Fraying safety nets, social circles and fertility rates

Afternoon all,

It’s nice when there is something to bring the country together. Like the worst. Coup. Ever. The Prime Minister’s opponents and supporters all agree that Simon Clarke’s was the least successful heading over the top since Blackadder’s reluctant effort. That’s the risk with cunning plans.

We say we want our politicians to represent the country, so maybe it’s fitting they show they can’t fight properly in the week military bosses warned the army’s not ready for a conflict and the Daily Star declared us too fat to be any use even if conscripted. It’s not going to go well if we have to put the flip flops away and get the fatigues out. At least this explains why we’re sticking to taking on the Canadians over cheese and cows these days.

TOTCs can’t help on the war front, but we’re here to keep you fighting fit intellectually. This week’s reads cover French fertility going down, and Chinese manufacturing heading up.

Have a good weekend.

Torsten

Chief Executive
Resolution Foundation

Designing destitution. For a succinct data dump on the UK’s threadbare social security system have a read of a new short note from Professor Donald Hirsch for the Financial Fairness Trust. The really lazy should skip to Figure 3 which does a good job visually of telling you two things. First, repeated cuts mean those relying on social security are now a lot further away from the Minimum Income Standard – the minimum needed to maintain a socially acceptable living standard. Support for families with children has fallen from 60 to 40 or 50 per cent of that standard over the past decade. Second, we treat different groups very differently. Anyone younger without kids is basically guaranteed destitution if they are forced to rely on the state, with just one-third of the support pensioners receive relative to that minimum income standard. For more along these lines read JRF’s annual update on the state of British poverty (short version: poverty levels are persistent, but depth of poverty for those affected has deepened). Might not be news, should still be sobering.

Trust ties. Analysing the politics of discontent in ‘left behind’ regions is all the rage. Expect another burst of that if the far right does really well in the European Parliament elections. We normally focus on the economic drivers of these patterns, but what about something a bit more human: social connections. Research from the Southampton University politics team fill us in, digging into how social connections impact trust levels. They measure this by mapping friendship links on Facebook (which is bit worrying because in that case I’ve got no social connections) and surveys of different kinds of trust across 30 European countries. The key finding is that areas with weak social connections to the capital city/region have less political trust – but more locally focused trust. So how to stop Trump(s)? Subsidies for cross-region friendship – with a bonus if you’re prepared to buddy up with a Londoner?

Fraternité, fertilité. We’re in one of the periodic panics about lower birth rates. Listen to Rachel Wolf and John Curtis discuss on their latest Trendy podcast. Plus inheritance tax is back on the political agenda. Can we combine the two? You bet, with a revolution thrown in for good measure. Famously the French got going with the fewer kids thing first in the 18^th Century (50 years or so before industrialisation), but did the revolution have an effect? Yes, and not just via lots of violence/turmoil. Instead a new study links 1793 inheritance reforms, which forced parents to share their assets equally among their children regardless of gender, with them having fewer kids (0.7 fewer per woman). The authors show this by comparing parts of France where the inheritance practices were and weren’t affected by this reform (some were less affected because they already tended to split inheritances in this way). Note this accelerated, rather than started, the fertility falls – which began in earlier in the second half of the 18^th Century thanks to secularisation. The conclusion? Egalité ≠ fertilité.

Charting China. How China took over the world manufacturing-wise is the topic of a short eight chart read from Professor Richard Baldwin (the Swiss-based globalisation guru). Having had 5 per cent of global manufacturing production in 1995, China’s staggering surge over 20 years took it to 35 per cent by 2015. It’s basically flat since but still now produces more than the next ten biggest manufacturing countries combined. The blog also reminds us that it’s not a one-way street – China imports more than it exports of basically everything else – services/food/energy. Plus, the manufacturing is increasingly for the domestic market – the cheap electric vehicles Europeans are trying to ban are cheap in part because they were initially targeted at Chinese consumers. China is now the world’s only manufacturing super-power. And it’s not even close.

Super stadiums. While we’re on China, and at the slight risk of it looking like we’ve been infiltrated by the CCP, a new paper adds a bit of nuance to the consensus that many of their infrastructure projects abroad have been “white elephants”. Focusing on stadiums built in sub-Saharan Africa (topically, given the Africa cup of Nations is currently taking place in Ivory Coast), it asks whether stadium construction boosts local economic development. Measuring nighttime light, the now popular proxy for economic activity, the authors argue yes, with a 25 per cent increase in a city after a stadium opens. And no, the effect is wider than round the stadium itself: this isn’t just about phones being lit up during power ballads.

Chart of the week

There’s a Budget coming and it’s an election year so obviously everyone’s talking tax cuts. The Prime Minister isn’t exactly managing expectations, promising “there is more to come” (I seem to remember something similar from Kwasi Kwarteng. Which went well). Tax cut clamour comes amid a tax raising parliament (the six-year freeze to personal tax thresholds is on track to raise over £40 billion a year). But, while the UK’s overall tax take is on course to hit its highest in eight decades, COTW is a reminder of the bigger picture that average tax rates on income are actually low by historic standards. Over time, the tax take has fallen across the pay distribution, for high earners in the 1980s and lower earners more recently. This is consistent with fiscal drag bringing more people into higher tax bands – which leaves them paying higher marginal but not average tax rates. The tax take overall is of course up, not least reflecting recent corporation tax rises alongside the threshold freezes. But those thinking that lower taxes on income will solve all our economic ills should note that the long-term direction of travel on personal taxes is down, not up.