We are capitalists – you’re welcome!

https://iea.org.uk/ | Kate Andrews

I was asked on a podcast this week if capitalism and communism can co-exist.

The short answer is, yes: capitalism has created wealthy, liberal and diverse societies, which tolerate a range of ideologies – even ones as fanciful and hazardous as communism.

But the similarities end there. The freedom that capitalism inspires and the force that communism requires will forever be at odds.

Yet despite overwhelming historical evidence that the former leads to flourishing, and the latter to disaster, sympathies for the hammer and sickle seem to be on the rise.

Take Novara Media editor Ash Sarkar, who made waves recently, after announcing proudly on Good Morning Britain that she was a full-blown communist, and chiding the host Piers Morgan for assuming her to be your average left-winger.

The result has been weeks of debate on the merits of an economic order whose attempted implementation has resulted in nearly 100m deaths worldwide.

It seems almost farcical that this tried, tested, and catastrophically failed system of belief could rear its ugly head once more. But it has, and we can’t ignore it.

Young people are increasingly sympathetic towards communism compared to older generations. According to one record poll, “a third of millennials (32 per cent) falsely believe more people were killed under George W Bush than under Joseph Stalin”.

It doesn’t help that communism often eludes the historical scrutiny applied to other economic orders, with defenders claiming that the problem with Marxism is simply that “it’s never really been tried”.

Ask them how they’d implement their system differently to the USSR – or East Germany, or Venezuela, or North Korea – to ensure utopia instead of mass murder, and you rarely get more than catchphrases or buzzwords about “economic democracy” and “ownership by the people”.

The very simple answer is that there is no answer: structuring an economy to prioritise the collective in every circumstance cannot be done without brute force.

There is also a strange sympathy given to the intentions of communism, despite the horrific realities of the outcomes it wreaks. Communism gets an easier ride than its far-right equivalent – fascism – because its goals are seemingly kinder, well-meaning, and rooted in a sense of equality.

Yet even its intentions, when properly analysed, become deeply sinister. There is nothing fair or noble about stripping individuals of their autonomy and freedom. Prohibiting people from acting as traders and profit-makers is an attempt to destroy an innate sense of entrepreneurship and ambition that is fundamentally engrained in humanity.

But perhaps the biggest boost for communism has come from our failure to make the case for capitalism – an ideology that, though by no means perfect, is by far the best elevator we’ve created to lift people into prosperity.

I’ve been making my way through the latest primer to be published by the Institute of Economic Affairs, written by one of the UK’s most renowned experts on capitalism, Dr Eamonn Butler. His simple and honest assessment of capitalism’s strengths and weaknesses provides plenty of food for thought, but even more importantly, reasons to remain extremely optimistic about the future.

While communism has sent tens of millions to their deaths, capitalism has lifted over one billion people out of poverty in a quarter of a century alone. Free enterprise has raised our standard of living in miraculous ways, and allowed for individualism to thrive alongside a world that is becoming increasingly connected.

Millennials are the generation of AirBnB and Deliveroo – the biggest consumers of what capitalism has to offer. Perhaps one day, our stated preferences will line up with our revealed preferences. Until then, I hope my peers enjoy purchasing “I’m a Communist, You Idiot” T-shirts for £20 a pop. We are Capitalists, You’re Welcome.

A version of this article first appeared in City AM. 

Kate Andrews

Feminist group admits ‘pay gap’ is caused by women’s choices

www.campusreform.org | Toni Airaksinen

The American Association of University Women (AAUW) has finally admitted that the “gender pay gap” is caused primarily by women’s choices, not discrimination.

 

  • In fact, the AAUW’s own research suggests that only about 7% of the observed pay gap can be attributed to discrimination, with simple economic factors accounting for the remainder.

 

The American Association of University Women (AAUW) has finally admitted that the “gender pay gap” is caused by women’s choices.

In a recent article on the gender pay gap, AAUW Senior Researcher Kevin Miller concedes that the pay disparity between women and men isn’t caused primarily by discrimination, but rather by the personal and professional choices that women make.

“The gender pay gap is…not an estimate of the effect of discrimination.”   

These choices include the tendency of women to work fewer hours to focus on “domestic work” and accept “reduced job tenure resulting from breaks in labor-force participation to raise children.”

