A collage of images, featuring most prominently a person holding a sign reading "no justice no peace"

Yearly Archive: 2014

Distribution / Economics / Old Blog

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Supply, investment, and the allocation of scarce goods: How not to argue against rent control

Access to affordable housing is widely recognized as a basic right or, at the very least, an important moral interest. At the same time, residents of many major cities are faced with spiralling housing costs. London provides a particularly striking example. During the last year alone, average rents in London rose by more than 10 percent. Since this figure describes an aggregate trend, rent increases faced by individual tenants are often significantly higher. (When the last flat that I lived in changed its owner, the rent went up by 30 percent, notably without any changes to the condition of the property.) In light of this situation, it is no surprise that calls to address the problem of rising rents have become louder. 

One straightforward way of addressing the problem would consist of policies that place legal limits on the extent to which rents may be increased. Yet, the idea of rent control faces outspoken opposition. Opponents often defend their view by pointing out that rising rents have an underlying cause in the shortage of supply of housing in a given area. Constraining rents, they argue, does nothing to alter the shortage of supply or, worse, exacerbates it by reducing the returns on investment for property developers, thus undermining the economic incentives for an increase in supply. This line of argument, however, appears unconvincing. 

Shortages of supply in housing cannot easily be solved in the short term and are partly determined by geographical factors that cannot be altered at all. To the extent to which rent control policies fail to address the underlying problem of supply without worsening it, why should they not be considered as an interim measure? It is, of course, easy to conceive of policies that would further exacerbate the problem, for example if they took the shape of absolute rent ceilings that would make it impossible for developers to recoup their investment. There are, however, obvious policy alternatives that would place limits on rents and rent increases while being flexible enough to ensure a sufficient return on investment. In fact, if policies were structured such that returns on investment in new developments are higher than returns on investment in existing properties, they could create additional incentives for the construction of new homes, rather than undermining them. The very lack of rent controls, in turn, can be seen as compounding the imbalance between supply and demand in that it creates demand for existing properties on the part of speculative investors that would not exist if rent controls limited the returns on speculative investment. 

A further prominent argument against rent controls, even if understood as second-best or interim measures, relies on the appeal of free markets as a mechanism for the allocation of scarce goods. If a good is in short supply and prices are left to move freely, they will rise up to the point at which an equilibrium is reached between the amount of goods available and the amount demanded at the price in question. From the point of view of economic theory, this process is often considered to be attractive on the basis that it ensures that scarce goods are allocated to those who value the good most highly. If the price was artificially kept low, in contrast, the allocation of goods would be determined by factors that may be less normatively appealing or left to pure chance. Applied to the present context, if there is a shortage of housing in a given location, would it not be a morally attractive outcome if tenants with the strongest preference for the location would get to live there? 

Maybe it would. As an objection to the regulation of real-world housing markets, however, the argument is fundamentally flawed. The claim that equilibrium prices allocate goods to those who value the good most highly is plausible only in conjunction with the idealised assumption that the bidding parties are roughly equal in their ability to pay. In a real-world context in which potential tenants differ significantly in their wealth and thus their ability to pay, differences in willingness to pay rent cannot be taken as a direct reflection of the subjective value that a give property has to them. Since the absence of rent control measures does nothing to ensure that housing is allocated according to strength of preference, the appeal to this allocative ideal cannot serve as an objection against rent controls. 

In the absence of other arguments, the controversy about rent controls appears to boil down to a conflict between the interest in affordable housing on the one hand, and the interest of property investors on the other. It seems clear to me that the interest in affordable housing is the morally weightier one. This is not meant to deny that investments made under existing rules may give rise to legitimate expectations. Honouring such expectations, however, should not prevent us from changing rules that apply to future investments.

Distribution / Education / Old Blog

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Higher Education Pay Disputes and Industrial Action

It has recently been announced that University pay for academic and senior professional staff in UK universities has fallen by 13% in real terms since 2009, despite students’ tuition fees having trebled over the same period. The University and College Union (UCU) assert that a consequence of this is that pay for academic and senior professional staff ‘will fall still further behind the cost of living’. In response to this, members have pursued industrial action in order to attempt to secure fairer pay offers. Should we support this industrial action?
 
