Equality Or Death

THURSDAY, JULY 08, 2010

Equality Or Death

They kept equality but for some reason they later dropped the bit about death

Tyler recently watched a repeat of Simon Schama's always entertaining History of Britain. It was the episode about the French Revolution and its effects on Britain. 

Being a notorious old lefty, Schama naturally stressed the boost the Revolution gave to Britain's so-called radicals. How their struggle against the evil Tories and other forces of oppression here took inspiration from the wonderful transformation just across the Channel. 

But even old Si had to acknowledge the wonderful transformation got a little out of hand. That the best of intentions as regards equality somehow ended in butchery and the streets of Paris running with blood. And he even hinted that almost all such popular uprisings start with the best of intentions only to end with Napoleonic pigs enforcing their version of equality by means of bloody dictatorship. 

You see, nature doesn't really do equality - an iron law of history if ever there was one.

None of which of course, ever dissuades today's so-called radicals from pushing their own half-baked schemes for equality, telling us that we'd all be better off in an equal society.

Their latest campaign is encapsulated in a book called The Spirit Level: Why More Equal Societies Almost Always Do Better by Richard Wilson, an epidemiologist, and Kate Pickett.  It has already become a key text for those advocating big increases in taxation and spending aimed at levelling out income inequalities, presenting as it does a slew of statistical evidence purporting to show that our big social maladies - like low life expectancy and mental health - are largely driven by income inequality.

But what exactly is this statistical evidence, and how does it hold up to scruntiny?

The TaxPayers' Alliance has now published a most excellent paper by three Swedish economists that provides just such scrutiny. It's called The Spirit Illusion, by Nima Sanandaji, Arvid Malm and Tino Sanandaji. 

Their conclusion? 

"...the most important statistical correlation between countries that the authors [of the Spirit Level] claim to have established – the connection they point to between life expectancy and income inequality in different industrialised nations – is simply wrong...


The most generous thing we can say about the matter is that the correlation between income inequality and average lifespan in industrialized countries is at best so flimsy that it disappears under the slightest scrutiny. The most straightforward measure of health available simply has no robust correlation to income inequality when comparing industrialized countries using standard OECD and UN statistics and measures for a wide range of country selections."

To give you a flavour, here's the actual relationship between income inequality and life expectancy across the 23 countries carefully selected by Wilson and Pickett to prove their thesis (the data is industry standard published by the UN; the Gini coefficient is the most widely used statistical measure of income inequality - higher means more unequal):

Now, even the dimmest eyeball can see there's no relationship - a fact easily confirmed statistically by the Swedes. Yet the Spirit Level somehow contends a relationship exists.

And what about the supposed link between income inequality and health? The Swedes examined all 17 of the health outcome variables published by the OECD, and could find a strong link in only one (infant mortality). For 14 of the 17 variables, there was no link whatsoever, such as here for cerebro-vascular disease:

Reading the Swede's devastating critique - which you should - you'd almost imagine the authors of the Spirit Level were deliberately fiddling the data and/or their statistical tests to produce the answer they wanted to see.

But that would be absurd. 

Why it would be like, say, a bunch of boffins in the tax-funded climate change industry deliberately fiddling their data and statistical tests to produce the answersthey wanted. 

It simply couldn't happen.

PS The BBC's coverage of the Climategate enquiry has been well up to their usual standards. Apparently, the scientists involved were a little bit secretive but apart from that everything is tickety. Well, it would be tickety if it wasn't for a few swivel-eyed heretics out in the blogosphere who continue to deny the word of God.

WEDNESDAY, JULY 07, 2010

Public Sector Pensions Crisis

It's the same all over

Right across Europe public sector pensions are in crisis. For years, successive governments have made outlandish pension promises to their employees that their taxpayers were never ever going to be able to afford. And les poulets are now well and truly coming home to roost.

This morning sees the publication of an excellent new report on our own crisis.The Public Sector Pensions Commission (PSPC) confirms the harsh reality - public sector pensions are far too expensive and we simply can't afford to continue with them on the current basis.

