U.K. "Austerity" Update

I haven't been reading too much lately about so-called "austerity" in the New York Times.  Something must be up.  Let's go look for some data.

I last commented on "austerity" in the U.K. about a year ago.  The Conservative/Lib Dem coalition had come to power in 2010 promising to attack "debt" and "deficit," and three years later in early 2013 the economy was still sluggish.  The anti-"austerity" forces were declaring victory.  But a careful analysis by Nicole Gelinas in early 2013 showed that the actual program to that point had been all tax increases and no spending cuts.  The VAT had gone from 17.5% to 20% in December 2010, and the top income tax rate (on income above 150,000 pounds per year) had gone from 40% to 50%, while spending had continued to grow, if more slowly than under the previous regime.

Then in early 2013 the government proposed actual real cuts in spending.  That brought out the anti-"austerity" armies in full force.  As the Guardian reported on April 18, 2013, the execrable Olivier Blanchard, chief economist of the IMF, warned Chancellor of the Exchequer George Osborne that he was "playing with fire" if he proceeded on the "austerity" course.  His boss and head of the IMF, Christine Lagarde, promptly followed with a warning that "poor performance of the British economy had left her with no alternative" but to call on Osborne to rethink his austerity strategy.   There was also the usual pile-on from the ignorant commentariat, such as an article in The New Yorker titled "It's Official:  Austerity Economics Doesn't Work":

Any decent economics textbook will tell you that, other things being equal, cutting government spending causes the economy’s overall output to fall, tax revenues to decrease, and spending on benefits to increase. Almost invariably, the end result is slower growth (or a recession) and high budget deficits.

And then, horror of horrors, Osborne didn't listen to these know-it-alls and went ahead and cut spending.   According to data at ukpublicspending.co.uk, total government spending in the U.K., having leveled off in 2012, actually went down in 2013.  Spending was 694 billion pounds, 46% of GDP, in 2011; 694 billion pounds, 45% of GDP, in 2012, and 675 billion pounds, 43% of GDP, in 2013.  And suddenly, according to the BBC, the U.K. turned in its best year of economic growth since 2007.  OK, it's only a growth of 1.7%.  But compare that, for example, to high-"stimulus" France, where the government spends 55% or more of GDP.  They claim to have had "growth" of 0.1 - 0.2% in 2013.  Pitiful.

Look around for forecasts of economic growth in the U.K. for this year, and you will find that even the IMF is predicting around 3%.   On April 8, the BBC reported that Blanchard had conceded "it was clear that [the IMF's] forecasts had been 'too pessimistic.'"  However, no word that he has changed his views on the horrors of "austerity."  Now, if only the U.K. could get rid of those tax increases, it could see some real growth!  

Update On Official Manhattan Contrarian Predictions

Here at the Manhattan Contrarian, we don't make a lot of predictions.  But we veered from that path with a few Official Manhattan Contrarian Predictions at the end of last year.  This was the first one:

I predict that the number of "uninsured" in the U.S. will increase as Obamacare is fully implemented in 2014.

Now in my humble opinion, this subject is important.  It is important because the whole raison d'etre for Obamacare and the transformation of a sixth of the economy into government vassals, the basis for the endless drumbeat that we listened to thousands of times over the preceding decades, was the so-called "crisis" of the uninsured.  As the supposedly disinterested but actually revolting pro-government-growth-partisan Institute of Medicine put it in their February 2009 study titled "America's Uninsured Crisis: Consequences for Health and Health Care":

The growing number of uninsured Americans--totaling 45.7 million as of 2007--is taking a toll on the nation's health. One in five adults under age 65 and nearly one in ten children are uninsured. Uninsured individuals experience much more risk to their health than insured individuals. In its 2009 report America's Uninsured Crisis: Consequences for Health and Health Care, the Institute of Medicine points to a chasm between the health care needs of people without health insurance and access to effective health care services. This gap results in needless illness, suffering, and even death.