 
I think that there are four types of reasons that can be offered in defence of supporting the strikes, though I am unsure of how decisive any of these are, even in combination. The first reason is the one most explicit in the UCU’s literature. It relates to the fact that academic and senior professional staff ‘are being asked to work harder and take home less money to their families year after year’. This is thought to be particularly objectionable given the vast pay increases witnessed by Vice-Chancellors and Principals. This reason is a poor one. The vast majority of academic and senior professional staff in universities live very comfortable lives, getting paid generous salaries for work that they in general enjoy doing. In essence, I simply struggle to understand how an academic who earns an annual salary of £30,000+, which is comfortably above the average in the UK, can have that much of a complaint against being asked to work harder and take home less. 
 
A second reason relates more specifically to the pay of junior academic staff and graduate students. These people, who typically take on the brunt of teaching, are notoriously under-paid. Perhaps this provides an argument in defence of supporting the strikes. I am not convinced by this argument either. My sense is that junior academics and graduate students are in general very talented people who have many more opportunities open to them than most. I appreciate that getting by can be tough, but when they complain about the state of their pay my gut reaction is to say ‘Well, if you don’t like it, do something else!’. To those with some familiarity with contemporary political theory, I am tempted to say that academia is in an important sense just like an expensive taste.
 
A third defence relates to the pay of non-academic members of staff including, for example, the pay of cleaners, porters, administrators, etc. There is a much stronger cases in defence of protecting further their interests. The problem with this, though, is that, as far as I can tell, this is not one of the aims of recent industrial action. Notably, for example, the UCU represent only academic and senior professional staff in UK universities and much of their literature discussing these issues makes no reference to the pay of non-academic members of staff. It is not clear, therefore, the extent to which the strikes will further this goal.
 
The fourth reason is suggested by this statement made by the UCU: ‘If the pay cuts don’t stop and the universities do not start to invest some of the amassed money into tackling the issue of falling pay, the quality and reputation of our higher education system will suffer’. On this reading, the justification for industrial action is not (principally) self-interest; rather it is partly out of a general concern to protect quality in higher education. (The fact that those on strike stand to gain financially from doing so is simply a convenient coincidence!) In order for this justification to prove decisive, it must be both that quality in education is (strongly) correlated with the pay of academic and senior professional staff, and that this would be the best (feasible) use of the money. Both of these claims can be doubted. 

As someone who considers themself on the political left, I am generally sympathetic to the use of industrial action. However, in this case, I am yet to be persuaded. What do you think?

Duties / Old Blog

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What language should we use? Aesthetics vs. inclusiveness

The Economist is known for being a strident defender of all things capitalist (it was once saidthat “its writers rarely see a political or economic problem that cannot be solved by the trusted three-card trick of privatisation, deregulation and liberalisation”). One reason for why it has been so successful in pushing this agenda is its widely acknowledged quality of writing. It is so well known for its clear non-jargon writing that the Economist Style Guide has become a best-selling book. Idle browsing led me to  their advice on what titles to use when writing about someone:

The overriding principle is to treat people with respect. That usually means giving them the title they themselves adopt. But some titles are ugly (Ms)… 

Now, it had not even occurred to me that anyone would think that “Ms” was “ugly”. I was brought up taking it for granted that we should automatically use “Ms” rather than “Mrs” so it doesn’t strike even strike me as odd. Perhaps that reaction is different in older generations. (In any case I doubt that we should be using gendered titles at all).
But I wonder whether it even matters whether it is “ugly” or not. As the article suggests the “overriding principle is to treat people with respect” and whether or not a word or phrase sounds or looks nice seems to be a fairly unimportant consideration in comparison. Treating people with dignity and respect by using inclusive language seems to me obviously more important than aesthetic considerations. Using slightly longer or more unusual language seems such a small price to pay for being decent towards other people.
However a lot of people who do not like “politically correct” language seem to think differently. They scoff at differently abled rather than disabled, sex workers rather than prostitutes, transgender rather than transvestite. Their real motivation is usually that they do not believe in the underlying claims for respect and equality, but it is often dressed up as caring about the attractiveness of language itself. (For a perfect takedown of these “political correctness gone mad” people see this sketch by Stewart Lee).
 
