Global warming: it's all about the money.

Life used to be so much simpler in the old days, but then everything changed.  A key date is 15 June 1989, on which day the Green Party polled more than two million votes in the European Parliament elections.  This was widely interpreted as the British electorate indicating that they wanted the major parties to focus more on environmental issues.

The two major issues which were gaining a lot of attention at the time were global warming and the depletion of the ozone layer, and those issues are still with us today, except that there is now a high level of public scepticism – especially where global warming is concerned.

Many years ago I was discussing this topic with a man who was very much into the green scaremongering.  I mentioned to him that I had read an essay in a magazine which argued that the scaremongering was not based on good science.  If I remember rightly, it observed among other things that the hole in the ozone layer was merely seasonal.

I was then taken aback when the man retorted to the effect that big business would want to hide the truth.  He did not enlarge on that, probably because there was very little substance in what he was saying.

I concede that any company which is in the business of making money may be tempted to conceal the truth on occasions, but it is also fair to say that businesses can often make money out of environmental scaremongering.  Before 15 June 1989, the only way to sell washing powder was to argue that it cleaned your clothes.  Afterwards you could also argue that it contained fewer chemicals, and so was less harmful to the environment – and I can recall at least one television commercial which took that exact line.

Suppose you run a company which manufactures wind turbines.  Generally speaking, wind turbines are ugly and useless, and the only reason they are prolific is because they attract generous subsidies.  These subsidies are justified by environmental scaremongering, and so your company’s fortunes depend heavily upon the acceptance of the scare stories – even if they are completely untrue.

Suppose also that you are the director of an environmental lobby organisation.  Your income derives largely from membership dues paid by ordinary members of the public.  It is therefore vital that at least some people believe the latest environmental scare stories, because otherwise your organisation would probably have to close owing to a lack of money.

Global warming has kept many people on the gravy train, and I don’t expect that to change any time soon.

Some readers may accuse me of overlooking the compelling scientific evidence, and yes I’m sure the evidence is compelling to anyone whose place on the gravy train depends on us believing in scare stories.

Related previous posts include:

BBC bias: criminal law and global warming

The economics of buying online

We make more people employed if we shop on line. One to receive your order, one to process it, one to search for it, one to load the van & one to deliver it.

This comment was recently left on the website of a national newspaper.  It related to a news item about the impact of changes to business rates on some independent shops in the town of Hatfield in Hertfordshire.

A lot of the comments are along the lines that the government is not on the side of small independent shops, but rather on the side of big business.  The comment cited above suggests that buying online makes more sense, and appears to refer to buying online from a large retailer.

My first comment is that I read somewhere a few years back that a pound spent in an independent shop creates more jobs than a pound spent in a supermarket.  I have no idea what evidence if any supported this assertion, and I merely repeat it.

My second comment is that an online retailer is not necessarily a large company.  I often buy things on the internet, and so far as I can make out I am often buying from small traders.  In fact it appears that a lot of the things I buy are sold by people trading from their own homes.

As an aside, I can think of one large online retailer from which I have never bought anything, and never plan to buy anything.

If I buy something from a large company, whether or not that be an online purchase, then I may well be contributing to the salaries of a number of people.  I make the purchase, and an accounts clerk processes my payment.  My order is printed in a warehouse, and a picker collects the item I have bought.  This is then taken to a packer who begins the process of actually delivering the item to me.  The eventual delivery could be made via Royal Mail or a private courier firm.

By contrast, if I buy something from an independent trader, then I would be contributing to that trader’s revenues, but I might not be contributing to the salary of a single employee.  Quite simply the trader might not have any employees, although delivery would presumably still be via either Royal Mail or a private courier firm, and so I would in that sense be contributing to someone’s salary.

Nevertheless the salaries earned by the employees of the large companies would derive not merely from my purchase, but from the purchases of many customers.  Also, it is likely that the large company will employ many of its workers on a salary of the minimum wage or not much more.  It is also questionable to what extent the employees would benefit from the company having a higher turnover.  Higher turnover might well result in the company recruiting more staff, but that is not the same as improving the salaries.

By contrast, if I buy from an independent retailer, then I am tending to increase the income of that trader.  The trader might scrape by or might enjoy a substantial income.  If the trader employs any staff, then he or she has an obvious incentive to pay above the minimum wage.

A large company can more easily cope with a high staff turnover than a small business.  If you have a business and employ just one person, then you are likely to be seriously inconvenienced if that one employee leaves to get another job.  By contrast, a company with hundreds of employees will tend to find the loss of one employee to be less of an inconvenience.

