Monthly Archives: June 2013

It’s not taxpayers’ money, it’s public money.

This article was written for Rethinking Economics

The slogan which famously accompanied the American Revolution, “no taxation without representation”, is at risk of being turned into “no representation without taxation” by the language we use to discuss public economics. It is easy to assume that the language used to discuss economics is neutral, and does not have an effect on the debate itself, but I believe this is not the case. Language is not neutral and contains – whether intentionally or not – inherent biases. We all convey hidden meanings and messages simply by the words we choose in a given situation.

One particularly prominent situation in which this happens, and is potentially harmful, is the use of the term “taxpayers’ money” when referring to government spending. The simple fact is that the money is not taxpayers’ money. It is money that the government holds and uses on behalf of society. It comes from taxpayers, true, but by the time it is being spent by the government it no longer belongs to taxpayers.

The term is now in extremely widespread use. A simple Google search reveals that in the last few days The TimesThe SunThe GuardianThe Daily Mailthe BBCand Sky all used the phrase. It is a rhetorical device generally to make alleged waste of money more personal and offensive. However, I believe that the term implies that those who are not taxpayer’s do not deserve a say in how it is spend. Continually saying “waste of taxpayer’s money” or “value for taxpayers” implies that this is who the money should be spent on behalf of.

When we say we are “wasting taxpayers’ money”, this implies that the act of paying tax ­­­– contributing financially to the state – gives one a greater say in how that money is spent. As soon as the money is handed over to the government, it no longer belongs to the person who paid it. If a supermarket spent a large sum on rebranding, they would not be criticised for “wasting customers’ money”. The shareholders might well criticise them for wasting shareholders’ money, and citizens can (and should, where appropriate) criticise governments for wasting public money. When money is wasted, it seems odd to bemoan the fact that people paying taxes aren’t getting good value – we should instead be worried that the people supposed to be benefitting from the spending are not benefitting as much as they could be.

This might seem like a trivial complaint, yet I believe this trend is part of a wider trend within economics to overvalue financial contributions to society and undervalue non-financial ones. Housewives, househusbands, full-time carers, the disabled, those under the income tax threshold, children, students, the unemployed and many other groups all make significant (if hard to measure) contributions to society, yet by overusing the term “taxpayer” when we really mean “state” we risk excluding them from the discourse on how money is spent. These groups of people all deserve a say in how public money is spent, and all have a right to be annoyed when it is spent badly.

Using “taxpayer’s money” inappropriately is just one example of where language threatens to genuinely affect the issues being discussed. Another recent trend, in the UK at least, is the increasing usage a “strivers” and “skivers” in the debate over levels of benefits. Society is divided into two groups – the “strivers” who strive for a better life, work hard and pay their taxes and the “skivers” a group of lazy benefit dependent slobs sitting around all day leeching off the “strivers”. This is false on many levels. Firstly, most of those on unemployment benefits are there because they can’t find work, not as a conscious lifestyle choice. Secondly, many benefit recipients are those who are poor and in work. Thirdly, more than a few people in work are not the hard-working tax-paying angels the language suggests they are, but are more than willing to avoid both work and taxes wherever possible. The result is that benefit receipt is turned into a more humiliating experience. Those who receive benefits are told that they should feel guilty for being a leech on society, and people paying taxes feel vindicated in setting benefits at cruelly low levels.

These are just two examples of the language being used in economic debates containing biases that begin to shape the debates. I am not suggesting that everyone using these terms is putting forward this message deliberately – quite the opposite. However, we should all be more conscious of how the language used in both the media and general conversation affects subconscious perceptions of the issues at hand. Since almost everyone using the phrase “taxpayer’s money” is not intending to say that someone not paying tax does not deserve a say in how public money is spent, so I would encourage people to gently point out that it’s “public money” where this does crop up.

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Supercasinos: based on bad economics.