[RELATED: AAUW tells white feminists to ‘confront your privilege’]

Miller even notes that women tend to choose lower-paying jobs than do men, pointing out that dangerous jobs such as “construction, manufacturing, and transport” are predominantly done by men, while “most workers in health care and education occupations are women.”

The problem is that male-dominated professions tend to offer higher pay, he says, asserting that “parking lot attendants (usually men) are paid more to watch cars than full-time child care workers (usually women) are paid to care for children, even though child care workers are increasingly being pushed to earn a college credential.”

Citing data from the U.S Bureau of Labor Statistics, though, he also confirms that not only are women more likely to work part-time, but also that “among full-time workers, men work longer hours on average than do women.”

[RELATED: ‘#FeministHalloween’ costumes defy ‘internalized misogyny’]

While Miller cites women’s choices as the cause of the pay gap, he doesn’t suggest that women’s choices can solve it.

In response to a common question the AAUW receives regarding whether women should “choose higher-paying jobs,” Miller is mum on whether this could make a difference, merely noting that women can’t avoid  “societal bias by choosing a career in an occupation that is higher paying.”

The AAUW, which celebrates seven different equal pay days, has campaigned relentlessly over the past few years to argue that the gender pay gap is due to discrimination, but this appears to be the first article in which the organization takes a more nuanced approach to the issue.

[RELATED: AAUW: Humans will ‘walk on Mars’ before gender gap closes]

Indeed, Miller acknowledges that to the extent that discrimination against women actually does influence the pay gap, only about “7 percent” is explained by gender, according to AAUW research, while another study pegged the figure at 8 percent.

“The gender pay gap is an estimate of the actual gap in pay between men and women, not an estimate of the effect of discrimination,” he explains, though he then goes on to argue that discrimination is still a problem.

“These estimates of the gap due to gender bias and discrimination are smaller than the overall gender pay gap, but the gap due to bias and discrimination is still substantial,” he concludes. “Regardless of how much of the pay gap is due to gender bias and pay discrimination, the size of the overall gap—the difference in actual pay received by women and men—is still an important indicator of the economic inequality faced by women in the United States.”

Campus Reform reached out to the AAUW for comment, but did not receive a response in time for publication.

Why do women still earn a lot less than men?

The Economist

Why do women still earn a lot less than men?

When they do the same job, though, their salaries are practically the same

PAYROLL clerks across Britain are busier than usual. By April next year large employers must publish data on the gap in pay between their male and female workers. Many have already complied. In America, by contrast, President Donald Trump recently halted a similar rule that would have taken effect next year. Such requirements are meant to energise efforts towards equal pay for men and women. The data suggest that a new approach is needed. In the OECD, a group of rich and middle-income countries, median wages for women working full time are 85% of those for men. Why do women still earn so much less?

Contrary to popular belief, it is not because employers pay women less than men for doing the same jobs. According to data from 25 countries, gathered by Korn Ferry, a consultancy, women earn 98% of the wages of men who are in the same roles at the same employers. Women, however, outnumber men in lower-tier jobs, such as secretarial and administrative roles, whereas men predominate in senior positions. And women cluster in occupations and industries that pay lower salaries overall. Primary-school teachers in the OECD, for example, earn nearly 20% less than the average for university graduates. In the European Union nearly 70% of working women are in occupations where at least 60% of employees are female. In America, the four jobs done by the biggest numbers of women—teacher, nurse, secretary and health aide—are all at l

The main reason why women are less likely than men to reach higher-level positions is that they are their children’s primary carers. In eight countries polled by The Economist and YouGov earlier this year, 44-75% of women with children living at home said they had scaled back at work after becoming mothers—by working fewer hours or by switching to a less demanding job, such as one requiring less travel or overtime. Only 13-37% of fathers said they had done so, and more than half of those men said their partner had also scaled back. This pattern means that men get a better shot at a pay rise or a promotion than their female colleagues, and are less likely to be in jobs for which they are overqualified. A recent study estimated that in America women’s future wages fall, on average, by 4% per child, and by 10% per child in the case of the highest-earning, most skilled white women. In Britain, a mother’s wages fall by 2% for each year she is out of the workforce, and by twice as much if she has good school-leaving qualifications.

