Yellow jackets

Afternoon all,

Welcome to 2019, a year which seems to have decided to use its first week to remind us that we are an island nation. I’ve not seen much news in recent days, but from the headlines I gather we’re spending our time stopping some actual boats crossing the Channel while paying a few million for some non-existent ones to potentially cross it at some point in the future. In other news the Chinese have landed on the moon… Oh well, it’s the taking part that counts.

Enjoy this week’s selection of reads – our New Year’s Resolution at the Foundation of Resolutions is to keep these weekly emails going into their second year of life. Much easier, and more enjoyable, than this dry January fad that’s spreading like wildfire. Trust me, this January of all Januaries, you are going to need a drink.

Happy New Year.

Torsten Bell
Director, Resolution Foundation

The long arc of injustice. Most of our discussions of what is or isn’t fair focus on policies that affect the here and now – who pays what tax, or how much should low or high earners take home. But a new project by British economist David Miles has a different take on the question of justice – starting from the fact that today’s prosperity is built ‘standing on the shoulders of giants’ (i.e. our predecessors). He asks how big a problem is it if those giants were sometimes not the most morally just? Quite a big one, he concludes, with a technical exercise that touches on issues of colonialism (in a narrow economics sense) and expropriation of assets within a country by one group from another. If nothing else it’s a good reminder that a major source of injustice can be from the past distribution of assets – each generation definitely does not start with a blank sheet of paper.

Yellow jackets. Things have calmed down a little in Paris over the break after the Yellow Jacket protests of the autumn – the only thing the French love more than a riot is a holiday. But the business of pondering what drove those protests, and what they mean for the future of French politics, goes on. A useful contribution this week came from French economist Jean Pisani-Ferry, arguing that the exact arguments of the ‘gilets jaunes’ have changed over time. More importantly he attributes the fact that ‘a desire for insurrection has now taken root in French society’ to Macron’s early tax cuts for the rich, earning him the sticky moniker of ‘president of the rich’. The failure of politicians, on both sides of the Channel, to deliver on promises that ‘we’re all in this together’, are big and fundamental mistakes that have done lasting damage to both our politics and senses of national unity.

Continental introspection. Brits like to think we’re exceptional in most ways compared to the rest of Europe. But many polls suggest we don’t even win in the Euroscepticism stakes. In the year of the Brexit referendum, polling suggested that people in seven other European states trusted the EU even less than we did. Now an intriguing paper from the European Commission themselves takes a hard look at the geography of Eurosceptic voting right across the EU. Their conclusion chimes with our own work on drivers of the Brexit vote – that the economic and cultural distance of some areas from modern centres of activity drive such voting.

More experts. 2018 was the year when the phrase ‘we’ve had enough of experts’ officially became hackneyed. So this year, perhaps, our resolution should be to try a bit harder to learn from the (empirically-grounded) experts we have. To help with your expert-spotting beyond the paragraphs of Top of the Charts, the Economist Christmas issue [£] had this handy field guide to the economic experts of the future (albeit with too strong a focus on US universities). It’s the fourth time the newspaper has compiled this list, and they claim to have had some success in doing so in the past: their original 1988 list included subsequent Nobel laureates Paul Krugman and Jean Tirole.

Pre-reading. If the Christmas break whetted your appetite for some serious non-fiction reading (or you wish it had), Cambridge economist Diane Coyle has provided an excellent public service blog rounding-up the year’s upcoming economics books. Time to get planning your summer holiday reading list straight away…

Chart of the week. The big picture of the next few decades is that we’re going to have to raise taxes to keep the welfare state we’ve got. Wealth taxes need to play a bigger part in the debate about how we raise those revenues than they do at present. Ideally that would include fundamental overhauling of council and inheritance taxes. But given the government has more pressing political challenges on its plate right now (naming no names), what smaller changes to existing wealth taxes and subsidies could it get started on today? A briefing I co-authored yesterday with my colleague Adam Corlett points to five things to reform, topmost among which is Entrepreneurs’ Relief. This has accounted for £22 billion in tax cuts over 10 years, with little to show for it. As the chart of the week shows, capping the relief at £1 million, rather than £10 million per claimant, would save £1.1bn per year. This is what you call a no-brainer for a Treasury planning a very difficult Spending Review in the Autumn.