In defence of trickle-up economics

Today saw a great speech from Nick Clegg at the Lib Dem conference, arguing for tax cuts for low and middle income earners to help meet rising food and fuel costs. The left don't like this because it doesn't involve veneration of the state, and the right don't because they focus their occasional tax cutting efforts at the better off - which is not to suggest that they cut taxes overall in the long run.

The left shouldn't object of course, because they should recognise that fuel and particularly food are even more basic and important than public services like ID cards and wars. But now I want to address why the right shouldn't object either, because this policy will benefit the rich too in the long run.

According to trickle-up economics, what happens when the low and middle income earners have more money in their pockets is that they go out and buy more of the things they need, so that money eventually gets recycled into executive bonuses, dividends, and so forth. So tax cuts for the poor benefit us all in the long run.

Now it should be said that not everybody agrees with trickle-up theory. Some argue that it is just spin for the doctrine that what is good for the poor is good for the country, a doctrine that should be resisted because, er, they aren't poor, or something. 

But seriously, "supply siders" argue for cuts in taxation on profits to encourage investment. But as post-tax profits drive investment, these can also be boosted by boosting pre-tax profits, by leaving ordinary people with more in their pockets to spend. The difference is who gets the direct benefit and who merely gets trickled on, er, or trickled under.

The perils of genetics

Laurence Boyce at Lib Dem Voice offers us a good argument that genetics is not irrelevant to the way we turn out, but that this raises fears, particularly on the left.

So why all the discomfort? Pinker sets out four “fears” that might make us hesitate in the face of what the science is increasingly telling us. These are the fear of inequality, imperfectibility, determinism, and nihilism. I can’t possibly do justice to all of these – you’ll have to read the book – but the fear of inequality is probably the one which most offends left-wing sensibilities.

There is a great deal of heat over the suggestion that genetic differences between groups would justify discrimination on the basis of group membership. It is clear to me that political equality is a moral principle, not a consequence of us being "born equal" in any sense. Clearly we are not born equal - genetic variation within groups is not disputed. Don't base a good princple on a false premise unless you are trying to oppose it.

But it is vital, one opponent of discrimination would argue, that we oppose the idea that groups may differ genetically one from another, because this would justify prejudice.

So far, so wrong. It is frankly stupid to judge any individual based on group memberships (sex, race, class, shoe size, which group do you choose?) whether there are group differences or not, because all group differences are swamped by individual variation within groups.

However, beneath this, there is some substance in the warning. If there is a genetic difference on average between two groups, this may explain different outcomes on average. This explanation may even be - or seem - sufficient to account for the whole difference of outcome, suggesting that there is no discrimination at work.

So what theories of genetic difference between groups threaten is not the moral principle that people should be treated equitably and on their own merits; rather it is the evidence that disadvantaged groups are indeed discriminated against.

How do we respond to this? Well I would argue that this evidence was never terribly good in the first place. It doesn't, for instance, deal with the likelihood that people with different group identities may make different choices on average. Buddhists may choose to become monks with no possessions and this does not mean that the economic system discriminates against Buddhists.

Much better evidence comes from blind controlled trials; from differences in hiring and marking rates where the name and picture of the candidate are not available. Unfortunately this is not always possible. Still, it is not as if it is any secret. I have heard an employer admit that he won't hire women because they might get pregnant. Others have said that they won't hire disabled people because they might get sued for some technical breach of a complex accessibility law. Is there really such a lack of evidence for discrimination that we must die in a ditch over the weakest of it? No.

Inequality of outcomes between groups is a red flag, it warns us that discrimination is likely to be afoot. We should then find that discrimination and try to stop it. In every case it is a crime against some individual - and if we begin to see it more like this and less as a crime against some group identity, so much the better. Ultimately, groups identities are artificial, and group outcomes don't matter, so long as all individuals are respected and not discriminated against.

Anti-anti-anti-anti-american

There is a little fuss brewing over at Lefty Conspiracy about the America in the World blog. Frankly the sound of repeated comfort-zone positions is pretty deafening, with neither side addressing the arguments of the other much.

So the conspiring lefties complain with some justification about being lumped in with the Taleban, when all they are doing is criticising a government. America in the World complains also with some justification that the USA is misunderstood, that it is good for the world, in a world where so many forces and powers are pretty heinous and do not attract the same condemnation.

Of course everybody knows that the USA, even when under the Democrats is a terribly conservative country, and this does seem to be a large part of what is behind why AitW's Conservative founder thinks it is so great, and the lefties think it is so awful. This seems to me to be a very narrow perspective. Compared to most of the rest of the world, there is little difference between the values of the USA, EU, and the rest of the democratic world. When, for example, one country is left holding out against action on global warming, that country will be Russia.

But actually what is so great about the USA is not its conservatism but its liberalism, if only they knew what the word meant. The USA is still a beacon of freedom and democracy. It's prosperity benefits the rest of the world through trade. Its contributions to science are enormous. And even its military and intelligence services have played some positive roles alongside their various crimes.

It is too easy to forget all this in the face of a few disagreements over policy. Among political people, political disagreements tend to loom large. So it is a shame that this vital cause of opposing anti-Americanism has been conducted in such a partisan way. It is foolish to big up the USA, as AitW does, with snide remarks about the EU. The USA and EU are on the same side, and will have to stand together in the future.

It is utterly bonkers, as AitW does, to offend those who most need to be reached by this message - those with the greatest political disagreements with American people and governments - by lumping them with racists.