Women’s lower salaries mean that they often fall into poverty when they divorce or are widowed. Lack of financial independence prevents some from leaving abusive partners. Policies and workplace norms that make it easier for men to split parental duties equally with their partners can tip the scale. Parents, for their part, need to instil in their children the idea that they can be anything—and not only if they are girls. Gender equality will remain elusive until boys are as excited as girls about becoming teachers, nurses and full-time parents.

Are women paid less than men for the same work?

www.economist.com

When all job differences are accounted for, the pay gap almost disappears

MEDIA organisations aspire to cover news, not make it. But the BBC, Britain’s public broadcaster, has found itself in an uncomfortable spotlight since July 19th, when it published the names of its employees who earn at least £150,000 ($195,000) a year. The ensuing furore was less over the absolute level of pay than about the differences between men’s and women’s incomes. Some female presenters discovered that they made much less than male colleagues they regarded as peers. Just over half of the BBC’s staff are men, but among the 96 high earners listed, two-thirds are male.

In a petition, female presenters said this was evidence that women at the BBC are paid less than men “for the same work”. If that were true for the company as a whole, it would make the BBC an outlier. Although the average woman’s salary in Britain is 29% lower than the average man’s, the bulk of that gap results from differences in rank within companies, firms’ overall compensation rates and the nature of the tasks a job requires. According to data for 8.7m employees worldwide gathered by Korn Ferry, a consultancy, women in Britain make just 1% less than men who have the same function and level at the same employer. In most European countries, the discrepancy is similarly small. These numbers do not show that the labour market is free of sex discrimination. However, they do suggest that the main problem today is not unequal pay for equal work, but whatever it is that leads women to be in lower-ranking jobs at lower-paying organisations.

Moreover, even if the bulk of the BBC’s 9,000 female employees are not underpaid relative to their male colleagues, the list does suggest a problem among the broadcaster’s top brass. That pattern is fairly common. Pay gaps between men and women in the same roles at the same employers are narrow across Europe for 15 of the 16 job levels in Korn Ferry’s database—but the highest one is the exception. In Spain and Germany, top-ranking women make 15-20% less than similarly high-flying men.

A new law in Britain requires all medium-to-large employers to publish data on the pay gap between their male and female workers by April 2018. The reactions to the BBC’s list suggest they would be wise to break these data down for comparable jobs. That will show more precisely where the problem lies.

Everything you might want to know about the UK’s trade with the EU

fullfact.org | And when they say everything they mean everything…

Trade with the EU matters a lot, but slightly less than it used to

About 44% of UK exports in goods and services went to other countries in the EU in 2016—£240 billion out of £550 billion total exports.

That share was declining until 2013, when exports to other countries increased at a faster rate. Since then the share has held steady.

The EU’s share of the world economy has been declining too. In particular, the developing world has been growing faster than the developed world and is expected to continue doing so.

53% of our imports into the UK came from other countries in the EU in 2016. That proportion has fallen by a few percentage points over the past 16 years.

It’s sometimes argued that these statistics overstate the proportion of UK exports that go to the EU, because a lot of goods pass through ports like Rotterdam before being shipped to a final destination outside the EU.

Both the Office for National Statistics and the government’s review of our EU membership have concluded that it’s hard to quantify the extent of this ‘Rotterdam effect’ or establish whether it’s a serious problem for the statistics.

The ONS has estimated that it may account for around 2% of all exported goods and services to the EU.

Trade after we leave

Assuming the UK leaves the EU, the future rules on trade will depend on what kind of agreement, if any, the UK reaches with the EU after its departure. Trade in services will be particularly important, because about 80% of the UK economy comes from providing services.

The future trade rules on services for a country outside the EU are particularly difficult to predict. We’ve got more on this here.

After the UK leaves the EU we will still continue to trade with EU countries. The government wants to negotiate a new trade agreement to make that trade easier.

If no new trade deal is negotiated and trade took place under World Trade Organisation rules, we would have to pay tariffs and face other barriers to trade.

How much is UK-EU trade worth to each party?

There’s lots of different ways to look at how much UK-EU trade is worth to each party, and what that means for who will be most keen to agree on a post-Brexit trade deal .