First, debt. As we've blogged many times, the vast majority of public sector pensions are unfunded - ie there are no assets to back the liability, which therefore represents a pure debt we owe to public pensioners. Realistic assessments of this debt put it at well over £1 trillion, dwarfing our official national debt. Naturally HMG's own estimates understate the total - mainly because they overstate the discount rate applied to future payments - but the PSPC report provides this handy summary of all the latest estimates:

As we can see, Towers Watson - one of the world's leading independent actuarial firms - now put the true debt at an eye-watering £1.2 trillion, or £45 grand per household.

That's bad enough, but unfortunately the debt is still accumulating at an alarming rate. The best independent estimate (from Policy Exchange) says that the annual cost of the pension entitlement being accrued by current public employees is running at £34bn pa (2007-08). True, that's partly offset by the annual payments to existing pensioners (which reduce the outstanding liability), but shelling out £25bn pa on pensions is not what you'd really call comfort. 

The second point is that public sector pensions are now miles better than those on offer in the private sector, and it simply isn't fair to expect hard-pressed workers in the private sector to pay higher taxes to featherbed public employees.

Of course, the public sector unions and their media supporters argue that these pensions form a perfectly fair and above board part of overall public sector remuneration. They say that they have accepted lower pay today against the promise of a better pension tomorrow. 

But the truth is that overall public sector pay is not low relative to private sector. As we blogged here all the mainstream public sector groups (those famous teachers'n'nurses) currently do pretty well relative to the wider economy.

And when it comes to pension provision, the public sector advantage is huge. In the private sector - even if you're one of the mere 11% now in a defined benefit pension scheme - the total benefit to you averages around 19% of salary (and you'll likely have to contribute to that). 

In the public sector, the benefit is much higher. Although the employers and employees are together only contributing around 20% of salary, even after Labour's modest reforms for new members, the benefit to employees averages 44% of salary, increasing to an extraordinary 71% for the uniformed services:

So the average policeman gets a total remuneration package that's 71% higher than what it says on his pay slip. No wonder we can't afford to employ them any more.

What's to be done? 

Obviously there needs to be a drastic pruning of benefits. And the PSPC offers a menu, including:

• Increase the pension age - most existing members of public sector schemes can still draw a pension at 60 (the police get it at 50, and firefighters at 55); with our vastly increased life expectancy, that has to increase.
• Reduce benefit accrual rates - ie cut the amount of extra pension each employee earns for each year of work from its current average of around 1/60th of final salary
• Move to career averaging - ie instead of basing an individual's pension on his final salary in his final year of employment, base it on his average salary over his whole career

They provide this handy table comparing the effects of the three options. They ask how far we'd have to go with each of the options separtately to bring the average overall cost of public sector pensions down from their current 40-70% of salary to the c20% actually being contributed by employers and employees together:

The choices are stark: either the pension age will have to be increased to around 80, or the accrual rate will have to fall from 1/60th of final salary for each year's service down to around 1/100th, or 1/80th if career averaging is introduced.

But however stark the choices, and however much resistance the unions put up, change has to come. All sensible commentators are agreed on that. 

Labour already had one fumbled attempt at reform. But with the unions as their paymaster, they were never going to push it through. As the PSPC points out, not only did they leave entitlement rules for existing employees untouched, even for new employees what they took away with one hand they gave back with the other. So that was a flop.

Cam has to do much better. He may have appointed Hutton to take the initial flak, but it's Cam himself who will have to push it through to a final conclusion. Half-measures are not going to do it and he must steel himself for a long and bloody battle.

PS So why has Sir Alan Budd quit so soon? The left are naturally slavering, but there's no getting away from the fact that it is very troubling. We knew he was only there to get the thing up and running, but we'd all assumed he'd stay until the OBR had been put onto a permanent NAO-type footing - reporting to Parliament - and his successor was known. Replacement? It seems unlikely that Robert Chote would want to leave the IFS to take this role, but he's being touted by many. The other name being pushed by the left is the dreaded Blanchflower, but that would kill the OBR stone dead. Very tricky, although it does underline one point - no matter who produces the public finance forecasts, they will always be subject to a wide margin of dispute and disagreement. Which is why an OBR is no substitute for a properly articulated set of fiscal rules - see many previous blogs.