We're now through the initial sign-up period that ended March 31.  We know that at least 4.7 million Americans had their health insurance cancelled due to Obamacare rules.  We know that the President has claimed that some 7 million people have signed up under the Obamacare exchanges.  But of course the 7 million include many who were previously insured and many who had their policies canceled.  So government, has the number of "uninsured" gone up or down?

Well, in the past couple of days we have found out that they are not going to tell us.  And they are not going to tell us because the White House has directed a change in the methodology by which the Census Bureau counts the uninsured so as to make the new data report smaller numbers of uninsured which numbers however are not comparable to the old numbers.

The story was first reported by Robert Pear in the New York Times on April 15.

[T]he new questions are so different that the findings will not be comparable, the officials said.  An internal Census Bureau document said that the new questionnaire included a “total revision to health insurance questions” and, in a test last year, produced lower estimates of the uninsured. Thus, officials said, it will be difficult to say how much of any change is attributable to the Affordable Care Act and how much to the use of a new survey instrument.

The Pear article makes it clear that many of the changes in methodology came at the request of, and subject to the approval of, the White House.

The White House is always looking for evidence to show the benefits of the health law, which is an issue in many of this year’s midterm elections. The Department of Health and Human Services and the White House Council of Economic Advisers requested several of the new questions, and the White House Office of Management and Budget approved the new questionnaire. But the decision to make fundamental changes in the survey was driven by technical experts at the Census Bureau, and members of Congress have not focused on it or suggested political motives.

I like that last line.  The so-called "technical experts" at the Census Bureau are exactly the people who put out the ridiculously fraudulent "poverty" and "income inequality" numbers that are hugely designed to drive further growth of the government.  This is a Washington bureaucracy, where everybody votes Democrat and shares an interest in government expansion.  How naive can we be?

In his Best of the Web column yesterday, James Taranto reminds us of the story of the initial nomination by Obama of Judd Gregg (Republican Senator from New Hampshire) as Commerce Secretary, and subsequent withdrawal of that nomination by Gregg.  Taranto quotes a report from the time as to Gregg's reason for withdrawing:

Sen. Judd Gregg said today [Feb. 12, 2009] that his decision to withdraw from consideration for commerce secretary was due in part to his concern with the Obama administration's decision to have the next Census director report to senior White House staffers as well as the commerce secretary.

Obama and his team knew exactly what they were doing taking control of the Census Bureau into the White House. 

Bloomberg View blogger Megan McArdle -- who often gives the government much more benefit of the doubt than I ever would -- reacts as follows:

I’m speechless. Shocked. Stunned. Horrified. Befuddled. Aghast, appalled, thunderstruck, perplexed, baffled, bewildered and dumbfounded. It’s not that I am opposed to the changes . . . .  But why, dear God, oh, why, would you change it in the one year in the entire history of the republic that it is most important for policy makers, researchers and voters to be able to compare the number of uninsured to those in prior years?

Well, there is nothing remotely honest about what is going on.  Who could possibly be so naive as to think that the interest of the "policy makers, researchers and voters" in honest data to make their decisions trumps the interest of the administration in preserving Obamacare and the interest of the bureaucracy in getting more Democrats elected to Congress in 2014?

Now, it is actually possible that the number of so-called "insured" is going to increase slightly this year, entirely due to a substantial expansion of Medicaid, otherwise known as bribing people to accept free "insurance" so that the numbers can be improved.  The number of new Medicaid sign-ups is said to be around 3 million.  It is a very safe bet that absent that free giveaway the numbers of uninsured would be up.  But no way is the government ever going to let the people see honest numbers.  

