down of competition. Are the Tories (and the Government) prepared also to recognise that our electricity system is no longer run by the CEGB, and that the only way that they can deliver nuclear, if removing obstacles and internalising externalities are not sufficient, is to subsidise it?

More news has come out today about recent nuclear problems, on which we have been reporting in the absence of press coverage. The Times has now picked up on the significance of the damage to the nuclear reactor at Kashiwazaki in Japan. They report that it is now being admitted, contrary to earlier claims that any escapes were minor and brief, that radioactive particles were being released into the air for three days following the earthquake.

Meanwhile, our own ageing reactors are suffering similar difficulties to those in Germany. British Energy announced today that they were having trouble bringing back on-line their Hinkley Point and Hunterston reactors, which had been closed after the discovery of cracks. BE's shares fell by more than 1% on the news.

Remarkably, the Department of Health have just announced Ministerial responsibilities in the department, some three weeks after they were all appointed.

If it takes them this long just to sort out who is doing what job, is it any surprise the health service is in such a mess?

Government  

How many times have we been told that the cost of the Olympics will not rise, only for another few billion to be added to estimated costs? As regular readers will know, if you want a financial estimated, do not ever asked a government department to do it for you as they will be wildly out. The latest reports from the National Audit Office suggest that they have got it wrong yet again. We're already at £9.3bn (steadily rising from £3.3bn to start with).

Welcome to a new blog - ToryHome - that has been setup to put the Cameroonian perspective on stories in the news. It appears to have some relation to Chad Noble, the dormant Centre for Progressive Conservatism, and satiresearch.com.

Government

Government  

So TfL are going to pile in £750m worth of public money to the tube network to stop it grinding to halt as a result of the collapse of Metronet.  Tim O’Toole (MD of LUL) has said he expected the taxpayer to plug any financial gaps left by the Metronet intervention. "This will feed in with the larger discussion with the government about the funding of TfL and transport in London."  Indeed it will.  So much for pass the risk on to the private sector! 

Yesterday bgprior asked, in the comments to my post about scrapping targets, why did this announcement come from Treasury? And well he might, it seems the department it concerns is playing a different tune. Ed Balls (Secretary of State for Children, Schools & Families) has told teachers that national testing and school league tables were here to stay.

Government

• The new Children, Schools and Families Secretary set himself on a collision course with the teaching establishment yesterday by pledging that national testing and school league tables were here to stay. Despite growing pressure from the Government's own examinations regulator and the majority of the teaching profession about overtesting in schools, Ed Balls said that "testing and the publication of results" were the only way to ensure accountability. "It enables us to be able to see as policymakers what is working, who is not performing well and, in the extremes, being able to tackle poor performance," he told The Times. It was necessary also, he said, to help parents to judge the performance of their child's school. http://www.timesonline.co.uk/tol/life_and_style/education/article2100198.ece
• Leading universities are taking fewer students from poorer areas despite the Government's efforts to persuade them to redress their middle class bias. Teenagers from higher income families and private schools have increased their hold on places at half of the 20 most sought-after universities, according to figures published today. The proportion of new undergraduates from the three lower social classes fell last year at Oxford and Cambridge and declined steeply at Birmingham and Imperial College, London. In figures sure to disappoint the Government, half of the 20 leading universities recorded a drop in the proportion of state-educated pupils gaining places. The drop also helps to explain the plan by the Universities and Colleges Admissions Service (Ucas) to give tutors more information from next year about the social background of applicants. Universities are given extra money to reach out to pupils in poor areas. Most top universities in England failed to reach targets for increasing the proportion of poorer students but in Northern Ireland, which still has a grammar school system, Queen's, St Mary's and Ulster far exceeded the targets. http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/07/19/nuni119.xml

Government 

Has the government picked two winners in a day, today?  Not really - but they may have at least made a u-turn on two losers that, for many, symbolised the Blair era.

Government