Charting the Atlantic divide, and taxing your way to an Oscar Top of the Charts 9 December 2022 Torsten Bell Afternoon all, Anyone else secretly enjoying the cold snap? It’s partly the juxtaposition with the ludicrously warm autumn thus far – good to know the planet isn’t a perma-inferno just yet. Plus London looks great on a cold evening with clear skies (Waterloo Bridge looking east is the place to be). We’ve now entered the cost-of-living disaster phase of the winter as home heating need kicks in. My cunning coping mechanism is not to have a smart meter – so at least I can’t see a running total of the household finance doom unfolding. Ignorance is (very temporary) bliss on that front, but it’s certainly not when it comes to social science. So we’ve got ignorance-slaying TOTCs reads covering everything from fickle Hollywood stars to guaranteed jobs. Have a great weekend. Torsten Chief Executive Resolution Foundation Sensitive stars. British politics loves debating top tax rates – it’s part of the rerunning the 1980s psychodrama we’re stuck in. Our debates normally focus on whether boring bankers will leave/get lazy if rates rise, but for a much more glamorous version enjoy a new paper asking what top tax rates do to… Hollywood superstars. It starts with a great quote from Ronald Reagan about only bothering to do two films a year given high marginal tax rates after that, but the research shows he was talking nonsense (it’s almost like he was a film star, not an economist). Looking at the impact of top tax rates since the 1920s, the authors find no strong impact on the number of films a star makes per year. But they do change the kind of films stars opt for – with some evidence that high tax rates lead them to focus (after a few blockbusters a year) on ‘prestige’ films (that win awards/have prestigious directors) as the high tax rates switch the balance of incentives from cash to status. So higher top taxes = better movies. Who knew. Crisis consequences. Our cost-of-living crisis is terrible not just for our living standards, but for our slower building youth mental health crisis too. That’s the takeaway from the NHS’ survey of children and young peoples’ mental health. 17-19 year old’s rates of a probable mental disorder rose from 10 to 25 per cent between 2017 and 2022, while 15 per cent of 17-to-22-year-olds with a probable mental disorder live in a household struggling to buy enough food, compared to 2 per cent of young people unlikely to have such a disorder. New research from Conor D’Arcy Money at the Mental Health Policy Institute reinforces the point without the youth focus. In their survey, half of people behind on multiple bills had experienced suicidal thoughts due to the cost of living, compared to 13 per cent who weren’t behind on any bills. Conor’s specific conclusion is that we need limits on how often creditors can contact people, but the broader one is that wealth and health are painfully related. Cancelling centralisation. Labour’s (well, Gordon Brown’s) big commission on the UK’s constitution is out. It’s 155 pages, but you should overcome that (and the typesetting/chart design crimes committed) to read it. While the media focused on the House of Lords, the devolution bits are far more interesting and discussed in Centre for Cities’ snappy blog. The latter’s headline is that devolution being a key part of the UK’s economic strategy is now a point of cross-party consensus (good). But the key policy challenges to delivering it are being ducked (less good). Labour (and the Tories) are hiding from what to do about local government boundaries, which often don’t match those needed for economic decision making, and how to turn warm words about fiscal devolution into firm proposals for delivering it without harming areas with weaker economies. To paraphrase the blog: a consensus for devolution now exists, detailed plans to make it a reality do not. Assessing apprenticeships. There have been big reforms of apprenticeships recently, and the Centre for Vocational Education Research’s latest report (blog) runs through how it’s going. The big picture = quantity of apprenticeships down, quality of apprenticeships up. The entire business lobby points to these results and demands more flexibility for how they use Apprenticeship Levy cash (to spend it on non-apprenticeship training). I don’t agree and my reading is no-one should be surprised apprenticeship numbers fell after the quality bar was rightly raised – we actively wanted rid of some of them. The report notes the fall is concentrated in more deprived areas, which clearly isn’t good news for social mobility, but not surprising given that’s where the lower quality apprenticeships were. Policy makers should instead focus on the fact that apprenticeships aren’t doing their key job of providing a route from school into work for young people – 40 per cent of apprentices are over 25. Time to target apprenticeships at the young. Guaranteed gigs. Work works is the conclusion of a new evaluation of a job guarantee programme in Austria, which is supportive of the recent fashion for proposing such approaches. It examines a pilot of such a guarantee – running from 2020 to 2024 and offering minimum wage work, usually in a social enterprise, to those who are unemployed for over nine months. The results are positive, with improvements on economic (income/employment) and non-economic (social status/contacts) indicators – although not on the health front. The direct objective was reducing long-term unemployment which the programme almost mechanically achieved, albeit with a small rise in shorter term unemployment. Overall the job guarantee did a god job. Chart of the Week The most common mistake in British economic policy making is assuming we’re the US. It reflects economics’ research/status being US dominated, and our monolingual norm: the Yanks kindly write in English. Superficially of course there are similarities, including a flexible labour market, but they’re overdone. The US is far bigger and richer than us. This week’s Chart shows this is especially true right now, with post-pandemic developments being very different on each side of the Atlantic despite similar ‘high inflation’ headlines. Americans have been on a consumption splurge, while (despite people talking as if it’s happened here) household consumption in the UK is still not back to its pre-Covid levels. To be more specific, Americans just keep on buying stuff. Their goods consumption is up 6.4 per cent on its pre-pandemic path, with durable goods (think guns…) up a whopping 13.9 per cent. We haven’t been doing that (due to being poor, not just because guns are banned), but are affected: US demand for tradable goods partly caused supply bottlenecks, pushing up global prices (our latest Macro Policy Outlook is out tomorrow with more). This matters for macroeconomic policy because it means wherever you stand on the “demand is way too strong and caused inflation” argument in the US, it doesn’t remotely apply in the same way here. We live in Britain not Boston, however much some people/economists wish otherwise.
