Job Sums

I’ve been trying to avoid commenting on the General Election campaign, since it would be a huge distraction from far more important issues, but I can no longer ignore the absurd reasoning that’s making its way into the media.

Yesterday, the Guardian, bless their little cotton socks, tried, under the banner “Reality check”, to answer the question “Do national insurance rises cost jobs?” (if you follow the link, then don’t be puzzled – as usual, the online title is different to that in the print version of the paper). The Guardian’s answer is slightly to the “solid” side on a cute little dial that goes from “shaky” to “solid” – let’s call it “mushy”. They seem to think NI rises might cost jobs.

The article included some strange logic, most notably from Richard Dodd of the British Retail Consortium who apparently argued that “…in a competitive market, retailers will struggle to pass the tax on in the price of goods…”. The “competitive market” has nothing to do with it, since the tax will affect all employers. No-one has a new competitive advantage as a result of the tax.

The Guardian also failed to question why business leaders might be against an NI rise. The point is that increasing taxes (like other costs) reduce profitability (temporarily) because in general it takes time to raise prices and recover margins following an increase in costs. As clearly testified by Richard Dodd’s concerns about how “retailers will struggle to pass on the tax”.

But the Guardian’s piece made a bigger mistake – in fact they managed to completely miss the point. You can only answer a question like whether an NI increase will “cost jobs” by considering also what happens to the money raised by the tax. Taxes rob Peter to pay Paul, so if you can only evaluate the effect on any measure – in this case jobs – by looking at the issue in the round.

Since, as argued by the Guardian, the effect on (private sector) jobs of the NI increase is marginal and the money will be spent on retaining jobs in the public sector, then, if it’s the overall number of jobs in the economy you care about, you should be in favour of the NI proposal. The arguments put forward by the Tories and their business friends are misleading.

[I should say I don't actually believe the prime goal of an economy should be to create jobs and I don't believe the Tories or business leaders do either. The goal should be to produce as much as possible with as few resources - including people - as possible. Then we'll all be rich and jobs will then take care of themselves. What I object to is all the dissembling. Having said that, unemployment is high and rising, so it's not the best time to be bearing down on jobs. In other words, the trajectory Labour wants to put the economy on makes more sense to me than that which the Tories propose. We may as well, for instance, maintain staffing levels in the NHS - thereby saving and improving lives - and, in particular, continue to invest in the IT necessary for future efficiency savings, rather than have people sitting around on the dole].

Today’s FT gives us some clues on how many jobs would be lost by reducing public expenditure by an amount equivalent to that which would be raised by the NI increase. The FT appears to consider a slightly different question, i.e. the effect on jobs of additional public spending cuts in 2010-11 (i.e. this financial year), as proposed by the Tories. The point, which several BBC news bulletins have missed this morning, is that the NI rise only comes in in 2011-12. With the usual disclaimer that unless I’ve completely misunderstood something, in which case perhaps someone will be good enough to put me right…

And it’s surprisingly in the FT, where a “Cameron adviser discloses cuts detail” that the serious dissembling starts.

First, there’s an enormous howler. The article describes a proposal for £1-2bn in job savings by natural wastage this financial year, 2010-11. That is, during the year that’s already started. But the article appears to reckon on a saving of the full annual cost of the jobs – estimated to be £50,000 each – this financial year. Wrong. You can only reckon on that saving if the jobs disappear at the start of the financial year. On average they will disappear halfway through the year (actually later than that, because the Tories wouldn’t even be able to start until May 7th). So on average only £25,000 will be saved this financial year per job shed. Therefore, to save £1-2bn this financial year would require the wastage of £1-2bn/£25,000 = 40,000 – 80,000 jobs, not the 20,000 to 40,000 stated.

Note that if the jobs are lost other than by natural wastage there will be redundancy costs and less, or more likely negative, cashflow savings this financial year. Basically the Tories need to find 40-80,000 retirees or leavers this year who have not yet been accounted for. And whose jobs are so inessential that they don’t need to be replaced. Tough call, I’d have thought, when there aren’t so many other jobs out there to move to.

Furthermore, some of the cost savings are in things like office space, not salary. There’s always going to be a delay in realising such savings, because you can’t move to a smaller office every time someone retires and is not replaced.

Even furthermore, the cost in benefits of 40-80,000 people who would otherwise have had a public sector job to go to needs to be subtracted from the fiscal saving. Let’s be generous and assume that this has been taken account of in the £50,000pa annual cost of a public sector job quoted in the article. You can do your own sums if you want to assume the actual saving is less than £50,000pa (or less than £25,000 saving on average in the current FY, 2010-11).

Second, we’re discussing jobs in the overall economy. The FT article considers how the Tories propose to save an extra £12bn this financial year:

“Other cuts set out by Sir Peter include reductions in IT spending, yielding ‘potentially at least’ £2bn to £4bn. Renegotiation of contracts with suppliers of goods and services – which Sir Peter described as ‘not rocket science … it’s not about beating them up on price’ – would save about £3bn.

