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Like the myth of a flat Earth, the socialist conspiracy theory never dies

Like the myth of a flat Earth, the socialist conspiracy theory never dies

The idea that the Earth is flat is a rapidly growing trend on social media. The Flat Earth Society’s Twitter feed has the best part of 100,000 followers.

The fact that the planet is a sphere has been known since at least the time of the ancient Greeks. The astronomer Eratosthenes demonstrated it with a simple but brilliant experiment based on the length of the shadow of the noonday sun at two different places.

The evidence of major natural experiments, which contrast the performances of economies based upon market-oriented principles with those based upon the planned economy ideology of socialism, is decisive in just the same way.

Compare the US and the Soviet Union, East and West Germany, North and South Korea, India and China under different forms of socialism versus under different forms of capitalism. In each example, the capitalist country performed far better than the socialist one.

This is discussed in an interesting new book by Kristian Niemietz, head of political economy at the Institute of Economic Affairs (IEA), entitled “Socialism: the failed idea that never dies”. (As a disclaimer, I am a member of the IEA’s academic panel but was not involved with this book).

The main theme describes the attitudes of western left-wing intellectuals towards socialist societies. The author covers the Soviet Union, China under Mao Zedong, Cuba, North Korea, Cambodia, Albania, East Germany, and Venezuela.

Niemietz identifies common trends in how western believers in socialism have reacted to each of these regimes.

There is an initial honeymoon period, where the experiment generates some evidence that it might be working. The Soviet Union in the 1930s, for example, was industrialising rapidly. Western admirers such as George Bernard Shaw conveniently ignored the mass famines in Ukraine and the millions of people in the labour camps. They eulogised the new type of society.

Eventually, the negative evidence becomes too strong to sweep under the carpet. Supporters then become angry and defensive. They question the motives of their critics and there is a frantic search for excuses.

The third and final stage sees western socialists deny adamantly that this particular example ever constituted real socialism. Socialism did not fail, because the country was never actually socialist to begin with.

These points are not just of abstract interest. Niemietz sets out in detail how the current Labour leaders, Jeremy Corbyn and John McDonnell, have gone through exactly these three phases in their attitudes towards Venezuela.

The final part of the book considers why such an obviously wrong idea continues to attract support.

Niemietz recognises that this is probably a job for psychologists, but being an economist, he looks to see what economic theory can say.

A key point is simple cost benefit analysis. Western intellectuals can acquire prestige and admiration for defending socialism, but never have to incur the costs involved of actually living under that system.

But if Corbyn and McDonnell have their way, the bien pensants of North London would learn for themselves what socialism actually means. Unfortunately, the rest of us would as well.

As published in City AM Wednesday 6th March 2019
Image: Berlin Wall by Flickr is licensed under CC BY-SA 2.0
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From Venezuela to East Berlin, people will always choose capitalism over socialism

From Venezuela to East Berlin, people will always choose capitalism over socialism

How many people across the world in the history of humanity have fled from a capitalist country to a socialist one?

There was much amusement at the height of the long miners’ strike of 1984/85. A National Union of Mineworkers official from Yorkshire, a crony of Marxist trade unionist Arthur Scargill, sought sanctuary in the Stasi-controlled state of East Germany. He apparently felt unsafe under the jackboot of the Thatcher regime in the UK.

In the 1930s, some tens of thousands moved to Stalin’s Soviet Union, including the father of General Wojciech Jaruzelski, the leader of the last Communist government of Poland in the 1980s.

According to the euphemism used by the late Robert Maxwell in his biography of Jaruzelski, the father then “took a job in the north-east of the Soviet Union”. In other words, he was sent to the Siberian labour camps. He was lucky. Most of the other Poles who moved to the Soviet Union were subsequently shot.

These incidents stick in the mind precisely because they are so rare.

In contrast, when given the chance, millions flee from socialism. Venezuela is but the latest example. According to the United Nations, well over two million people have already escaped, taking with them just whatever they can carry.