Trial And Error And Income Inequality

A recurrent theme here is the fallacies of the progressive world view.  The top fallacy is the idea that one or a few really smart people can so thoroughly understand the world that they can redesign and restructure the arrangements that have been arrived at through voluntary exchange and thereby make everything fair and perfect.  They don't realize that no one person, or even group of people, is smart enough to come up with any of the thousands of inventions and advances that we take for granted and are critical to our lives.  These things take a vast system of trial and error, in which everyone engages, and where workable incremental advances get shared by market exchange to be combined with other advances and voila! a thousand years later you have the computer.  Of course the trouble with trial and error is that you don't get paid for the errors, only the success; and people who make big successes get paid a lot.  This is known as how the economy works in the whole country except Washington, where the pay for failure and success are the same (if you can think of any success, which I cannot right now).

And into this mix let us throw the latest progressive talking point of "income inequality."  Somehow, talk of the crisis of income inequality is suddenly everywhere.  Is it because President Obama started it and his house media just pick up and circulate his official talking points?  Anyway, we now have William Galston in today's Wall Street Journal writing about what he calls a "bipartisan consensus" developing on the subject of income inequality.  Galston cites a lot of data from a Pew survey conducted in January and available here.

And what is the so-called bipartisan consensus?  Galston is not overly specific.  But he does cite Pew as finding that 27% think the government should "do a lot" to reduce poverty, and 37% think it should "do something."  OK then, what?  As to "signs that some convergence is developing" Galston then cites a speech by Robert Putnam of Harvard given at a recent conference on economic inequality at Kenyon College.  Says Galston:

Putnam spoke movingly about the differences between growing up in securely middle-class families and in families living on the edge of poverty.  Middle-class children are far more likely to grow up in two-parent families, to be talked to and read to by their parents, and to benefit from family investments in enriching activities.  Many more poor and working-class children grow up with one parent who often engages in alcohol or drug abuse.  As they move into middle school and high school, the children of the middle class are more likely to engage in extracurricular activities -- including sports -- that enable them to develop the soft skills of cooperation and teamwork that matter so much in today's economy.

Now really, in all of that is there anything that the government can do a single thing about?  How exactly is the government supposed to force parents to stay together in two parent families, or to talk or read to their children?  Or to stop abusing alcohol or drugs?  Is Galston (or Putnam) suggesting that if only the government hands out more money to those at the bottom that they will suddenly get their kids into extracurricular activities?

In terms of government actions that might supposedly reduce income inequality, the only one that Galston mentions is increasing the minimum wage.   Anyone who knows anything about the income inequality statistics knows that increasing the minimum wage will increase rather than decrease measured inequality as determined by the most common measures.  That's because minimum wage earners, contrary to what might be your instinct, are not actually at the bottom of the income distribution.  The bottom of the distribution consists of zero and near-zero earners (who could be the unemployed, or unpaid interns, or graduate students, or people changing careers, or drug dealers who don't tell the government about their income, or many other categories), and increasing the minimum wage increases the number of zero earners by rendering some people unemployed.  Meanwhile, some minimum wage earners are in the next-to-bottom decile of the income distribution, but most are higher up, including at the very top, because income distribution goes by "household" not individual, and most minimum wage earners are in multiple-earner households.

And then of course there's that evil top 1%.  In large part, they are the ones who have scored a success in the trial and error game.  As Galston's source Pew points out, the gap between the top 1% and everybody else has been growing for decades.  Since when exactly?  Actually since the late 70s, the time of Jimmy Carter's "malaise" speech (July 15, 1979).  Were you around for it?

I want to talk to you right now about a fundamental threat to American democracy. . . . The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.  The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.

The share of national income of the top 1% was under 10% in the Carter years, having fallen from a peak of over 20% in the 1920s.  Oh, and the top federal marginal tax rate was 70%.  People stopped innovating, the trial and error game slowed to a crawl, and nobody reported high incomes to see the government just take it all.  Today the share of the top 1% is back in the low 20s%, as the innovation machine has cranked back up.  Is the Carter-era model one we should go back to?

So I guess the "bipartisan consensus" is that the government must "do something," but there's no remotely plausible proposal on the table that would actually meaningfully move the income inequality numbers without seriously degrading economic performance to everyone's detriment.  But anyway, let's stir up some resentment!