Perhaps there is however a more respectable position than the anti-“political correctness” crowd when it comes to the trade off between more inclusive language and aesthetics. Perhaps there is something to the idea that language should not be altered so much so that it becomes sterile and bureaucratic. Maybe the aesthetic value of language is in fact greater than I have suggested. Let me even grant for a moment the point that some inclusive language can appear ‘unattractive’. Saying fisherperson rather than fisherman for example might truly strike some as weird.
But even on this I’m not convinced. Our understanding of what is and is not aesthetically pleasing language is not objective and unchanging. Just as with “Ms” and “Mrs” I think we can become quite quickly accustomed to new language and no longer consider it unattractive. Salesperson, spokesperson and police officer have all become so accepted that I doubt whether anyone still sees them as intrusions on attractive language. Our aesthetic judgements are intimately connected with our wider views about justice and equality. When our views on the latter change, it affects the former.
 
Of course the aesthetic costs of using inclusive language might vary from language to language. English for example does not have gendered articles (the, a) and it has relatively few gender specific nouns, and those that are can be made neutral fairly easily. That is not the case with many other languages. German for example has gendered articles (der/die, ein/eine) as well as most nouns. In German you can’t for example just say “the student” or “a professor” and be gender-neutral, because there are different versions of the noun to refer to either females or males. So in order to be gender-neutral you have to write “der/die Schüler/-in” and “ein/-e Professor/-in” to include both female and male students and professors. That is more cumbersome and less attractive than it is in English. But the alternative is using a single gender (which nearly always means the male gender) to cover everyone. I think the consequences of that are much worse than using a few extra slashes and hyphens.
 
The temptation might be to try to find some middle ground position. But in this case my view is that inclusiveness trumps aesthetics every time when it comes to language. The language we use shapes the environment that people live in, and when that language excludes and insults people it contributes to a hostile and oppressive environment. I’m willing to sacrifice quite a lot of aesthetic value to avoid that.

Distribution / Economics / Old Blog

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Scoring For Loans, or the Matthew Effect in Finance

Scoring for loans, or: the Matthew effect in finance
 
 
source: wikipedia
Last year, we moved to a lovely but not particularly well-off area in Frankfurt. If we applied for a loan, this means that we might have to pay higher interest rates. Why? Because banks use scoring technologies in order to determine the credit-worthiness of individuals. The data used for scoring include not only individual credit histories, but also data such as one’s postal code, which can be used as a proxy for socio-economic status. This raises serious issues of justice.
Sociologists Marion Foucarde and Kieran Healy have recently argued that in the US credit market scoring technologies, while having broadened access, exacerbate social stratification. In Germany, a court decided that bank clients do not have a right to receive information about the formula used by the largest scoring agency, because it is considered a trade secret.
This issue raises a plethora of normative questions. These would not matter so much if most individuals, most of the time, could get by without having to take out loans. But for large parts of the population of Western countries, especially for individuals from lower social strata, this is impossible, since labour income and welfare payments often do not suffice to cover essential costs. Given the ways in which financial services can be connected to existential crises and situations of duress, this topic deserves scrutiny from a normative perspective. Of course there are deeper questions behind it, the most obvious one being the degree of economic inequality and insecurity that a just society can admit in the first place. I will bracket it here, and focus directly on two questions about scoring technologies.
1) Is the use of scoring technologies as such justified? The standard answer is that scoring expands access to formal financial services, which can be a good thing, for example for low-income households who would otherwise have to rely on loan sharks. Banks have a legitimate interest in determining the credit-worthiness of loan applicants, and in order to do so cheaply, scoring seems a welcome innovation. The problem is, however, that scoring technologies use not only individual data, but also aggregative data that reflect group characteristics. These are obviously not true for each individual within the group. The danger of such statistical evaluations is that individuals who are already privileged (e.g. living in a rich area or having a “good” job) are treated better than individuals who are already disadvantaged. Also, advantaged individuals are usually better able, because of greater “financial literacy”, to get advice on how they need to behave in order to develop a good credit history, or on how to game the system (insofar as this is possible). The use of such data thus leads to a Matthew effect: the have’s profit, the have-not’s lose out.
         There are thus normative reasons for and against the use of scoring technologies, and I have to admit that I don’t have a clear answer at the moment (one might need more empirical data to arrive at one). One possible solution might to reduce the overall dependence on profit-maximing banks, for example by having a banking system in which there are also public  and co-operative banks. But this is, admittedly, more a circumvention of the problem than an answer to the question of whether scoring as such can be justified.
2) Is secrecy with regard to credit scores justified? Here, I think the answer must be a clear “no”. Financial products have become too important for the lives of many individuals to think that the property rights of private scoring companies (and hence their right to have trade secrets) would outweigh the interest citizens have in understanding the mechanisms behind them, and in seeing how their data are used for calculating their score. In addition, social scientists who explore social inequality have a legitimate interest in understanding these mechanisms in detail. It must be possible to have public debates about these issues. Right now, the only control mechanisms for scoring agencies seems to be the market mechanism, i.e. whether or not banks are willing to buy information from them. But one can think of all kinds of market failures in this area, from monopolies and quasi-monopolies to herding behaviour among banks.
      One might object that without trade secrecy there would be no scoring agencies at all, and hence one could not use scoring technologies at all (note that this only matters if one’s answer to the first question is positive). But it seems simply wrong that transparent scoring mechanisms could not work. After all, there is patent law for protecting intellectual property, and in case this really doesn’t work, one might consider public subsidies for scoring agencies. The only objection I would be worried about would be a scenario in which transparency with regard to scoring agencies would reinforce stigmatization and social exclusion. But the problem is precisely that this seems to be already going on – behind closed doors. We cannot change it unless we open these doors.