TUESDAY, JULY 06, 2010

Here Is The News

"Here is the news. The Tories are to press ahead with their savage spending cuts, despite being warned by experts that it will result in millions of children being eaten by wolves. Vulnerable old people are expected to be starving in gutters by Christmas, and we are certain to see many more innocent babies impaled on Thatcherite Pickelhauben."

Thus our "public service" broadcaster reports George's prudent and necessary programme of fiscal retrenchment. The programme that is essential if we are to rebuild a sustainable and prosperous economic future.

Last night's Newsnight was a classic, opening with footage of a huge axe poised over a school playground, and a smug looking Emily telling us that the abandonment of Labour's multi-billion Building Schools for the Future (BSF) programme shows that Tory promises to safeguard frontline services are all lies.

No matter that the £50bn BSF had already turned into a vastly expensive disaster (see this blog), or that it threatened to leave us with yet another socialist legacy of poorly built, difficult to maintain, education factories (see this blog). No, the message was that millions of children are now being consigned to freezing leaking Nissen huts* with their educational prospects wrecked.

Look, we all understand that the tax-funded BBC is never going to support public spending restraint, but we should surely expect the occasional brief nod in the direction of the facts. 

And the fact here is that these so-called savage spending cuts make barely a dent in the massive upward trend of public spending. 

As we've blogged before, far from cutting spending, George's budget actually projects a 9% increase by 2015-16 (Total Managed Expenditure increases from £696.8bn this year to £757.7bn in 2015-15). 

Of course, if you assume the Simple Shopper is unable to restrain the price it pays for goods and services, then that 9% cash increase may translate into a squeeze on the volume of stuff it's able to buy. But even then, the reduction looks pretty small in relation to the reckless rise under Labour. 

The following chart shows public spending in real terms (ie 2010-11 prices adjusted using the GDP deflator) all the way back to 1964-65. We have spliced on George's budget projections out to 2015-16.

As we can see, over the next 5 years George intends to squeeze total public spending by 4%, or about £25bn pa. 

Hardly a disaster, and to put it another way, that will take spending all the way back to the level last seen in... wow... 2008-09. 

And compared to when Labour came to power in 1997, real spending will still be over 50% higher. Most of Labour's insane spending splurge will remain in place.

Yes, OK, we know that some departments will be squeezed more than others. But without working through all the numbers in detail, I'd be amazed if anydepartment was going to end up with less in real terms than they had when Labour came to power. And as has been pointed out, the world seemed to be working perfectly fine in 1997.

You might want to keep these figures handy for the next BBC axe horror story. 

*Footnote Back in the 60s, Tyler's first two years at his most excellent state grammar school were spent being taught in wartime asbestos huts. They weren't quite the classic Nissen hut, but close enough. They were draughty, hot in summer, f-f-freezing in winter, and the bogs were outside. None of which made any difference whatsoever to the quality of the education. As ex-teacher Mrs T is forever saying, it's not the buildings that matter, but what goes on inside them.

PS Talking of Mrs T, she's got it into her head that the BBC has been systematically referring to Cam as David Cameron, rather than the Prime Minister. She reckons they never did that with Bliar or Brown. Can that be right? Having now listened more closely, she certainly seems to be right about Cam's treatment, but the Tyler memory banks have blotted out 1997.

PPS The WW1 propanda posters are lifted from weburbanist - well worth a look.

UPDATE 7.7.10 BOM correspondent EW has emailed with a comment left underthis story about one of the new schools already being built under BSF - the replacement for the notoriously awful Pimlico School, itself erected at huge expense by the GLC commissars in the 60s:

"It [the 60s school] was impractical; it was freezing in the winter, boiling in the summer and the heating was operated centrally...yet I'm sad to see it go. I'm a student at the school, and it's being replaced with something absolutely disgusting; one of these new labour/tory style office-type designs without much natural light, a lunch room with doors to outside which are constantly opening and getting stuck in mid-winter, narrow stairs, only one central corridor for each floor, and broken drains which make the 2nd floor stink of rotten eggs. We once entered our science room to see the gas taps all lit, because it was so cold. For the record, it's less than a year old. When finished, it will be much smaller, have fewer classrooms, no designated 6th form area and most certainly no swimming pool. We now never have swimming lessons anymore because all the slots at the leisure centre have been long-since booked up by other schools. Good thinking, Ed Balls."