The Looking Glass World Of "Climate Injustice"

When Alice went through the looking glass, she found a world where things were completely the reverse of what they are in the real world.  Of course, Lewis Carroll’s masterpiece was intended as a parody of the mendacious politicians of the day.

Today we have something beyond parody, and that is the U.N. climate bureaucracy and its acolytes.  Because the U.N. agencies are bureaucracies, it is perhaps understandable that they should seek at all times to increase their own power and control over the world’s people.  But what is not understandable is when that quest turns into a campaign to keep the poor people of the world in poverty.  Yet that is exactly where the U.N. now finds itself with the campaign for what it calls “climate justice.”  That campaign is based on completely false premises, and could not have been better designed to keep the poor poor than if that had been the principal and only purpose.  The advocates of so-called “climate justice” seem to be totally unaware of the reprehensible morality of their campaign.  Instead, they flaunt their own high levels of consumption, and look to as leaders those at the very most extreme levels of high consumption.

Poverty, in the sense of deprivation of basic goods and services, in very large part is a result of insufficient access to energy.  Access to energy means electricity for our homes, businesses and computers; it means transportation, in the form of automobiles, trains and planes; it means heating in cold weather and cooling in hot weather; it means functioning hospitals and health care facilities; it means mechanized agricultural methods that ameliorate the effects of bad weather and pests; it means access to information; and many other things equally important.  Without access to energy, people are trapped in local areas to lead a life of basic subsistence if not periodic hunger and starvation.

Current data from the World Bank with respect to access to energy show that even today over 1.2 billion people, 20% of the world’s population, lack access to electricity.    This includes about 550 million people in Africa and over 400 million in India.  Here is the World Bank’s description of what it means to lack access to electricity:

Without access to energy service, the poor will be deprived of the most basic of human rights and of economic opportunities to improve their standard of living. People cannot access modern hospital services without electricity, or feel relief from sweltering heat. Food cannot be refrigerated and businesses cannot function. Children cannot go to school in rainforests where lighting is required during the day. The list of deprivation goes on.

The World Bank actually projects that the number of people in Africa without access to electricity will increase, not decrease, between now and 2030!

And electricity is just one piece of the energy access puzzle.  The 1.2 billion figure who lack electricity is far exceeded by the numbers who lack access to modern transportation (automobiles, trains, airplanes), to air conditioning, to heat, to hospitals, to mechanized agricultural equipment, and to the internet.  For example, according to 2013 data from the International Telecommunications Union in Geneva, only about 2.4 billion people out of the 7.0 billion in the world (34.3%) had internet access; that leaves some 5.6 billion without access.  In Africa, only 16.3% of people had access to the internet, and only 6.7% had access to the internet at home.

Given the serious hardship faced by the world’s poor in the absence of energy access, one would think that a top priority of the U.N. would be finding ways to achieve that access as quickly, as cheaply, and as reliably as possible.  But in fact, under the banner of so-called “climate justice,” the U.N. is doing exactly the opposite.  It is doing its best to hobble, hinder and obstruct development of the cheapest and most reliable sources of energy in the third world, while instead advocating for massive transfers of wealth from rich countries,  not to the poor people themselves, but instead to the governing cliques and wealthy elites in the poor countries. . . . .

Read more

Yet Another New Low In Economic Reporting At The New York Times

If your read any economic reporting in the New York Times, I hope you realize that the point of all articles is to advocate for more and bigger government and that the facts have nothing to do with this enterprise.  Official Manhattan Contrarian Worst Economics Writer Paul Krugman is bad enough, but at least he appears on the opinion pages. 

But then we have someone named Annie Lowrey, whose articles appear on the news pages as if they had something to do with the real world.  I previously pointed out her appalling ignorance of the "poverty" statistics in an article here.  But yesterday we have an even worse article, appearing on the front page of the print edition, this time titled "Cities Advancing Inequality Fight."  (may be behind pay wall)

The lead example of local efforts to fight income inequality used by Ms. Lowrey in her article is the movement in Seattle to raise the minimum wage from $9.32 per hour to $15.