This is of course a generalisation, and I accept that not all small businesses pay good wages – but that is in part because not all of them can afford to.

Understanding unemployment statistics

Looking back over some of my previous posts, it occurs to me that I have never fully explained unemployment statistics or how to interpret them.

In the United Kingdom there are two statistics which are published regularly, although they are not always widely reported in the media.  One is the claimant count, and the other is the Labour Market Survey.

The claimant count records the total number of people in the whole country who are claiming benefits on the grounds that they are looking for work.  It is compiled on a monthly basis, and is - or at least ought to be - a precise, reliable figure.  The reason why it is not necessarily a reliable figure is because it is easy for the government to find ways to remove people from the claimant count - for example by persuading them to claim other benefits.

The Labour Market Survey is compiled quarterly, and is an estimate of the number of people out of work in the whole country.  It is based on a survey of a randomly chosen group of people, and is therefore unlikely ever to be a precise figure.  On the other hand there is no reason to regard it as an unreliable figure.  So far as I am aware, no government has ever tried to manipulate it unfairly.

The way to interpret these statistics is as follows.  Take the current level of unemployment as estimated by the Labour Market Survey; then take the fall in the level of unemployment since the last quarter.  At the time of writing, these figures are 1.62million and sixteen thousand respectively.  Then simply divide the one figure by the other, which for the current quarter yields a figure of 101.25.

What this figure reveals is that if unemployment continues to fall at the present rate, then we will achieve zero unemployment in 101 quarters from now.  Divide 101 by four, and we see that full employment can be achieved in twenty-five years from now if unemployment continues to fall at the current rate.

The claimant count can be interpreted in much the same way.  Divide the claimant count by the extent to which it fell since the previous month, and then divide that number by twelve to convert months into years.

If the government is serious about tackling unemployment, then it should achieve falls in both the level of unemployment and the claimant count which are consistent with both figures falling to zero in only a few years.

The British economy does not function in a vacuum.  It is influenced to a large extent by economic events in other parts of the world, although British politicians are generally unwilling to admit this.  As a result, we must expect that - no matter how skilfully the British government manages the economy - we will experience rising unemployment from time to time.

The challenge for any government is to ensure that when unemployment does rise that it rises from a position of not one person out of work - and that has never happened in my lifetime, nor even come close to happening.

Related previous posts include:
Unemployment falls again
The new power house in Europe

Graduate debt and nurses' salaries

It was recently reported that the trade union Unison had claimed that many nurses in the United Kingdom are living in poverty, and that some of them are even using food banks.

While I don't doubt their findings, the fact remains that the starting salary for a nurse in this country is nearly forty percent higher than the minimum wage.  In other words, many people in Britain earn less money than a nurse, and yet many of those people enjoy a lifestyle which is far from impoverished.

The point is that the cost of living in this country varies considerably, and is affected by such factors as whereabouts you live, what type of housing you occupy, and whether or not you have to travel to work.

For example, a person who lives in private rented accommodation in Greater London and travels a long distance to work will almost certainly have a much higher cost of living than someone who lives in social housing in a provincial city and walks to work.

When people argue the case for student loans, they often assert that the repayment of graduate debt is related to the ability to pay.  This however is quite simply not true.

If the ability to pay means anything at all, then it must relate to your disposable income - the amount of money you are left with after deduction of taxes and your necessary cost of living. The repayment of graduate debt is based on how much you earn, and not on your disposable income, and so is not related to the ability to pay.

Related previous posts include:
Glamour model with student debt

The economics of meat consumption

I am happy to eat meat, although I accept that many people choose not to.  Some people consider a meat-free diet to be more healthy, while some people object to the methods used to slaughter animals which are intended for meat.

I will not address the point about the health benefits of either eating or not eating meat, as there is a lot of conflicting evidence out there.  I admit that some slaughter houses do not follow the correct procedure when killing animals, and I hope those slaughter houses are identified and suitably punished.

We are often told that meat consumption is uneconomical, and this is the point I wish to address here.  We are sometimes told that a certain quantity of grain is required to produce a pound of beef, and likewise a certain amount of water.

These figures are often suspect, and they also appear to overlook the other benefits of rearing livestock.  Cows and goats provide milk as well as meat.  Dairy farms require a number of female animals to provide the milk, as well as at least one male for the purpose of breeding.  However male as well as female animals will be born to the breeding stock, and these male animals can reasonably be reared for their meat.