Democracy / Economics / Old Blog

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Nudge, Nudge? Privatizing Public Policy

“Like all major changes to democratic accountability, it happened with a minimum of fuss. By the time we heard about it, it was already over.”

Photo: Illustration by Bill Butcher 

This week the government announced that the Behavioural Insights Team (BIT), commonly referred to as the ‘nudge unit’, has been ‘spun out’ of Whitehall into a mutual joint venture. The new “social purpose company” is now owned, in roughly equal shares, by BIT employees, the government, and Nesta (an independent charity established by the previous government using £250 million of National Lottery money). The privatisation deal has been described as “one of the biggest experiments in British public sector reform” (Financial Times), on account of this being the first time that privatisation has reached beyond public services and utilities to include an actual government policy team. My intuition, like many other people’s I would imagine, is that this marks a dangerous new precedent in the rise of private power over the public. But what precisely is it that is doing the work for this intuition?

(more…)

Distribution / Economics / Health / Liberty / Old Blog

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Capping Working Hours

Recently, the scandalous decisions of some investment banks to treat their employees like human beings by suggesting they take Friday nights and Saturdays off has raised much debate amongst financial journalists and their ilk.
The issue of long working hours is not limited to investment banks; a survey in the US of 1000 professionals by Harvard Business School found that 94% worked fifty hours or more a week, and for almost half, working hours averaged over 65 hours a week. With the increase of automisation in production chains moving labour into customer facing service roles, more individuals will likely face this challenge in their daily lives.
There are good reasons to think that these hours are not useful at all. Economists have long known that as working hours increase, the marginal production of workers fall – mistakes increase and the quality of work produced falls.
More importantly than the impacts on productivity however, are morally relevant considerations that are related to cultures of long working hours:
Industries with long working hours are typically biased in favour of those who do not have other commitments which limit their available time – most notably child care and currently, in our society, this means women. Economist Claudia Goldin finds that gender gaps in wages are greatest in those industries which exhibit “non-linear pay structures” – essentially those in which individuals who can work extremely long hours are disproportionately rewarded. This describes most jobs in the corporate, financial and legal worlds.
There are important health implications of longer working hours with significant evidence that those who work longer than 48 hours a week on a regular basis are “likely to suffer an increased risk of heart disease,stress related illness, mental illness, diabetes and bowel problems.”
Finally there are various employment related issues worth considering – for example would unemployment be decreased if each 100 hour-per-week job were split into two of 50? Would such a policy help reduce the concentration of power in organisations as key managerial tasks would likely have to be increasingly shared?
While our society may gain significantly from moving away from working long hours, it will always be incredibly difficult for any firm to act unilaterally in this matter due to substantial co-ordination failures in this area.
The appropriate response, I believe, is for Government to intervene with a hard cap of 48 hours per week that applies across almost all industries, with no built in exceptions beyond those which are absolutely essential. The current EU working times directive which is supposed to provide a similar function, is farcical in its ability to constrain individuals from working, due to the amount of exceptions and opt out clauses built into it.
A hard cap of 48 hours would be hard to implement, would have some uncomfortable implications (for example – forcing individuals who enjoy their jobs to go home and stop working) and would likely have some negative consequences on the economy. However there would seem to be substantial positive gains to be made and I believe that these are large enough to justify developing such a cap.