The Seattle City Council is intensely debating a plan to raise the minimum wage to $15 an hour from $9.32 -- forging ahead on its plan to tackle income inequality as efforts in the nation's capital have languished.

Ms. Lowrey then takes data from Trulia to illustrate the allegedly high level of income inequality in the United States.   The Chief Economist of Trulia, Jed Kolko, wrote an article on March 12 titled "America's Most Unequal Metros."  He came up with his data from the Census Bureau's American Community Survey for 2012 (follow link here).   He then compared the income level in each metropolitan area at the 10th percentile and the 90th percentile to derive an index of inequality.   By this index, the "least unequal" metro area turns out to be Lakeland-Winter Haven, Florida, where the ratio between household income at the 10th percentile and 90th is about 8.  At the other end of the scale, New York and San Francisco have ratios of about 18.  Now that's unequal!  Ms. Lowrey then runs with this data to illustrate a story about addressing the inequality through changes to the minimum wage.

She appears to be completely unaware that a minimum wage income, even at $9.32 per hour (or even at the current federal minimum of $7.25 per hour) would put any household that has one person earning it full time for the whole year well above the 10th percentile in income.  Here are the nationwide census data for the household income deciles for 2012:

MEASURE
Household Income at
Selected Percentiles
10th percentile limit. 12,236
90th percentile limit. 146,000

If you make that $9.32 per hour for even 35 hours a week and 50 weeks, you're going to have an income around $16,000, well above the $12,236 cutoff for the bottom decile.  So even if you believe that an increase in the minimum wage immediately translates into the full amount of the increase going to every minimum wage worker, the increase will have no (or nearly no) effect on the bottom decile of the income distribution.

What's amiss here is the complete lack of understanding by Lowrey and her ilk that the bottom of the income distribution largely does not consist of people who work regularly for wages counted as such by the government.  It's young people with unpaid internships; it's graduate and professional students living off loans and fellowships; it's people in the informal economy (e.g., low level construction workers) or the illegal economy (e.g., drug dealers) who get paid cash and don't report it to the government; it's people taking a year off as they change careers; it's people living off government in-kind handouts; it's early retirees living by consuming savings before they take social security; it's people who are unemployed for much of the year; etc., etc., etc. 

The most important thing to recognize about all these categories is that none of the policies currently advocated by those pushing the "income inequality" theme will have any effect on them whatsoever.  It's not just the minimum wage.  As other examples of programs being considered by local governments to fight income inequality, Ms. Lowrey cites "bolstering programs for public education, transportation, affordable housing, and wages."  How, for example, is an in-kind handout like "affordable housing" going to have any effect on the position in the income distribution of a law student living on student loans?  Even if she suddenly was offered one of the housing units, it's in-kind and therefore counts as zero.  Her income is the same, and the income distribution remains the same, and therefore the inequality ratio remains the same.  This is exactly the same game as the "poverty" rate scam, where $900 billion per year of spending does not count in the measure of "poverty" and therefore leaves the statistics exactly the same as if there was no spending at all.  Another year and another trillion or so later, the advocates are clamoring for yet more supposed "anti-poverty" spending, and the "poverty" rate will never move.

My favorite quote in Lowrey's article is from Mary Jean Ryan, identified as former policy chief for the City of Seattle, and now head of an education non-profit.  Says Ms. Ryan: 

We have to accelerate the progressive policy adoption if we're going to help more of our community share in prosperity.

Apparently nobody pointed out to Ms. Ryan that the leaders in income inequality in this article are the progressive bastions of New York and San Francisco.  Are these people capable of figuring out that something about their prescriptions is not working?