The three main ways that are used are:

  • The value of trade to the UK and the rest of the EU—we exported about £230 billion worth of goods and services to the rest of the EU in 2015, according to UK data, while the rest of the EU exported somewhere around £290 billion to us. These figures differ if you use EU data. What this means is that the rest of the EU sells more to us than we sell to it.
  • What those exports are as a proportion of all exports—by this measure about 46% of the UK’s exports go to other EU countries, while somewhere between 8-17% of exports from other EU countries go to the UK (depending on how you measure it).
  • The value of that trade to the UK and other EU countries’ economies—exports to the rest of the EU are worth about 13% of the UK’s economy, and exports from other EU countries to the UK are worth about 3-4% of the value of those countries’ economies taken as a whole.

Now for the detail…

Other EU countries sell more to us than we sell to them

It’s often claimed that other EU countries sell more to us than we sell to them. Taking other EU countries as a bloc, that’s correct.

The rest of the EU sells about £60 billion more to us in goods and services than we sell to them, according to UK data—so the UK runs a “trade deficit” with the rest of the EU.

Exports of goods and services to other EU countries were worth £230 billion in 2015, while exports from the rest of the EU to the UK were worth about £290 billion.

Those figures differ if you look at EU data, and the Office for National Statistics told us that this is because EU countries collect data about services in different ways.

For example, EU data suggests goods and services exported from the rest of the EU to the UK could have valued up to £350 billion in 2015—higher than the £290 billion the UK data. Either way, the rest of the EU as a whole sells more to us than we sell to it, and that’s the case for the majority of EU countries.

Within that overall picture, there’s a lot of variation in the trade that each individual country does with us. Germany has the biggest trade deficit with us— in 2015 it sold about £25 billion more to us than we sold to it, according to UK data.

8% of EU exports go to the UK is one possible estimate

You might have heard the claim that only 8% of the EU’s exports go to the UK, compared to the well over 40% of UK exports that go to other EU countries.

Whether the 8% is correct depends on how you treat exports between EU countries. Looked at another way, you can get 17%.

About 8% of the EU’s goods and services exports to EU and non-EU countries went to the UK in 2014. That includes exports from EU countries to other EU countries, as well as to non-EU countries.

The other way to look at it is to say that what we’re really interested in is how important the UK would be to the EU’s trade with countries outside of the EU only, if it were to leave the EU. Looked at that way, about 17% of the EU’s goods and services exports to non-EU countries went to the UK in 2014, according to EU data.

The UK is the EU’s largest single export market for goods, but only just

It’s also often claimed that the UK is the EU’s largest single export market for goods.

That’s just about the case if you treat the UK as if it were not in the EU and focus on EU goods exports to non-EU countries. The UK is very slightly ahead of the USA, with 16.9% of EU exports going to the UK, compared to 16.5% going to the USA in 2015.

If you’re counting EU countries too then Germany receives the largest amount of goods exports from other EU countries.

It’s more complicated to work this out for services due to the variation between each country’s data.

UK-EU exports are a bigger part of the UK’s economy than the EU’s

Although fewer of our exports are now going to other EU countries, these exports are still just as important to our economy.

The £230 billion exports of goods and services to other EU countries were worth about 12% of the value of the British economy in 2015. It’s been at around 13-15% over the past decade.

Exports from the rest of the EU to the UK were worth about 3-4% of the size of the remaining EU’s economy in 2015. The exact number depends on whether you use the £290 billion figure from UK data, or £350 billion from EU data.

The sources we’ve used

As we’ve mentioned, the figures for trade vary depending on whether you look at UK data or data from other EU countries. If we used all the variations for every time we used a figure, we’re not convinced anyone would make it to the end of the article.

If you’re unclear which we’ve used when, we have used UK data whenever we have focused only on the UK’s exports or imports, and EU data where we focus only on the EU’s exports or imports. Where we make comparisons, we either use UK data only, or use both UK and EU data.

Correction 23 March 2017

We originally said in the first section of this article that:

“The European Commission itself says that “over the next ten to 15 years, 90% of world demand will be generated outside Europe”.”

While this was quoted from the Commission’s website, it has since been removed.

The Commission told us that this should have read: “90% of global economic growth by 2015 is expected to be generated outside Europe”, from a working document. This was based on IMF forecasts in 2012 for GDP growth worldwide up to 2015.

We’ve replaced this with the paragraph about the EU’s declining share of the world economy.

 

Capitalism and Freedom

Managed to read Capitalism and Freedom on holiday. Its very US centric and very to the right but has got some interesting ideas.

