Why having more babies means less crime, and other stories

Top of the Charts 'Insights' round-up: December 2019

The latest from Resolution Foundation Chief Executive Torsten Bell’s weekly Observer column, Insights. Read more of the latest economics and policy research in our weekly reading email, Top of the Charts (sign up here).

Keep us busy with babies and we’ve no time for crime

Unless you’re in a mafia clan, we all want to see crime come down. But different people approach that in different ways. Economists like to think of criminals as getting out their calculators to see if crime pays, so they focus on the impact of deterrence: increasing the severity of punishment or the likelihood of being caught.

Unfortunately, deterrence doesn’t do a great job because criminals don’t care enough about the future to pay much attention to jail terms. And of course everyone knows that reducing crime goes beyond more police or prisons – it’s about people’s roles in society.

Specifically, it’s about babies, a new paper from researchers in California demonstrates. It shows crime rates among women plunging when they get pregnant. And, no, this isn’t just about it being harder to commit crime when carrying another person around. Long after giving birth, crime rates of women are 50% lower than in the years before pregnancy.

Men, too, are less keen on crime and not just after the baby turns up; there is a 25% fall in crime almost as soon as their partner becomes pregnant. Having children changes how we think about ourselves and the value we place on the future. In contrast, marriage doesn’t have this kind of impact – it’s the other way round, with marriage being the result of reduced criminality rather than its cause.

This is great research. Unfortunately, the bad news is we’re having fewer babies. Oh and crime’s gone up. Coincidence?

Originally published in The Observer.

Letting workers into the boardroom? Capitalists have nothing to fear

We should put workers on company boards. We should. We need to get the detail right, but having workers’ representatives present when big decisions are taken is not only a good thing in its own right but would lead to better decisions. It would be a big change in the UK, but it’s not outlandish on continental Europe.

If that doesn’t persuade you, let’s turn to what this column is all about – evidence. Do we know the impact of requiring that, for example, a third of board seats go to employees? Helpfully, in the 1990s, the Germans removed this requirement for some new firms, but kept it for similar existing ones, providing a great experiment that economists have exploited with research.

One of the big arguments against having workers on boards is that it discourages investment – capitalists might decide to invest less because they worry that they’ll have to share the returns with workers.

However, research suggests the opposite – firms with worker representation invest more, perhaps because staff have a strong interest in long-term success. Transplanting features of Germany’s model into our, very different one is far from straightforward and it’s not all good news for those who want workers on boards. The study shows it doesn’t affect wages much but does increase representation of women and reduces it for nobility… I told you it’s a good idea.

Originally published in The Observer.

If the rich are getting richer, then where are they hiding it?

Income inequality rose significantly in the last decades of the 20th century, yet wealth inequality fell throughout most of the century. Why? Partly because of the home ownership boom. But the top 1%’s share of wealth fell from 60% before 1920 to under 20% by the 1980s.

In part, this shows that both war and inheritance tax are bad for the landed gentry. But are we missing something? Or, more specifically, are the rich hiding something? That’s the excellent question asked by new research into the wealth of our Victorian elite.

Inheritance tax is low today but was a much bigger deal historically, topping almost 80% in the 1950s. The research exploits a particularly large tax increase around 1920 to see if the wealth that the very richest dynasties declared before 1920 is still visible after the incentive to hide it increased.

The answer? Lots of it goes awol, not being declared when members of the dynasty die. For individual families this could be the result of incompetence, but overall that can’t explain the scale of what is going on. The richest 1,500 dynasties of 1892-1920 had at least 20%-32% of their wealth hidden by their descendants in the second half of the 20th century, with richer families hiding more of their wealth.

We should take this work seriously – it matches up well with families appearing in the Offshore Leaks database, of Panama papers fame. And it might even give HMRC a head start in tracking down some pretty wealthy tax dodgers.

Originally published in The Observer.

Blame an ageing population for fewer new firms in the US

Ageing changes us all. What we do and how we do it shifts as the years tick by, affecting our lifestyles and economies.

Here’s an example. The US prides itself on being a dynamic economy. But fewer firms have been springing up. Policy failures are partly responsible, with unnecessary occupational licensing making it harder to start a new business.

But recent research takes a different angle, noting that population growth slowing means fewer firms start up. Postwar, the US was home to lots of new workers and companies. As the population growth slowed, older firms hung on to their workers and fewer new businesses sprang up. So an ageing country means older firms, not just older workers. And because workers in older firms get a smaller share of the value they create, demographics help explain why the US has become less worker-friendly.

Demography is also a factor in the developed world’s productivity slowdown. Explanations focus on new tech being less transformative than in the past – a distracting iPhone does less to make us productive than the steam engine. But research also reveals that we’re more productive in middle age than when young (and learning) or older (and risk-averse). As the baby boomers have moved towards retirement, the share of fortysomething workers has shrunk. The result? Fewer midlife crises, but less productivity too. As always in life, there are trade-offs.

Originally published in The Observer.

Of course Trump hates central bankers – they tell the truth

Central bank independence is the denim jeans of economic ideas – not fresh but still about as fashionable as economic policy gets. For a quarter of a century, more or less everyone has agreed that central banks should be operationally independent of government.

Independent central bankers are better placed than politicians to set the interest rates the economy needs. The latter face the “time inconsistency” problem: they want to cut rates to make us happy today – before an election, for example – even though it will damage the economy tomorrow.

But that isn’t the only benefit of central bank independence – an often neglected one is that they also tell us the truth. Regular independent forecasts encourage government to be realistic about what the future might bring. But more than that, central banks have, well, banks of economists examining crucial issues. And increasingly their work gets published.

On this side of the Atlantic, the Bank of England deserves credit for establishing Bank Underground as “a blog for staff to share views that challenge – or support – prevailing policy orthodoxies”. Meanwhile, in Washington last week, Fed economists published an early, but unwelcome, Christmas present for Donald Trump.

Examining his tariff-hiking, trade-war-inducing approach to international relations, their research shows the claim that it protects manufacturing jobs is… fake news. Far from creating jobs, it has reduced them. Yes, domestic manufacturers get some protection within the US market, but that is more than offset by the fact that they face higher costs for components they import and lose export markets when others (such as China and the EU) retaliate. The lesson? Trade wars bad, independent central banks good.

Originally published in The Observer.