New York City As Real Estate Developer

In September 1997, I moved to my current home in the West Village in Manhattan, and for exercise I took up jogging in the new park then being built along the Hudson River.  On weekends I would go all the way down to the very southern tip of the island.  At the point where I would turn around was located something called Pier A.  This pier juts out into the harbor right next to Battery Park.  It had been used for many years as the base of New York City's fire boats, and then fell into disrepair and was closed about 1992 for a planned renovation.

At the time when I first started running past Pier A in the fall of 1997, I noticed that the City had recently begun a reconstruction project.  Here from the Archives of the Mayor's Press Office is the announcement, dated July 8, 1997, of the ground breaking of the project, sponsored by the City, the State, and also by federal HUD.  The groundbreaking was attended by then-Mayor Rudy Giuliani as well as by then-HUD Secretary Andrew Cuomo (somehow the players never seem to change):

Mayor Rudolph W. Giuliani and U.S. Department of Housing and Urban Development (HUD) Secretary Andrew M. Cuomo . . .  announced today the commencement of renovations at Pier A, which will be converted into a tourist destination and retail facility. Pier A, located between Battery Park and Robert F. Wagner Park in Lower Manhattan, is listed on the National Register of Historic Places and is a New York City Landmark.

Well, I've continued to run by there all these years, and yes I can tell you that the construction is not yet finished.  Don't worry, they haven't actually worked on it continuously for the whole 17 years.  Construction has started and stopped multiple times, with long periods of idleness in between bursts of activity. 

But wait!  It looks like the pier is actually going to open in a few months as a tourist, restaurant and entertainment venue.  Here is an article from the Tribeca Trib on March 31.  The Poulakakos family has the lease, and has taken charge of finishing the work.  (For those unfamiliar with the name, the Poulakakos family has long operated some of the most successful restaurants in the downtown area, including the long-running Harry's at Hanover Square, which was literally the only upscale restaurant in the financial district in the 70s.) With the Poulakakoses in charge, I would have some confidence that the project may actually be finished on the current schedule or something close to it.

So the record at Pier A is: 22 years from commencement of planning, and 17 years from goundbreaking, to completion.  Can New York City really be this incompetent when it gets into the real estate development business?  Actually, there are far worse examples.  The worst I know of is the so-called Seward Park Urban Renewal Area, or SPURA.  That area of 40 or so acres, just off the Williamsburg Bridge on the Manhattan side, was cleared by the City of pre-existing buildings in the late 1960s, in anticipation of construction of then-trendy high rise housing projects.  That was almost 50 years ago!  Nothing was ever built, and the site still sits there vacant.  Today in a hot real estate market in downtown Manhattan, the SPURA site would promptly be filled with new upscale housing if the City simply sold it to the highest bidder.  The site is probably worth at least a billion dollars.  But in Manhattan we are way too cool to collect a billion dollars that is there for the asking.  Instead we pass on the billion and in addition hand out millions in tax breaks so that developers will come in to build "affordable housing."  On September 18, 2013 then-Mayor Bloomberg announced "that developers have been selected" to develop SPURA.  (Why do capitalism and collect a billion dollars for the taxpayers when you can do crony capitalism and the politicians get to "select" favored developers?)  But go by the site today and you will not yet see any construction activity.

So at SPURA we are about 47 years in and we haven't yet gotten to groundbreaking.  And will it take 17 years from groundbreaking to completion?  Based on the City's track record, that could easily happen.  There are many, many examples of "selected" developers simply walking away when political delays continue, the market turns, and the financing dries up.

All of which brings us to  Mayor de Blasio and his supposed plan to build 200,000 units of "affordable housing."  Yesterday he went to a groundbreaking for a new project in East New York that will supposedly have 278 units of affordable housing.  De Blasio was there to take the credit, although the project had actually been approved during the Bloomberg tenure.  If you assume that we give de Blasio his credit, that means we're 0.139% of the way toward that 200,000 goal!  Or at least we will be 17 years from now when the apartments are finished.  Meanwhile, though, it's a good photo op for de Blasio, plus the chance to put the squeeze on the "selected" developers for political contributions.