Capitalism and Freedom was published nearly two decades after World War II, a time when the Great Depression was still in collective memory. Under the Kennedy and preceding Eisenhower administrations, federal expenditures were growing at a quick pace in the areas of national defense, social welfare, and infrastructure. Both major parties, Democratic and Republican, supported increased spending in different ways. This, as well as the New Deal, was supported by most intellectuals with the justification of Keynesian economics. Capitalism and Freedom introduces the idea of how competitive capitalism can help to achieve economic freedom”

You can get it on Amazon

 

A beginner’s guide to socialist economics

humanprogress.org | Marian L. Tupy

In recent years, I have given a number of presentations to high-school and college students on the importance of economic freedom and persistent threat of socialism – as witnessed, for example, by the recent economic meltdown in Venezuela. One problem that I have encountered is that young people today do not have a personal memory of the Cold War, let alone an understanding of social and economic arrangements in the Soviet bloc, which, I suspect are either downplayed or ignored in American school curricula. As a result, I have written a basic guide to socialist economics, drawing on my personal experience growing up under communism. I hope that this – somewhat longer piece – will be read by the millennials, who are so often drawn to failed ideas of yore.

As a boy growing up in communist Czechoslovakia, I would, for many years, walk by a building site that was to become a local public health facility or clinic. The construction of this small and ugly square-shaped building was slow and shoddy. Parts of the structure were falling apart even while the rest of it was still being built.

Recently, I returned to Slovakia. One day, while driving through the capital of Bratislava, I noticed a brand new suburb that covered a hill that was barren a mere two years before. The sprawling development of modern and beautiful houses came with excellent roads and a large supermarket. It provided a home, privacy, and safety for hundreds of families.

How was it possible for a private company to plan, build, and sell an entire suburb in less than two years, but impossible for a communist central planner to build one small building in almost a decade?

A large part of the answer lies in “incentives.” The company that built the suburb in Slovakia did not do so out of love for humanity. The company did so, because its owners (i.e., shareholders or capitalists) wanted to make a profit. As Adam Smith, the founding father of economics, wrote in 1776, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”

In a normally functioning market, it is rare for only one company to provide a certain kind of good or service. The people who bought the houses in the suburb that I saw did not have to do so. They could have bought different houses built by different developers in different parts of town at different prices. Competition, in other words, forces capitalists to come up with better and cheaper products – a process that benefits us all.

Communists opposed both profit and competition. They saw profit-making as useless and immoral. In their view, capitalists did not work in the conventional sense. The real work of building the bridges and plowing the fields was done by the workers. The capitalists simply pocketed the company’s profits once the workers’ wages have been paid out. Put differently, communist believed that the capitalist class exploited the working class – and that was incompatible with the communist goal of a classless and egalitarian society.

But capitalists are neither useless nor immoral. For example, capitalists often invest in new technologies. Companies that have revolutionized our lives, like Apple and Microsoft, received their initial funding from private investors. Because their own money is on the line, capitalists tend to be much better at spotting good investment opportunities than government bureaucrats. That is why capitalist economies, not communist ones, are the leaders in technological innovation and progress.

Moreover, by investing in new technologies and by creating new companies, capitalists provide consumers with a mind-boggling variety of goods and services, create employment for billions of people, and contribute trillions of dollars in tax revenue. Of course, all investment involves at least some level of risk. Capitalists reap huge profits only when they invest wisely. When they make bad investments, capitalists often face financial ruin.

Unfortunately, communists did not share the above views and banned private investment, private property, risk-taking and profit-making. All large privately held enterprises, like shoe factories and steel mills, were nationalized. A vast majority of small privately held enterprises, like convenience stores and family farms, were also taken over by the state. The expropriated owners seldom received any compensation. Everyone now became a worker and everyone worked for the state.

In order to prevent new income inequalities and new classes from emerging, everyone was paid more-or-less equally. That proved to be a major problem. Since people did not make more money when they worked harder, few of them worked hard. The communists tried to motivate or incentivize the workforce through propaganda. Posters of strong and determined workers were ubiquitous throughout the former Soviet empire. Movies about hardworking miners and farmers were supposed to instil the population with socialist zeal.

marian-communist-economics-1

Propaganda alone could not increase the productivity of communist workers to Western levels. To incentivize the workforce, communist regimes resorted to terror. Workers who slacked off on the job were sometimes convicted of sabotage and shot. More often, they were sent to the Gulag – a system of forced labour camps. Sometimes, the authorities arrested and punished completely innocent people on purpose. Arbitrary terror, the communists believed, made the rest of the workforce more productive.