This article was written for Rethinking Economics

The supercasino controversy in the UK is a classic example of bad economics being applied to a policy under consideration. As a result, the government utterly failed to properly grasp the wide-ranging social and economic consequences of the proposed policy – to allow massive Las Vegas style “destination casinos” in the UK.

Gambling addiction is, without a doubt, awful. This hardly seemed to be taken into account when the enormous new gambling venues were proposed, however. Policymakers were not considering the terrible problems that the casinos might cause, they were instead fixated on comparing a few comforting, easily-measurable variables. The entire project seemed to be based on whether on not the construction costs outweighed the direct income from the casinos and the number of jobs created.

Having concluded that these three variables indicated that the casino was a good idea, enthusiastic New Labour politicians would not be moved in their support for the casinos. It took a change of Prime Minister from Tony Blair to Gordon Brown to halt the badly thought-out project. Why did they become so enamoured with these hulking gambling stations? What caused so many politicians to disregard the obvious negative side-effects of constructing these casinos? After all, every job created is created with money taken in from a gambler. That gambler stands at risk of becoming addicted to gambling, potentially ruining not only their own lives, but the lives of those around them too.

There was some rumour of corruption surrounding then-deputy PM John Prescott, who had spent several weeks holiday on the ranch of a man who wished to construct the first supercasino in what was then the disused Millennium Dome and is now the wildly successful O2 Arena. Given that the first casino ended up being planned, before the policy was scrapped, for construction in Manchester, this does not seem likely to be the sole explanation of the government’s folly.

Instead, I believe it relies on economics’ unhealthy obsession with measuring things, and the even more unhealthy tendency to simply ignore that which is too difficult to be measured. Taking the example of supercasinos, the point is illustrated rather well. It is fairly easy to consult with the potential casino operators on their expected staff numbers, and hence get a figure for the number of jobs you expect to create. It is much harder to go about defining, measuring and predicting the number of lives that will be negatively impacted by gambling addictions of varying degrees.

This leaves us with a situation where one was the central justification of the policy (and creating jobs is a valid government objective) yet the other – the primary downside of the policy – was basically ignored by those responsible for it. Trying to measure the human and social cost of the policy would be tremendously hard and imprecise – but that does not mean it is worth doing.

Gambling problems are not only prohibitively expensive for the person suffering from them, they have many other side effects. They can potentially ruin personal relationships with significant others, children, family and friends. The knock on effects, for example, that a gambling addiction will have on the education of the children of those affected, will not have been taken into account during the policy creation.

Illegal activity to obtain money to gamble with is also, unsurprisingly, common among problem gamblers, which will have many unanalysed negative consequences. Other mental health issues become more likely in problem gamblers, which are desirable to avoid for their own sake and also for the strain treating them puts on the national health budget and dealing with them puts on society at large.

In short, the UK government was guilty of massively underestimating the downsides of a particular policy due to the fact that the upsides of that policy were far more easily measurable than the downsides. Thankfully the proposed policy was abandoned eventually, but it can far closer to reality than it ever should have done. We should rethink economics to place more emphasis on the human and social cost of decisions that we all too often characterise as purely economic.

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Why is capital so much freer than labour?

This article was written for Rethinking Economics

It is often said that “history is written by the victors”, yet those who are winning also get to write the rules of the present. In the rules of international trade drawn up by rich countries and, through a combination of carrots and sticks, forced onto poor and middle-income countries, it is very hard to restrict the movement of capital. In short, international institutions like the IMF, World Bank and WTO make it very difficult for a country like Nigeria to prevent, say, a British company from investing in it.

The neoliberal consensus decreed that only by allowing countries and companies freedom to invest as they please would economically efficient outcomes be achieved. To prevent them doing so would be to prevent the market from operating freely, which would be both morally and pragmatically wrong. However, as Chang says in 23 Things They Don’t Tell You About Capitalism, “there is no such thing as a free market”. Whenever we say “free market” there are always constraints. Even in Hong Kong, ranked 1st in the world for economic freedom, someone wishing to sell marijuana or counterfeit iPhones would quite quickly begin to feel things are less “free” than they first seemed.