The Berlin Wall was constructed in 1961 to prevent people moving from socialist East Germany to capitalist West Germany.

As post-war reconstruction got underway in the 1950s, around 3.5m left for a better life in the West – more than 10m translated into UK population terms. The Wall was built to keep them in.

The problem which the western countries have is not in keeping their own populations in. It is keeping others out, whether it is by Donald Trump’s wall in the US or Matteo Salvini’s refusal to allow boats of refugees to land in Italy.

The reason is simple. Economies based on market-oriented principles work much better than centrally planned ones. Capitalism, for all its faults, offers a much better lifestyle than socialism.

In the 1950s, South Korean living standards were not much better than those of sub-Saharan African countries. Now, South Korea is rich, while the North remains trapped in poverty. High-security levels are imposed by the latter to keep people in place. If they were removed, the country would rapidly become de-populated.

A fundamental concept in economic theory is that of revealed preference. People reveal what they really want not through answers to survey questions, but by their actions. If I say I prefer Pepsi to Coke but always buy Coke, I reveal that I actually prefer Coke.

Given the chance, over the years many millions of people have left socialist countries for capitalist ones. People were even willing to risk death to try to escape the old Soviet bloc countries.

By their actions, people reveal their preferences.

The financial crisis, scandals like Carillion, inequality and homelessness – all these are sticks for “useful idiots”, in Lenin’s phrase, to beat capitalism. But the point cannot be made often enough: whenever people are given the choice, they prefer capitalism to socialism.

As published in City AM Wednesday 29th August 2018

Image: Berlin Wall by Flickr is licensed under CC BY-SA 2.0

 

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From Korea to Germany, experiments with socialism show markets always win

From Korea to Germany, experiments with socialism show markets always win

A red-hot topic in economics is randomised controlled trials (RCT). Esther Duflo, the MIT academic who has really driven this idea, has surely put herself in pole position for a Nobel Prize at some point.

The idea of RCTs has been imported from medicine.One group of people are selected at random to be subject to a particular policy, and the outcomes in this set are compared to the rest of the population, which are not.

The studies have been almost exclusively carried out in developing countries. Evaluating RCTs often involves some subtle statistical points, but they are a powerful way of identifying what really works. Their policy impact has already been substantial.

Over 200m people worldwide have been reached by the scaling up of programmes evaluated by the J-PAL network, in which Duflo is the leading light. The RCT studies themselves are carried out on a small scale, evaluating very particular policies. If they succeed, they can be expanded. Examples include encouraging the take-up of school-based deworming, chlorine dispensers for safe water, and free insecticidal bed nets.

A closely related concept is known as a natural experiment. This is when we observe two contrasting policies which have been carried out in the past, either at the same time on different populations or at different times on the same one.

The policies in this case have not been deliberately designed as part of an experiment. They have been introduced as part of the political process.

But good natural experiments can be just as informative as RCTs. Indeed, they can reach the parts which RCTs cannot get to, because we can observe natural experiments which have taken place on very large scales.

By far the most important of these is the series of natural experiments on the performance of market-oriented economies compared to their centrally planned socialist rivals.

The current tensions highlight the differences between North and South Korea. In the 1950s, the latter had living standards similar to African countries. Now, they are at Western levels.

Other countries which were poor in the mid-twentieth century and which have adopted the principles of market-oriented economics have also prospered.

The fall of the Berlin Wall at the end of the 1980s brought into sharp focus the contrast between East and West Germany. The Trabant was a popular car in the East, but it was of such poor quality that its value dropped to almost zero as soon as Western cars could be imported.

The major economic contest of the twentieth century was between the US and the Soviet Union, won easily by America.

India and China practised different forms of socialism until the late 1980s. The Chinese was the most extreme – resulting, for example, in the deaths of at least 60m people in the self-induced famines around 1960. After adopting market principles, both countries have flourished.

The outcomes of these major natural experiments are decisive. Belief in socialism in 2017 is equivalent to believing the sun goes round the Earth.