In the end, tens of millions of people in the Soviet Union, China, Cambodia, and other communist countries were sent to labour camps. The living and working conditions in the camps were inhuman and millions of people perished. My great uncle, who was accused and convicted of being a supporter of the underground democratic opposition in communist Czechoslovakia, was sent to mine uranium for the Soviet nuclear arms program. Working without any protection from radiation, he died of cancer.

By the late 1980s, communist regimes lost much of their revolutionary zeal. Terror and fear subsided, and productivity declined further. Thus, in the late 1980s, an average industrial worker in Western Europe was almost eight times as productive as his Polish counterpart. Put differently, in the same time and with the same resources that a Polish worker needed to produce $1 worth of goods, a Western European worker could produce $8 worth of goods.

Just as they replaced the profit motive with propaganda and terror, so the communists replaced competition with monopolistic production. Under capitalism, companies compete for customers by slashing prices and improving quality. Thus, a teenager today can choose between jeans made by Diesel, Guess, Calvin Klein, Levi’s and many others.

Communists thought that such competition was both wasteful and irrational. Instead, communist countries tended to have one monopolistic producer of cars, shoes, washing machines, etc. But, problems soon arose. Since producers in communist countries did not have to compete against anyone, they did not have any incentive to improve their products. Compare, for example, the BMW 850 that went into production in West Germany in 1989 and the Trabant that was made in East Germany at the same time.

marian-communist-economics-2marian-communist-economics-3

Communist producers were protected from domestic competition by having a monopoly. They were also protected from foreign competition by prohibitively high import tariffs or an outright ban on imports. Put differently, they had a “captive” consumer base. The Brabant car manufacturer did not have to worry about losing consumers, since the latter had nowhere else to go.

Moreover, the workers at the Trabant car plant received the same salary irrespective of the number of cars they produced. As a result, they produced fewer cars than were needed. People in East Germany had to wait for many years, sometimes decades, before they were able to buy one. Indeed, shortages of most consumer goods, from important items such as cars to mundane items such as sugar, were ubiquitous. Endless queuing became a part of everyday life.

Under capitalism, shortages are generally avoided through the movement of prices. Some prices, like those of national currencies traded globally, change virtually every second. Other prices change more slowly. If there is a shortage of strawberries, for example, their price will rise. As a result, fewer people will be able to buy strawberries. On the upside, the people who value strawberries the most and are willing to pay the higher price will always find them.

The movement of prices provides important information for the capitalists. Capitalists take their money and invest it in more profitable business ventures. If the price of something is rising, not enough of it is being produced. Investors rush in with new capital, hoping to make a profit. Production increases. The economy as a whole thus tends toward an “equilibrium” or a point at which capital is distributed roughly where it is needed.

marian-communist-economics-4

Prices are an important source of information, but where do they come from? In a capitalist economy, nobody sets prices. They emerge “spontaneously” in the market place. Every time I buy a cup of coffee on the way to work, for example, I incrementally increase the price of the coffee bean. Every time I fail to buy my usual morning cup of coffee because I am late for work, I decrease its price by a tiny amount. If everyone stopped buying coffee, its price would collapse.

Communists banned profit, capitalists, competition, free trade and much (if not all) private property – all of which are necessary for accurate prices to emerge. Instead, tens of millions of prices for items ranging from tractors to a loaf of bread were set annually (or every few years) by government bureaucrats. Since they could neither accurately predict how much bread would be produced (i.e., supplied) nor how much bread would be consumed (i.e., demanded), the bureaucrats almost always got the prices wrong.

Price-setting made shortages associated with low productivity worse. If the price of flour was set too high, bakeries would bake too little bread and bread would disappear from shops altogether. If the price of flour was set too low, too much bread would be baked and much of it would end up rotten. Put differently, communist economies were very inefficient.

To complicate matters, communists sometimes mispriced items intentionally. The price of meat, for example, was kept too low year after year out of political considerations. Low prices created an impression of affordability. On their trips abroad, communist officials would often boast that the workers in the Soviet empire could buy more meat and other produce than their Western counterparts. In reality, shops were often empty. As a consequence, money was of limited use. To get around shortages, many people in communist countries resorted to bartering goods and favors (or services).

