BBC bashing and boozing around Britain Top of the Charts 3 February 2023 Afternoon all, It’s “we might be nearly done hiking these interest rates” week, which is quite a big deal in economics (and anxious mortgagor) land. We’ve got lucky on gas prices (well, less unlucky) and labour markets are starting to cool without massive recessions. Obviously we’re Britain in 2023, so that generally good news has been swamped by collective anguish about the IMF forecasting us managing the only recession among major economies. The Bank of England also got in on the gloomster act, arguing our underlying growth rate now looks like it’s around 0.7 per cent a year (vs 1.7 in the 2010s and 2.7 pre-financial crisis). Happy days. There are reasons why both of these look excessively gloomy, but more importantly we should put a bit less focus on a highly uncertain forecast for a single year, and more on the very concrete stagnation of the past 15 (this week’s COTW gives some clues for how to do that). To keep you focused on what really matters we’ve got…a map of Victorian drunkenness, and lots more. Have a great weekend. Torsten Chief Executive Resolution Foundation Better broadcasting. Left and right love BBC bashing, so wild excitement greeted the Beeb’s independent impartiality review of their economics coverage. The left howled with refighting the last war joy at the suggestion that journalists had been too pro-austerity in the 2010s, and Tory ministers felt vindicated by the suggestion that “more spending is good” was often the frame for coverage. Personally most of that is old news. More interesting is a great discussion of why Income Tax is always in the news but VAT’s almost never discussed (unless a politician does something involving pasties). As the authors note, it’s maybe not a coincidence that Income Tax matters a lot more to richer households than VAT, which is the biggest tax for those on lower incomes. With the North East and Wales paying more VAT than Income Tax, while London very much does the opposite, it’s time to level up our tax debates. Capping companies. Economists love highlighting the perverse effects of bits of regulation – such as where attempts to protect smaller businesses from rules often give firms an incentive not to grow. The famous example in the UK is our £85,000 revenue threshold over which a firm needs to start charging VAT. Unsurprisingly we see firms trying really hard to stay under it – a new blog estimates 26,000 businesses are capping their own growth as a result. A less well known example comes in new work on the enforcement of US civil rights law – where caps on how much firms might have to pay out if they lose a discrimination case vary by number of employees (e.g. $300,000 for over 500 employees vs $200,000 for between 200 and 500 workers). It shows that these rules also lead to bunching just below thresholds – and that bunching is greatest in sectors and states that see lots of litigation. So, we’ve got to think about thresholds. Mapping mischief. Gonna keep sharing fun maps as I find them. This week we’ve got a 19th century beauty, mapping the geographical distribution of drunkenness offences in England and Wales. The north east and north west were leading the boozing charge back then, with the east (Suffolk/Cambridgeshire) looking particularly healthy boring. I make no comment on whether either is true today. One of the authors was Joseph Rowntree – whose Foundation is still in the map-making business – see their annual poverty report for proof. Criminal cuts. The benefit cuts we normally focus on happened in the 2010s, and some research indicates that they may have increased crime (by 3.7 per cent). But far bigger benefit cuts were introduced in… 1834, with the New Poor Law. This centralised welfare and reduced support (excluding everyone apart from the most destitute). A recent paper analyses the effect of this on crime rates in England and Wales, and finds the reform increased non-violent property crimes (think poaching) by a very significant 17 per cent. This happened in particular in periods of high seasonal agricultural unemployment. It’s almost like people had to eat. Puzzling profits. Everyone likes to say profits are soaring all the time. But there’s actually a bit of a puzzle in the economics world. One of these is analysed in a new study: why have aggregate US profit rates gone up since the 1980s even as financial market rates of return (e.g. on government debt) have fallen? Why don’t people just borrow cheaply and invest to earn those higher rates of return? The authors’ answer is that while overall corporate rates of return have risen slightly, those for public companies (which it’s plausible do more to drive financial markets) have actually halved. In contrast, profits in private companies have doubled. That obviously just poses a bigger question of what’s driven that divergence, which the authors don’t have much of an answer to. But their work does warn heavily against using data about public companies to draw any conclusions about firms as a whole. Chart of the Week I promised a chart encouraging some reflections on which issues we focus on. Everyone is currently entirely fixated on the new economic problem: our fall in workforce participation as the pandemic turbocharged retirements. A plan to tackle it will be the centre piece of the March Budget. And that’s good – we want more women, disabled people and older people in particular to access work as our society ages. But I keep hearing this issue being mentioned as THE key problem driving the UK’s relative economic decline. Really? COTW brings some badly needed perspective. Yes our labour market participation rate has fallen recently (enjoyed talking to David Aaronovitch about this on yesterday’s Briefing Room), unlike the rest of the G7. But we keep forgetting the bigger picture of the UK having a decent level of participation, and one that increased significantly since the financial crisis (only a bit of which has now reversed). If what you care about is our relative decline we should be much more worried about the unmitigated disaster of business investment in the UK. We’ve long invested less than basically everyone else, fell back further recently, and have no plan whatsoever to turn things around. So, let’s focus on the big problem as well as the new one.