As published in City AM Wednesday 4th October 2017

Image: For God’s Sake by Ninian Reid is licensed under CC by 2.0
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Blame Jeremy Corbyn for the increasing number of public sector strikes

Blame Jeremy Corbyn for the increasing number of public sector strikes

The total number of working days lost through labour disputes last year was, at just 170,000, the second lowest annual total since records began in 1891.

What a difference a year can make. Southern Rail commuters have endured months of misery due to the prolonged series of strikes called by the RMT. Union members on Eurostar walked out in the past week and have threatened to do so once again over the Bank Holiday weekend. Before it was suspended yesterday, Virgin East Coast staff were planning industrial action.

We are also experiencing the long-running dispute between the government and junior doctors, who in April carried out their first full walkout in the history of the NHS. They are now threatening the “trade union dispute of the century”, with rolling strikes from September onwards.

Traditionally, strike activity rose as the economy picked up. And labour market statistics for 2016 do show that the UK economy is very close to full employment. Pockets of unemployment may be scattered in some of the regions, but the latest economy-wide figures show a rate of just 4.9 per cent, the lowest for 11 years. There are a record 31.7m people in employment, and the proportion of people aged between 16 and 64 who are in work is also at a peace time high of 74.4 per cent.

Despite the buoyancy of the labour market, however, disputes remain very rare in most sectors of the economy. The current spate of strikes is essentially confined to the public sector, broadly defined. Private companies operate the rail franchises, but Network Rail is responsible for the maintenance of the network as a whole.

The connection between the strength of the economy and the number of strikes still holds in transport and health. The innovative polices of the rail operating companies mean that passenger numbers have boomed, doubling over the past decade. And the demand for health services continues to grow rapidly.

The unions shed crocodile tears and claim the disputes arise out of concerns for the safety of the public. In one sense, the strikes are nothing more than good, old fashioned examples of the workers putting their hands in taxpayers’ and consumers’ pockets when the opportunity arises.

But we might reasonably ask why the same things are not happening elsewhere in the economy. There does in fact appear to be a more sinister aspect to these disputes. Many of the strike activists are supporters of Jeremy Corbyn. The Labour leader and his acolytes scorn the possibility of reform through representative parliamentary democracy. Building a so-called social movement is far more important to these true believers than is winning elections.

The Black Lives Matter campaign, another social movement, earlier this month closed access to Heathrow from the M4 and disrupted transport across the UK. Just as with the junior doctors and the rail workers, the same sanctimonious regret was expressed at any inconvenience caused to the public.

Unfortunately, Corbyn’s position as Labour leader and his advocacy of “social movements” gives comfort to the growing number of strikes, sit downs and general disruptions which we are currently witnessing. And if he wins the party’s leadership contest, we can expect them to continue.

Paul Ormerod

As published in CITY AM on Wednesday 16th August 

Image: Jeremy Corbyn by 70023venus2009 is licensed under CC BY 2.0

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Child poverty is thankfully not rising – but the archaic definition needs to go

Child poverty is thankfully not rising – but the archaic definition needs to go

David Cameron is feeling the heat. This is not just a consequence of the sudden dramatic rise in London temperatures. The need to extract something meaningful from our EU partners and the increased threat of terrorist attacks are sleep-depriving problems. But the Prime Minister did have one good result during the past week. Despite widespread predictions to the contrary in the liberal media, the newly-released child poverty figures showed that there had been no increase in the number of children in poverty over the 2011-12 to 2013-14 period.

According to official statistics, the number is still high, at 2.3m. This represents 17 per cent of all children. But apart from a small blip at the height of the 2008-09 recession, the trend has been slowly but steadily downwards since 2000, when 26 per cent were classed as being poor. A child is classed as being in poverty if the household has an income of less than 60 per cent of the UK median. The median is the level at which half of all households have an income above that level, and half are below. It is currently around £25,000 a year in the UK, so a poor household is one which has an income below £15,000.