Other benefits of livestock rearing are that sheep produce wool as well as meat, and that the rearing of sheep and cattle - both of which eat grass - helps to safeguard our green pasture land.  If Britain's farmers did not rear cattle and sheep, then I would expect a lot of our green fields to be ploughed up.  Then again, sheep in this country often graze on hillsides which would not be easily ploughed.

Several years ago, I read an account of how a charity had helped a woman in Lesotho.  She had just one acre of land with poor quality soil with which to feed herself and her children.  She also suffered from tuberculosis.

The charity supplied her with three goats.  If we follow vegetarian logic, then the charity had made her life harder.  After all, she now had to feed not only herself and her children from her land, but also the goats.

The gift of the three goats did however make her life much better. The goats provided milk to drink, and also manure with which to improve the soil.  The woman and her children enjoyed a diet with more protein, which resulted in her tuberculosis clearing up.  She even had some surplus milk which she could sell.

It appears that there is a lot to be said for livestock farming, and I for one do not intend to give up eating meat any time soon.

Interest rates at a historic low

As I write, interest rates in the United Kingdom have been cut to the very low level of just one quarter of one percent.  At least one news outlet is arguing that this is intended to help the economy through the post-referendum turmoil.

I am not aware of any statistical evidence to back up the widely held belief that low interest rates benefit the economy, but if anyone knows of such evidence then comments are welcome.

Many years ago I saw a famous businessman being interviewed on television.  Asked what retailers wanted, he replied that they wanted an interest rate cut.  On the one hand it is true that an interest rate cut allows people with mortgages to spend more money in the High Street, but it also reduces the spending power of people with savings.

I wonder why the famous businessman did not ask for a tax cut instead.  Cutting taxes would presumably leave at least some taxpayers with more money to spend in the High Street.  Why did he not ask for a cut in the price of bus fares?  Lower prices for bus fares would leave bus travellers with more money to spend in the High Street.

Then again, why did the famous businessman not ask for a cut in the prices charged by High Street stores?  If one High Street store cuts its prices, then presumably its customers have more money to spend in the shop next door - or am I missing something?

Maybe interest rate cuts are just an easy target.  Bus companies can cut the price of bus fares, but they still need revenue to pay for the cost of vehicle maintenance, staff wages, and so on. By contrast, it is not clear to most people what interest rates actually pay for.  Some of the money is paid out to savers, but as a saver myself I know that interest received is rarely more than a pittance.

Then again, it does not make sense to get sidetracked.  I have yet to see any serious evidence that low interest rates necessarily benefit an economy, or that high interest rates necessarily harm an economy.

Related previous posts include:
Understanding interest rates
Interest rates, inflation, and jobs

The economics of commercial expansion

Many years ago I read somewhere that far too many British companies were growing by acquisition and merger rather than organically.  Strip away the jargon, and the complaint was that British companies ought to grow by recruiting more staff rather than by buying up other companies or by merging with other companies.

It is common for British companies to buy a controlling stake in another company, although I am not sure that it is common for two companies to merge.

Suppose two companies - A and B - compete in the same market.  Suppose also that as company A increases its market share, so company B finds itself struggling.  The directors of company A now have a choice.  They may either make a bid to take control of company B, or they may continue to grow their own company organically.

In the latter case, it is possible that company B will eventually go out of business, in which case its workers will be made redundant.  On the other hand, if company A takes control of company B, then it is probable that many of those jobs could be saved.  I say probable because it is perhaps unlikely that there would be no redundancies at company B following the takeover.

In case readers think that I am recommending takeovers as being preferable to organic growth, let me be clear that I am not.  I am merely observing that takeovers have at least one point in their favour.

My personal view is that takeovers are extremely risky, and are best avoided.  For example, I remember once reading about a successful businessman who bought a controlling stake in what appeared to be a successful company, only to find that it was in fact barely making money.  He and his family narrowly avoided becoming homeless as a result.

If you run a company, then you can seek to expand it on the basis of you knowing its strengths and weaknesses.  By contrast, if you buy another company, then you are expanding your business empire on the basis of your limited knowledge of a company run by someone else.  Surely that is a situation fraught with danger, and therefore best avoided.

The economics of the minimum wage

The United Kingdom has high levels of unemployment.  The level fluctuates, but even in a supposedly good year it will be sufficiently high to ensure that worklessness remains a way of life for far too many people in this country.

An employer can advertise almost any number of job vacancies which pay only the minimum wage, and still expect to fill possibly every single vacancy.  Doubtless there may be exceptions where certain very specific skills are required, but I don't see much evidence of actual exceptions.

People who claim jobseekers' allowance soon find out that their payments can be sanctioned at almost any time, and so the incentive to find a job - even at a low wage - soon becomes obvious.