Another area of economic activity which is tightly controlled is labour. While rich countries are extremely keen to increase the freedom of labour in some senses – like reducing the power of trade unions in factories producing cheap garments – they are much less willing to open up their labour markets to migrant workers. In contrast to Nigeria’s inability to restrict British capital, the UK is able to place huge restrictions on Nigerian labour and chooses to do so.

Now, there are good reasons to restrict the movement of labour, to a degree. Social welfare programs – seen by many as vital for a functioning society – would quickly become unfeasible if the entire world were allowed to use them. Local cultures would likely suffer if overwhelming numbers of newcomers arrived, creating potential hostilities between the newcomers and original populations. These, among others, are compelling reasons not to allow free migration.

There are also strong reasons – beyond naked patriotism and self-interest of local elites – to restrict free movement of capital. Just as an influx of foreign labour can be problematic, an influx of foreign capital can be too. It can often be much easier for governments to work with domestic companies than foreign ones. People are not the cold-hearted rational actors that some economists assume them to be – many CEOs, despite their interest in profit, will still feel a certain loyalty to the society they are from. Even if they do not, they are likely to have more of an interest in the general health of their society for purely selfish reasons than foreign managers. This means that a certain amount of arm-twisting and cajoling in the national interest is likely to be possible – much more so than with a foreign firm.

This sets up a strange dichotomy where “free markets” trumps all as an argument when forcing through rules which benefit the citizens of rich nations, yet not for citizens of poor nations who would benefit greatly from free migration. In fact, there is scant empirical evidence that free movement of capital is, as the Western institutions continue to insist, good for poor nations. Two of the 20th century’s outstanding economic growth stories – Japan and South Korea – were achieved while directly contradicting this doctrine.

I am arguing neither for free migration nor complete restrictions on FDI. However, it is grossly hypocritical of the West to force rules onto poorer nations using argumentation that they themselves do not accept all of the time. We must rethink economics to question why it is that arguments we accept in one domain, we outright reject in another.

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Legal highs on the rise.

The political classes of the UK, Europe and the USA continue to leave their heads firmly embedded in the sand over drug policy. As if further evidence were needed that the current policy is simply not working in a practical sense, a recent study has shown that 280 new legal highs have emerged in Europe in recent years, including 73 in the last year.

http://www.guardian.co.uk/world/2013/may/28/legal-highs-european-drugs-experts

Even if banning drugs were effective, which it clearly is not, I would be against it. However, the proliferation of legal highs is extremely worrying. By criminalising and restricting the “established” drugs, such as marijuana, cocaine, MDMA and many others we directly create the demand for legal substitutes. Were these drugs legal it would be very unlikely that discovering legal alternatives for them would be profitable.

Some illegal drugs can be dangerous, though in many cases their danger is exacerbated by their illegality. Illegality means that substances are likely to be less pure, there is more risk of contamination, consumption may be done in less safe manners and people are discouraged from seeking the appropriate medical help if and when things do go awry.

Another factor which makes drugs much safer is knowing the risks you are dealing with – knowing that ecstasy will make you grind your teeth and bite your lips means that you can take gum or lollies with you to stop you grinding your molars to stubs or shredding your lips. In other words, “better the devil you know”. It is preferable to have a slightly dangerous substance where the risks and how to minimise and manage them are well documented than a proliferation of similarly dangerous but less well understood substances.

We should take the huge number of legal highs on the market as an indicator of huge demand for mind-altering substances. The “drug problem” is not going to go away – only by realising that it doesn’t have to be a problem can we deal with it. Many of the ways in which drugs are problematic are artificially and unnecessarily constructed by draconian drug policies. The only real answer is an end to this pointless prohibition.

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