Brexit: Inequality and the EU

The left wing case for Brexit often features reference to growing inequalities made worse by the EU. Most of these accounts seem to reflect a lack of knowledge about how the EU operates, or a simple cognitive bias, according to which many people think that if an individual’s (themselves) relative wealth deteriorates, it must be a sign of increasing inequality. When looking at the evidence, focusing on simple EU-wide trends, the data does not support the argument that the EU makes Europe a more unequal place. However, when focusing specifically on the UK, it appears that income inequality is reduced for most  individuals in the UK, but the gap between the most developed and most deprived regions has grown. Read more of this post

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Bookies v opinion polls: who will get it right on the Referendum?

With only a week to go until the EU referendum, we are witnessing an interesting spectacle. No, it’s not the painfully underwhelming campaign on either side, although it is quite remarkable how low politicians can go in giving up intelligent, fact based arguments, unanimously resorting to emotional blackmailing. No, what appears to be at least as striking is the difference between the predictions of public opinion polls and betting agents. Read more of this post

EU Referendum and Norfolk farmers – gambling with other people’s money

Sharing the same neighbourhood with farmers, I notice a lot of their preferences when it comes to politics. Of course voting is an individual practice so I’m sure this doesn’t apply to all farmers but some clear – local – trends are undeniably emerging. Norfolk farmers are generally pro-Leave. If this wasn’t obvious from the little conversations I have with them, the billboard size ‘VOTE LEAVE’ banners along their hedges make it fairly clear.

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A simple (quasi) Coasean solution to the EU refugee crisis

Various numbers circulate the Internet about the number of refugees having arrived at the borders of the EU within the last few months. Member States where these refugees enter the EU are seemingly unable to deal with the situation, not least because of the absurdity of various regulations blocking the free movement of people. One of the most widely cited one of these rules is the Dublin Regulation, which enables EU Member State to return asylum seekers to the Member State where the asylum seekers first transited. Therefore instead of a proportionate or random allocation of refugees, the border states of the EU (such as Hungary, Greece, or Italy) claim to carry a disproportionate burden of the refugee influx. Realising this, the best solution Brussels has been able to come up with is a refugee quota for each EU Member State. Here I argue that a simple intra-EU system of trading with the externalities caused by refugees would be a much simpler and fairer solution. Read more of this post

Milton Friedman’s return to UK economic policy?

An open consultation titled ‘Competition regime: Competition and Markets Authority (CMA) – government’s strategic priorities’ was published today with the goal to seek views on the government’s proposed new strategic steer that will outline the priorities for the CMA during this parliament. Nothing overly exciting, until one looks at the first Annex and its first line that says:

The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” – Milton Friedman

Moreover, the consultation goes on and makes claims like: ‘Throughout history, free and open markets have consistently shown themselves to be far more balanced and effective than anything government can deliver.’

Why is this important? Because according to the document, the steer’s purpose it to provide ‘a clear statement of how the government sees competition fitting with its wider objectives for the economy’ and that the ‘Steer gives a clear mandate to help government design policy interventions and, when necessary, actively challenge any government rules and regulations if they consider they are negatively affecting competition’.

Friedman’s famous quote was said in an interview in the context of the importance of trading despite government limitations on trade, and referring to the mutual benefits of private markets over government coercion. Friedman used his statement to draw attention to situations where natural law overwrites black letter law. A government recognising the importance of Friedman’s quote is already laudable. The question is was the choice of the quote a deliberate hint or only a random coincidence?

How Adam Smith predicted the success of Facebook, Instagram, and the ‘likes’

I may not be the first one to connect Adam Smith to social media so this is just a short point on how one of the key ideas of the Theory of Moral Sentiments has been a driving force behind the success of social media. Chapter II of Part 3 of the Theory of Moral Sentiments (titled: “Of the love of Praise, and of that of Praise-worthiness; and of the dread of Blame, and of that of Blame-worthiness”) starts with the often-cited line: “Man naturally desires, not only to be loved, but to be lovely; or to be that thing which is the natural and proper object of love.Read more of this post

Financial and moral incentives for train operators

Probably many people are familiar with the Israeli day-care centre experiment by Uri Gneezy and Aldo Rustichin – largely due to its appearance in Levitt and Dubner’s largely popular book, Freakonomics. The rough idea of the experiment is to examine what happens when a financial penalty is introduced on parents who are late in collecting their children from a day-care centre. The – somewhat unexpected – main finding was that even more parents were late as a result. The intuition goes along the lines that once moral incentives are replaced by financial ones, parents started viewing the penalty as a price for being late. Once a price is tagged on being late, parents are relatively less driven by moral incentives and if the price of being late is low enough then they will choose to pay for it and be late. Of course – the authors agree – if the price is high enough it would be sufficient to deter late arrivals.

I often wonder if this experiment worked if we turned things around and applied it to businesses rather than individuals. An obvious candidate for this thought experiment would be UK train services. The fact that train operators offer a refund/compensation for cancelled or delayed services is widely known. It is also known that train service in Britain is not the epitome of punctuality – around 10% of trains on average are late. Yet, there is a large number of people that do not claim any such compensation for late train services in the UK (Moneywise estimates 75% of all affected passengers do not make compensation claims).

Of course there is the obvious question: would there be less delay if more people claimed compensation (i.e. if it cost more to be late)? Seeing that there is a large variation of delay levels across train operators this question could be answered if one knew the level of compensation claims across these operators.

More interestingly though, could the day-care centre experiment be used as a reverse analogy to examine train operators behaviour? Is it possible that train delays are so frequent because companies know that they can offer compensation to passengers (i.e. the moral incentive is replaced by a financial incentive)? What would happen if we removed the financial incentive? Would it be replaced by a moral one (just like in the case of parents and the day-care centre)? It would make an interesting natural experiment if one could compare delay and compensation statistics before and after financial incentives (compensation) were introduced in passenger train services.

Independent Scotland – The power of small economies

With the Scottish independence referendum on the doorstep I have been tempted into expressing my opinion in a short post even though I have absolutely no skin in the game. I can sort of see the logic behind Westminster barging in for the run-up but it has always puzzled me why large businesses feel that threatening to move their headquarters abroad is a risk that anyone should seriously be concerned about. In a world of free trade the headquarters of businesses is hardly of cardinal importance for the supply of goods and services. Read more of this post

The economics of DIY (part 1)

It happened that for the umpteenth time I had to do something around the house (replacing and re-wiring the towing socket on my truck) and the task seemed so trivial that I could not face the hustle of ringing a local business (garage) rather I decided to do it myself on a quite Saturday afternoon. I googled the instructions, watched a 5-minute video on YouTube on how to do it and after about 2 hours of fiddling with the wires (it is a 12-pin socket!) it was done.

Of course whilst my DIY-self was contentedly looking at the fruit of his efforts, the economist in me immediately posed the question. What impact did my little venture into auto electrics have on the economy? More generally, what does it mean to the economy that people are able to do simple tasks around the house thanks to readily available tutorials and instructions on the Internet? Read more of this post

Classical liberalism in 19th century Hungary

I recently found a book on Hungarian Liberalism (a collection of articles) and read through some of the short essays of Széchenyi (affectionately remembered as the ‘Greatest Hungarian’ in the country) and was pleased to be confirmed by how purely Hume and Adam Smith can be found in his thinking (later in the 20th century the political mainstream often tried to depict him as a proponent of nationalism). Read more of this post