On the one hand, it might seem pointless for an employer to offer to pay more than the minimum wage when they do not need to pay any more in order to fill their vacancies.  Then again, a lot of employers rely on the flexibility provided by overtime.

Not everyone is prepared to work overtime, however.  In the past few months I have talked with a young woman who was unwilling to work overtime at any price, and with a man who was unwilling to work overtime unless he were to be paid around ten pounds per hour - which is significantly more than the minimum wage.

When employees refuse to work overtime, an employer must either recruit more staff, or pay a recruitment agency to supply more staff, or else allow a backlog of work to build up.  Given that newly recruited staff are often of little use until they have received some in-house training, then a backlog of work might build up even where more staff are recruited.  In other words, there is an advantage to having existing employees agree to work overtime, and paying above the minimum wage can assist in that process.

A related point is employee retention.  It is not productive for managers to be perpetually engaged in recruiting and training new staff, and so there is an obvious incentive for most employers in having their existing staff remain on the payroll.  Nevertheless a lot of employers face quite serious problems of staff turnover.

Paying above the minimum wage can probably help employers to retain staff, although there is no magic formula here.  There are many reasons why an employee might leave, and not all of them are related to money.

In my experience, people who work either for the minimum wage or for not much more than the minimum wage tend to be efficient and dedicated.  Nevertheless, an employer who pays significantly above the minimum wage can expect greater efficiency in the long term through lower levels of staff turnover and higher levels of overtime.

Related previous posts include:
Fellow blogger is wrong about the minimum wage
We get monkeys anyway

The living wage and household debt

Two recent news items require attention.  The first is that a lot of businesses in the United Kingdom expect to increase their prices in the new year.  This is in response to the so-called national living wage which will come into force in April next year at a rate of £7.20.

The other news item is that household debt in the United Kingdom is rising at an alarming rate.  The Daily Mail reports that:

... families are set to spend £40 billion more than they earn this year.

In the depths of the crisis in 2009/10, families spent £67 billion less than they earned as they moved to cut their debts.

I recall that the recession of the early 1990s was preceded by a credit boom in the late 1980s when far too many families spent beyond their means.

But to return to the first news item.  It is of course true that an increase in the minimum wage might lead to higher prices in the shops.  The current minimum wage stands at £6.70, and so £7.20 represents an increase of less than eight percent - roughly equivalent to an increase of around five pence on the price of a bar of chocolate.

If a company's payroll amounts to forty percent of its total expenditure, then its overall expenditure will not need to rise by more than three percent to accomodate the rise in the minimum wage.

Where prices increase - and not all employers are threatening to increase their prices - then the British public can choose either to pay those higher prices or to reduce their spending.  Given that the increase in the minimum wage will leave many working people better off, then maybe they will tend to pay the higher prices.  By contrast, if people tend to reduce their spending rather than pay the higher prices, then the companies which raise their prices might have to lower them again in order to attract custom.

Another threat related to the living wage is that some companies expect to employ fewer people.  Nevertheless some companies are already paying the living wage, and I'm not aware that any of them are laying off staff as a result.

I am far more concerned about the rise in household debt than I am about the living wage.  I urge all readers of this blog to avoid any increase in their level of borrowing.  Any increase in personal borrowing across the economy as a whole is likely to result at some point in an increase in interest rates, thereby making borrowing more expensive.

As a final point, I will repeat the comment left on the website of one national newspaper that the living wage is only decribed as a living wage by people who do not have to live on it.

Related previous posts include:

The minimum wage and prices
To build on debt is to build on sand

Controlling inflation

Fellow blogger is wrong about the minimum wage

For the first time ever I am replying to another blog on this site.  The blogger is someone whose output I tend to admire.

She has recently posted a comment in which she argues that the government is wrong to increase the minimum wage.  The government announced in March this year (2015) that the minimum wage is to rise by 20p to £6.70, and Enza Ferreri links to a report on the BBC website which includes the following comment:

It ... would allow the recipient of that wage to rent a one-bedroom place in a dowdier part of London, so long as he or she didn't eat, use power, pay council tax, or wear clothes.

Before I continue, anyone who is new to my blog might like to know that I have written extensively on the subject of salaries, covering both low pay and the fat cat salaries often enjoyed by managers.  I link to some of those previous posts below.

Ferreri claims that: If a worker A's skills don't have enough value for an employer B to pay A the minimum wage ... B will not hire A.  What I would like to know is how employer B - or anyone else - is expected to place a monetary value on someone else's work.  There is no simple formula that I know of which can determine the value of work.