Yet the anti-anti-anti-Americans on Liberal Conspiracy should not get a free ride. It is too easy to focus on the comfortable and justifiable: our right to disagree with a government. Beneath the cheap attack on the left and liberals, that few Conservatives could resist, AitW is largely correct about the USA and its other detractors. And we should say so.

Still alive

...and back from the beaches of north Wales. I will resume putting the world to rights as soon as I get round to it, etc.

Actually I did pop in to the David Lloyd George museum in Llanystumdwy. I learned that Lloyd George was the greatest statesman of the 20th century; the man from whom Churchill learned everything he knew (except, presumably, disastrous naval tactics); a man without flaws, at least none worth mentioning.

It impressed me how much he did for ordinary working people - pensions and national insurance and more, and yet he and the party were brought down effectively by the rise of the Labour Party. How does that event look today? What is the Labour Party for? A class war movement winning power has to either represent this new elite, and invent new class enemies, or become a cipher, or a bit of both, as it happened. We have been out of power for 100 years for this? What a stinker.

Green taxes' place in the big picture of climate change

I hope you've all read Charlotte Gore's avalanche of posts against green taxes. I have defended the idea a little in the comments section, finally reaching the point that green taxes need to be seen as an effective part of a bigger picture of how we combat climate change. So here goes.


The insignificance of the individual

Does it matter what I do, whether I drive or fly or explore outer space? Does it matter what or when this or that minister or MEP drives or flies? Honestly? No, not really. My carbon emissions are a drop in the ocean. If everybody did the same as me it would matter enormously what I do, but they don't and it doesn't. Immanual Kant suggested that we should do only what we would have as a universal law, or something like that, which was a jolly good idea at the time, a leap forward in our understanding of ethics as being more than about what might make baby Jesus cry. But the ethics of example-setting is perhaps of limited use in a free and diverse society. But what, I hear you ask, if everybody had my attitude, wouldn't it be awful? Yes, I suppose it would. It is so much better only 95% of us being like this.

Let me be clear - people who go out of their way to minimise their impact on the environment are doing good. They should be applauded and not sneered at. But this 5% will only do about 5% of what is needed. The other 95% will have to come from political action, by which I mean measures like international agreements, green taxes, and promoting investment in renewable energy, rather than lecturing. Governments should not be telling individuals that what they choose to do really matters in the big scheme, because it doesn't. See above.

The environmental movmement believes in individual responsibility, largely I think because it was politically out in the cold during all its formative years. It gave us the chance to feel we were at least achieving something. Today politics has woken up and we should have some political ambitions.


The insignificance of the UK

The next reason for doing nothing is that whatever the UK does will be lost the tide of rising emissions from that villain du jour China. And this is quite true - if we were trying to stop global warming on our own, we might as well forget it. In a world population of a few dozen significant countries, the Kantian argument is a little better than it is among individuals. Most countries are doing something, and very few are doing a lot. China is not the worst and the UK is not the best and so that choice of contrast is more than a little snotty. However the feeling we ought to do our bit, the effects on national pride, and so on are still nowhere near strong enough, and will not deliver the measures needed.

What we need are international agreements to cut carbon emissions and make various land use reforms. This is more or less the bottom line. But to make such agreements possible we need a number of things. We need more precise predictions of the effects of global warming. Fortunately, these are getting better all the time, and it is getting harder for people who prefer to believe it will all be fine to cling on to that.

We need ever better ways of generating energy. Fortunately, these exist and they are becoming more economic all the time. Uptake may be driven as much by increasing fossil fuel prices, and energy security considerations, as much as anything else and this is more good news. As Stern commented, energy counts for a tiny fraction of our costs, and so if we have to pay much more for it, while this will hurt, it is not pain on any kind of revolutionary scale.

Finally we need to show that we can do without some of the more marginally useful energy uses without becoming significantly worse off. A large part of this is improving energy efficiency, but we might also make different choices, if the full environmental costs of each choice were included in the price. Again, technology is key here to improving efficiency and giving us more choices.


So green taxes....

Charlotte asked me if there wasn't a better way to combat global warming, and the sort of thing you hear suggested is technology or international agreements. But I am convinced that this is completely the wrong way of thinking about it. Technology and international agreements are not alternatives, they are complementary, because the agreements won't be reached until it can be shown that they will not hurt too much (and that it will hurt a great deal not to make them). Similarly green taxes and technology are not alternatives, they are complementary. Green taxes blend into market signals (and market signals work) to buyers and innovators to make better products and better choices.

If green tax revenue is used to cut income tax, then - within reasonable limits - this shouldn't harm the economy and may even benefit it. It is much like the case for Land Value Tax: taxing things that are intrinsically limited in supply (land, carbon) in preference to those where more can be produced (labour, goods) will reduce the drag and distortion to the economy. The intrinsic limits are of different kinds for land and carbon, but I don't see why the argument shouldn't apply, and doubtless someone will tell me that carbon emissions are a kind of land anyway.


I think Charlotte is right about the political difficulty with green taxes. People are feeling got at and there is a backlash. The other parties may dump green policies altogether. I think there are two reasons for this that we need to challenge. First that there is despair in the face of China, etc, because green taxes are not seen as part of the bigger picture I have painted here. Second is that we are pretty sick of being told what to do all the time and it seems that green taxes are another kind of lecturing and another kind of punishment. We need to convince people that this is not the case - that green taxes are a necessary evil, just like other taxes, albeit one with an extra silver lining. And we need to convince them that we are not trying to tell them what to do, rather that it is after all their job as voters to tell us as politicians what to do. With green taxes in place there is less need to worry about the environmental consequences of a choice, not more. So maybe we can all relax a bit, and backlash against something else this week.