Cuts to ‘discretionary’ spending, such as consultants and staff expenses, should yield a further £2.5bn for 2010-11, he said. He declined to be drawn on a figure for property costs.”

Let’s see. Reductions in IT spending will cost jobs at IT suppliers, not all of them overseas. “Consultants” last time I looked were living, breathing working people as well. Reducing staff expenses would cost jobs indirectly as would renegotiation of contracts. The trouble is the lead time on renegotiation of contracts as well as “property costs” – realised presumably by selling offices – is months to years, so achieving the promised cashflow savings this financial year is implausible, to say the least.

I simply don’t find the Tory plans credible. They’d have more chance of getting my vote if they were actually honest about what they believed in. I remember Labour came to power in 1997 with a promise to stick to the Tory spending plans for the next two years. Cameron thinks he knows better. His position is contradictory – he said on the radio this morning that it was difficult for an Opposition to make spending plans, yet he’s confident he can make huge additional cuts this year. Cameron was once thought of as the new Blair. He now seems to have morphed into the new Thatcher. It seems to me that he’d give the economy the sort of shock treatment it received in the early 1980s. Steeply rising unemployment, an assault on the public sector and so on. Maybe it needed it then. I don’t know. But if it needs it now, perhaps Cameron should be making that case, not promising to save jobs when, at least in the short term, his policies are more likely to produce higher unemployment than would otherwise be the case.

Cameron is giving the impression that he can reduce public sector borrowing and unemployment this year and next compared to Labour’s plans. If he really believes this then he’s seriously wrong and not ready for the job of PM. If he doesn’t believe he can square the circle, then perhaps he should clear up the misunderstanding (or is he already planning to make his old chum George Osborne the fall guy when the Government can’t deliver?). The only other possibility is that he’s deliberately misleading the electorate.

Cold FT

I wrote earlier, in relation to a story in today’s Guardian, that: “Solving the GW problem is difficult enough without the constant drip-feed of confusing reporting of the issue.” Even worse, though, is when influential media editors themselves appear to be confused by sceptics. A colleague has drawn my attention to a recent FT editorial and a subsequent letter by David Henderson, who, it turns out, is a campaigning sceptic.

On close inspection, the FT editorial is troubling. It appears to support sceptic attempts to undermine climate science.

The FT’s first point is that scientists “must be open about sharing the data that underlie their findings”. Fine, we’ve all long since been agreed on that. But data has not been systematically kept as secret as some would have you believe.

The FT goes on to say, though, that “scientists should devote more effort to observation”. Worryingly, the FT seems to believe there is some doubt about the veracity of the recent temperature record. This is simply not the case. There is some debate about whether it was as warm – globally, or, more likely, just regionally – several centuries ago, during the so-called Medieval Warming Period, as it has been over the last couple of decades. This question will not be resolved by gathering more data now, and in any case will become increasingly academic as the world warms over the coming decades.

The FT concludes by suggesting that “scientists should give weight to all the evidence, not just the consensus”. This is confused on two levels. Debates about “the evidence” – data – are matters of detail, and the IPCC already reports differing findings.

What the sceptics really want is for the IPCC to “give weight to” different interpretations of the data. But many possible causes of warming, for example variations in solar output, are already taken account of. They are incorporated into the energy balance model that informs mainstream climate science. As Lionel Messi reminds us mere mortals, there’s always scope for improvement, of course. The next IPCC report is likely to reflect, for example, the improved understanding gained over the past few years of how natural climate cycles affect the way the planet is warming.

What’s left are alternative paradigms such as the idea that variations in the solar wind could cause fluctuations in the flux of cosmic rays entering the Earth’s atmosphere which in turn could affect cloud cover and hence climate. At present this explanation seems a little contrived and there are serious gaps in understanding. Research may eventually determine an effect that should be included in climate models. To ask the IPCC to “give weight to” the cosmic ray theory as an alternative explanation, though, simply makes no sense. It would be like asking someone doing a jigsaw to make use of pieces that belong to a different puzzle. The only way the cosmic ray theory – or any other explanation of the data – would make sense is if it is coupled with proof that greenhouse gases will not have the warming effect predicted by the vast majority of climate scientists.

Most students of the history of science would not recognise modern climate science as in crisis. The theory remains entirely coherent, without having to invoke ad hoc means to “save the appearances”, unlike for example cosmology, which over the last few decades has had to invent dark matter, dark energy and the rapid inflation of the early universe.

The FT appears to share the general confusion following, not just “climategate”, but years of sceptic sniping and deliberately and unintentionally misleading reporting of the complex global warming issue.

Sceptics such as David Henderson are now taking advantage by dramatically exaggerating every potential flaw in the scientific process, like players on a losing football team feigning serious injury at the slightest provocation, in the hope that the referee will red card the opposition.

In fact, the way Henderson goes on in his letter you’d imagine all collective human endeavour is doomed to failure. How did we ever manage to organise ourselves to bring down a single woolly mammoth, let alone put a man on the Moon?