Furthermore, many companies in Britain are led by company directors earning salaries way in excess of what most people can hope to earn.  Nevertheless many companies still manage to go out of business, and I have never come across a single case of a company director agreeing to repay his salary in the event of his company failing.  Surely the first duty of any company director should be to ensure that your company stays solvent.  If you cannot do that, then maybe you do not deserve to earn much more than the minimum wage.

Ferreri also claims that a higher minimum wage would make it harder for the unemployed to find work, but that might not be the case.  It is easy to envisage a higher minimum wage leading to workers having more money to spend, and this in turn leading to companies recruiting more staff because workers are spending more.

Another claim is that a higher minimum wage will drive up prices, but I have already tackled that misconception in a previous post which is linked to below.

Ferreri concludes that workers should seek to earn more by making themselves more valuable, but fails to explain the logic of this.  Suppose I spend my evenings studying things which are relevant to the job I do, and as a result make myself more useful to my employer.  It does not follow that my employer will pay me more as a result.

Consider pilots.  Pilots in the UK tend to be very well paid, but anyone who has seen the 2009 film Capitalism: a love story will know that it was common at that time for pilots in the USA to be poorly paid.  A search on the internet suggests that this might still be the case.  Does anyone know for certain?

If workers are paid according to their value, then surely a pilot in the USA would earn about as much as a pilot in the UK - or am I missing something?

I could write a lot more on the subject of wages, but instead I will invite the reader to look at some of my other essays on this subject.

Related previous posts include:

Should we increase the minimum wage?

The minimum wage and prices

The fat cat conundrum

The price of West End theatre tickets

There is an ongoing debate in British politics as to whether or not the government should subsidise the arts, and I hope to address this debate in a future post.  My purpose in writing this post is to consider the impact of state subsidy on theatre prices.

It is reported in the national press that the famous actress Juliet Stevenson has complained about the price of theatre tickets in London’s West End, and these tickets are certainly not cheap. Tickets for musicals can apparently cost up to £200.

Let us suppose that you establish your own theatre company, and rehearse a show.  You book a theatre, and your play comes before the public.  You need to recover your production costs from the ticket sales, and so you price the tickets accordingly.

It is probable that you will sell more tickets if you opt for a low price than if you opt for a high price, but either way you need to make a guess at the minimum number of tickets you will sell, and then ensure that the tickets are priced so that you will at the very least break even.  If your tickets are priced too high, and you do not sell enough to break even, then your theatre production fails.

Now suppose that your production receives some government subsidy.  This can be offset against your costs, and you can adjust the price of your tickets accordingly.  Your tickets can be sold cheaply, and you stand a good chance of covering your costs.

At the point at which your theatre production opens, the ticket price is guided primarily – perhaps exclusively - by the need to cover costs, but another factor could soon come into play.

Suppose now that your play is well received.  The reviews in the press are glowing, and before long you are selling out every performance.  Covering your costs is no longer an issue, as you are making a healthy profit.  The price of your tickets is now driven firmly by supply and demand.  A high demand relative to supply allows you to charge a high price for your tickets, and some people start complaining that your prices are beyond their means.

In this situation a subsidy would make no sense at all.  You are making a profit, and you are free to make use of this profit to reduce your ticket prices so that more people can afford them.  The drawback here is that lowering the ticket price of a sell out show will merely cause it to sell out the sooner.

Suppose you try to book tickets for a theatre play, but are told that it is fully booked for weeks ahead.  The logical conclusion is that the tickets are not priced highly enough.  Raising the price will dampen demand, and allow people to book tickets at short notice.  Any tickets for a given show which are unsold on the day of the performance can be sold at a reduced price, but otherwise the price remains high.

Some readers may note that charging a high price for theatre tickets merely exchanges one unfairness for another, and this is true.  Nevertheless it tends to replace the said unfairness with one that is more efficient.

When tickets for a popular show are priced so as to be affordable to as many people as possible, then it causes the afore-mentioned problem of people having to buy tickets a long way in advance.  It also creates a situation where revenue is lower than it could be.

If your theatre play owes its success to the presence of a famous actor, then that actor might leave if another theatre company offers to pay him more money.  In other words, not pricing your tickets highly enough could be counter-productive to your show’s ongoing success.

By contrast, if you price your tickets so as to exclude those on modest salaries, then you can maximise your revenue and potentially keep your show running for many weeks – or perhaps even years.  The success of your show might also encourage another theatre to stage the same play - albeit with a less impressive cast - and charge a lower ticket price, and so the less well off might not be completely excluded.