*Update: Marxist economist, Chris Dillow, has an excellent post describing how problems like long working hours can naturally arise without actually benefiting anyone.

International / Migration / Old Blog

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Which way will Europe go in May 2014? Is free-movement the key to the elections and a just Europe?

In the aftermath of the euro-crisis, there is an increased awareness (both in the hallways of the EU parliament and amongst the citizens of Europe) that what is most needed is some type of political union. It is my contention that the greatest threat to such a political union and any sense of solidarity between the many people and nations that make up Europe is the attack on free movement that first arose from several national right-wing parties. Preventing free movement is a top priority for all these parties: Marie Le Pen’s National Front in France, UK’s UKIP Party, Geert Wilder’s PVV party in the Netherlands, Norway’s Defense League, Sweden’s Democrats, Hungary’s Justice and Life Party, Bulgaria’s Attack Party, Austria’s Freedom Party, the Greek neo-fascist Golden Dawn party, Germany’s new anti-euro party (AfD), and closer to home the Flemish NVA Party led by Bart de Wever. All are expected to have record high turnout in May 2014; several are also trying to join forces to form an anti-European and anti-migration coalition. Their rhetoric that the euro-crisis and the rising unemployment figures are all due to the free-movement policies is immensely successful, so much so that it is being adopted by many more center and left-leaning parties. Within Europe, their discourse attacks the most recent members of the EU, those from Bulgaria and Romania. From beyond the borders of the EU, their discourse is one of a defense of the so-called Judeo-Christian tradition that grounds Western and European civilization. Tragically, both of these positions often boils down to a form of Islamophobia as the implicit assumption is that free-movement has allowed for Muslims (the Jews of the 21st century) to invade Europe. This point is even more acute this week with Monday being International Holocaust Remembrance Day.
If they have their way in May 2014, Europe will shift so far to the right that it will, like Humpty Dumpty, have a great big fall. The solution is that the voting public needs to realize that immigrants, and

third-party nationals, are the solution and not the problem. Here are three reasons why Europe needs to further open the borders, rather than further restrict movement.

  
    1.     The economic expense of restricting free movement is excessive. David Cameron, among other leading European politicians, is trying to keep this evidence from the public until after the elections. It is not only a historical truth that Europe could not have survived without immigration; it is the current economic reality of all major European nations as demonstrated by Phillipe Legrain (LSE). The other economic cost is the rising budget of Frontex, the EU’s border management agency. While it’s official budget was only €86 million (in 2013), this is only the administrative costs as all the equipment costs (which are well into the billions) are taken directly from the national budgets of the poorest European countries (who are required by EU policy) to ‘control’ their borders.
2.     The ethical price is too high to pay. As Nina Perkowski documents there have been almost 20 000 deaths from those trying to get into Fortress Europe. This scandalous number does not include the many, including the elderly, children and pregnant women, who have been seriously injured, imprisoned or exiled all for wanting nothing more than a better life for themselves or their loved ones.  
3.     The controlling of these borders, especially as implemented by Frontex since Eurosur (a pan-European surveillance system) went live in December of 2013, has broken many basic human rights and thus blatantly ignored the Charter of Fundamental Rights of the European Union. These include the overcrowded and unhygienic conditions in supposedly temporary prison cells, the ‘alleged’ use of torture, etc. 
(for the interactive map see: http://frontex.europa.eu/trends-and-routes/migratory-routes-map)
If the above three reasons to open Europe’s borders don’t convince you, perhaps the political or pragmatic truth will. As long as pro-European parties continue to adopt the anti-immigration rhetoric of the right and deny the importance of open borders, there is very little hope of either economic or political solidarity in Europe. Political solidarity in a democratic and just polity cannot be constructed upon a Schmittian friend/enemy distinction; the ‘us’ cannot only exist as long as there is a ‘them’ to define it.
What do you think? What way will Europe go? Is there another issue that you think will be more pivotal than free movement?