Under communism, the state owned all production facilities, such as factories, shops and farms. In order to have something to trade with one another, people first had to “steal” from the state. A butcher, for example, stole meat and exchanged it for vegetables that the greengrocer stole. The process was inefficient, but it was also morally corrupting. Lying and stealing became widely used and trust between people declined. Far from fostering brotherhood between people, communism made everyone suspicious and resentful.

marian-communist-economics-5

Of course, not everyone was equally affected by shortages. Government officials and their families could generally avoid the daily hardships of life under communism by having access to special shops, schools, and hospitals. Communism started as a movement for greater equality. In reality, it was a return to feudalism. Like feudal societies, communist societies had an aristocracy composed of the communist party members. Like feudal societies, communist societies had a population of serfs with limited or no rights and little possibility of social mobility. Like feudal societies, communist societies were held together by brute force.

Postscript:

I am sometimes asked why, if communism was so inefficient, it had survived as long as it did. Part of the reason rests in the brute force with which the communists kept themselves in power. Part of it rests in the emergence of smugglers, who made the economy run more smoothly. When, for example, a communist shoe factory ran out of glue, the factory manager called his contact in the “shadow” or “underground” economy. The latter would then obtain the glue by smuggling it out of the glue factory or from abroad. Smuggling was illegal, of course, but it was preferable to dealing with the government bureaucracy – which could take years. So, in a sense, communism’s longevity can be ascribed to the emergence of a quasi-market in goods a favors (or services).

This article originally appeared in CapX.

Myths and bad logic drive obsession with inequality in UK

iea.org.uk

“For too long, the discussion around inequality in the UK has been defined by an array of myths and misconceptions. Contrary to popular belief, income inequality has on most measures been stable for the past quarter of a century, whilst wealth inequality is neither particularly high by historic standards in the UK nor compared with other countries.

Politicians are often too quick to conflate poverty with inequality, either due to a lack of understanding, or in an attempt to score political points, and continual emphasis on the importance of reducing inequality is misplaced. In reality the gap between high and low earners tells us nothing about the material living standards of the poor. In the Chinese growth miracle, inequality increased as everyone got better off. In the UK post-recession, inequality fell as living standards stagnated. Someone too worried about reducing the gap would have to denounce the first, and celebrate the second.

The risk we run by continually focusing the spotlight on inequality levels is that we will lose sight of the main priority: to improve living standards generally, and for the poorest in particular. In order to achieve this, the focus should be to ensure there is healthy economic growth, which in turn leads to higher paying, more productive jobs.

The full briefing, by Ryan Bourne & Christopher Snowdon, can be downloaded here.”

No, rent control does not work — it actually benefits the rich and hurts the poor

uk.businessinsider.com | 

“Rent control actually drives up the price of most rents by restricting the supply of new units onto the market. While some renters may get a bargain, most people never get access to rent-controlled flats. Once people move into a rent-controlled place, they are incentivised to never move out, because it is so cheap.

That removes a huge chunk of available housing from the market. Demand for new housing remains the same, but now the supply of new housing is reduced. So prices everywhere else go up.

Under rent control, landlords and property owners know not to create any new housing units that fall under rent control, because they won’t be able to maximise their investment. So they build as few units as possible in that category.

None of this stops the luxury real-estate developers, however. A luxury real estate financier in London told me recently that his clients love London’s “social housing” rules because his developers are able to either fake the paperwork necessary to get around it or make one-off cash payments to the local council in lieu of building social units.

The result is that developers build only high-end units for the luxury market, because there is no money in creating affordable housing if landlords can never raise the rent. Developers get rich. And rich people get all the best new housing.

In turn, this magnifies an already bad situation for the not-rich: By definition, every luxury unit built is a more modest unit not being built.

The Financial Times has a nice theoretical chart illustrating how this happens:

rent control

The line P* represents the price where demand completely meets supply. P** is the price where demand completely meets supply at an artificially enforced lower level. Anyone who can get a house at P** is lucky. But the supply of available units there is now much lower. All the people who fall into the gap between P** and P* are those who would normally have been able to get place to live but now cannot. (Those willing to pay more can live wherever they want — because there is excess supply at high price points in the top-right section of the chart.)