Life isn’t much fun on that sort of income, and no amount of intellectual juggling can get away from this point. But the official definition of child poverty is a pretty odd one. The idea that an income below 60 per cent of the median made you poor was dreamt up in the 1960s by leftist academics like Peter Townsend, then at the LSE. It meant, quite literally, that the poor would always be with us. If, by the stroke of a magic wand, everyone’s real income in the UK were doubled overnight, the median level would be £50,000 a year. And those with less than £30,000 would then be deemed poor.

More importantly, the data on household incomes in any year are a snapshot taken at a particular point in time. The information does not tell us how people move over time.

In fact, there is a decent amount of mobility in terms of moving up and down the income ladder, as the work of scholars like Tony Atkinson at Nuffield College, Oxford shows. Being poor today does not necessarily mean you will be poor tomorrow. Sajid Javid  was the son of a bus conductor in Rochdale. He is now a multi-millionaire and in the Cabinet.

There is a large scientific literature on the question of income mobility. But as a broad summary, both here and in the US, 40 per cent of all households in the bottom 20 per cent of the income distribution will still be there in 10 years’ time. But this means that 60 per cent have moved up, around 10 per cent of them into the top 20 per cent of all incomes.

Rather than being stuck with one that is little more than a relic of the ideology of the 1960s, a more realistic definition of child poverty would take account of these dynamics.

As published in City AM on Wednesday 1st July 2015

Image: Income by GotCredit licensed under CC BY 2.0

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Who plays better poker? Cameron, Sturgeon or Varoufakis?

Who plays better poker? Cameron, Sturgeon or Varoufakis?

The gracious Palladian architecture of Edinburgh has often led the city to be described as the Athens of the North. If the referendum result had gone the other way, much closer parallels would have rapidly emerged. A high spending left-wing government, faced by a collapse in revenues with the fall in the oil price, would soon have faced the wrath of international capital markets. This could so easily have been the UK as a whole, as the recent politics of Aberdeenshire Council demonstrate. Until last month, the council was narrowly controlled by a motley collection of the unionist parties, embracing the Conservatives, Labour, and Lib Dems. This vignette shows that Labour would happily have worked with the SNP to form a government in Britain. But there are differences between Scotland and Greece. The Scots, for example, have shown themselves to be much more adept practitioners of the esoteric discipline of game theory. Varoufakis, former academic turned Greek finance minister, specialised in the subject. A sound knowledge of game theory can often be very useful. Chris Ferguson, for example, winner of no fewer than five World Series of Poker championships, teaches game theory at UCLA. The deluded Greek Trotskyist seems to have convinced himself that his theoretical knowledge would give him a decisive advantage in the negotiations with the troika of the IMF, the ECB and the European Commission. But he seems to have forgotten that the purpose of playing a game is to win. You win at soccer by simply scoring more goals than your opponent. But the concept of winning in a set of negotiations is often not as clear cut as this. One of the insights of game theory is that it is possible for both sides to win. To achieve this, the players might adopt strategies which signal their willingness to play co-operatively. The pay-off for both can be much higher over time than when they intend to, in the game theory jargon, defect. That is, make a move at some point which is intended to shaft the opponent. Nicola Sturgeon and David Cameron have manoeuvred themselves into a lucrative strategy of co-operation. The game began during the election campaign. The SNP needed to destroy Labour in Scotland. They trumpeted their intention to help Ed Miliband get into Downing Street. The Conservatives seized on this, and used the SNP bogeyman to frighten the voters in the marginals. The game goes on. Cameron needs to make some concessions to Sturgeon so she can boast about them to the Scottish electorate. But the SNP also needs to maintain a set of grievances, which is their raison d’etre. Neither side actually wants to redress them, so that both sides continue to gain and keep Labour out. Practical politicians are often much better practical game players than so-called expert theorists.

As published in City AM on Wednesday 24th June 2015

Image: Poker by Images Money is licensed under CC BY 2.0

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