Blog

Since the publication of Kristian Niemietz’s seminal work Redefining the Poverty Debate in 2012, many of us have been arguing for a new approach to the perceived problem of poverty and low pay. Our contention has always been that there are numerous areas where existing government policies drive up the cost of living, particularly for those on modest incomes. Reversing many of these damaging distortions, we believe, would be an effective means of improving living standards.

Unfortunately, in areas from housing to childcare, energy to food, welfare to rail fares, the politicians and anti-poverty campaigners tend to take a different approach. Advocating rent controls, price controls in energy, renationalising parts of the railways, offering up new demand side subsidies for housing or childcare, or pushing for higher minimum wage rates, their belief seems to be that markets don’t work effectively and are the cause of high prices – requiring governments to step in.

How have we reached such a degree of anti-market sentiment for these challenges? What doesn’t help here is that the debate in many of these areas is polluted with a host of myths, half-truths, straw men and red herrings which shape the views of the public, commentators and politicians towards anti-market solutions.

Some of these are more common or important than others. But in a new paper called Smoking Out Red Herrings: The Cost of Living Debate, Kristian Niemietz and I assess 14 of them. That’s 14 claims or lines of argument that we hear often in the debate surrounding the cost of living and low pay which would lead to bad policymaking.

Many of these have been things we’ve touched on before on this blog. When discussing housing, for example, it’s common to hear that ‘brownfield development is the solution to our housing shortage’ or that ‘we have enough housing, it’s just badly distributed’. Pinning the blame for high energy prices or high rail fares on ‘privatisation’ is a line of argument also increasingly prevalent. There’s the argument for more government subsidies for childcare on the basis that it will ‘be good for maternal employment and the economy’ and it will help ‘lower living costs for working families’. And on welfare, how often do we hear people claiming that ‘most people in poverty are in work’ or ‘tax credits subsidise employers’?

Our paper examines all of these claims and more (the full list is below), using economic logic and evidence to assess how true they are. We hope that the paper will provide a useful reference point for those concerned with the cost of living and the effects of policy-induced high prices on living standards and welfare policy.

To access the paper, click here.

The full list of claims assessed is listed below:

- Housing: ‘We do not need more homes’

- Housing: ‘Brownfield development can solve our housing crisis’

- Housing: ‘The market has failed to build, we need a public house building programme’

- Housing: ‘Greedy landlords are to blame for high rents, we need rent controls’

- Energy: ‘Privatisation of the energy market is to blame for high energy bills’

- Rail: ‘Privatisation of the railways is to blame for high fares’

- Food: ‘Food banks are a sign of food being too expensive. The food industry needs to take more responsibility’

- Childcare: ‘Subsidies are good for the economy because they get women back to work’

- Childcare: ‘Childcare subsidies reduce the cost of childcare’

- Sin Taxes: ‘Sin Taxes merely reflect the externalities of certain activities’

- Sin Taxes: ‘Sin Taxes are voluntary taxes’

- Welfare: ‘Higher benefits and more government spending are needed to reduce poverty’

- Welfare: ‘Most people in poverty are in work’

- Welfare: ‘The taxpayer subsidises employers through tax credits, so we need a higher minimum wage’

Comments (0)

Post new comment

The content of this field is kept private and will not be shown publicly.
Type the characters you see in this picture. (verify using audio)
Type the characters you see in the picture above; if you can't read them, submit the form and a new image will be generated. Not case sensitive.

As in all IEA publications, the views expressed in this blog are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.

Previous blog posts

Search

Mark Littlewood
21 September 2014
comments

In this new video for ieaTV, IEA Director General Mark Littlewood explains how liberalising the UK’s suffocating planning laws would have a profound and beneficial effect on the cost of living...
Philip Booth
19 September 2014
1 comment

In denying the Scots the option of devo-max, David Cameron made arguably the most monumental mistake of any recent premiership. The fairly narrow ‘no’ vote could lead to the worst...
Len Shackleton
18 September 2014
5 comments

Greg Dyke, the Chairman of the Football Association, is proposing a new set of rules about the eligibility of non-EU footballers for work visas. The proposals, which would aim to reduce the...
Ryan Bourne
17 September 2014
comments

With low productivity, high inflation and terrible industrial relations, in 1977, Britain was a basket case. So that year, businessman John Hoskyns decided to dedicate substantial effort to analysing...
Christopher Snowdon
16 September 2014
1 comment

The economist Julian Simon once wrote that ‘the economic study of advertising is not deserving of great attention’, ruefully adding that ‘this is not a congenial point at which to...
Ryan Bourne
14 September 2014
comments

Most politicians and commentators think the ‘cost of living’ and its inverse ‘low pay’ are areas of serious concern for public policy. But for some, like the journalist Owen...
Ryan Bourne
12 September 2014
5 comments

Concern about ‘low pay’ and the ‘cost of living’ are two sides of the same coin. Pay is deemed ‘low’ when the prices of things we need to buy are rising...
Kristian Niemietz
11 September 2014
1 comment

In this video the IEA’s Senior Research Fellow Kristian Niemietz outlines a free-market approach to the cost of living squeeze. Building on his research in Redefining the Poverty Debate, he...
Andreas Strongolou
10 September 2014
1 comment

Planning controls constitute a significant denial of private property rights, with serious economic consequences. The most obvious is the severe housing crisis. However, businesses also suffer as...
Ryan Bourne
9 September 2014
comments

Why do politicians advocate policies which deal with the symptoms of problems rather than the underlying issues directly? In the past week we’ve seen Liberal Democrats react to expensive...
Christopher Snowdon
8 September 2014
15 comments

Owen Jones’ new book, The Establishment, promises to be more than your average left-wing polemic against austerity, banksters, globalisation and ConDems. The blurb promotes it as an expos...
Ryan Bourne
7 September 2014
2 comments

Today marks the start of the IEA’s ‘Cutting the UK's Cost of Living’ month as part of our 2020 Vision programme – an attempt to shine a light on key issues which we...
Matt Ridley
5 September 2014
comments

In this interview for ieaTV, Matt Ridley explains that shale gas is readily available in the UK and can be extracted relatively cheaply. Moreover, the environmental problems associated with the...
Philip Booth
3 September 2014
3 comments

It is often argued by proponents of free markets – especially within the Conservative Party – that we should not pursue equality of outcomes but, instead, pursue equality of opportunity....
John Burton
2 September 2014
comments

One of the most important controversies generated by the Scottish independence debate relates to the continuation (or not) of the present sterling zone between Scotland and the rest of the UK (rUK),...
Carlo Stagnaro
1 September 2014
1 comment

You can’t have your cake and eat it too – even when it comes to energy. Germany has been a champion of the ‘green economy’ for the past decade, but now the time has come to...
Kristian Niemietz
28 August 2014
3 comments

“Labour’s summary of the ideas […] says they “clear the way for a massive shift of resources from the NHS to private companies”. […] [P]rivate companies (Labour...
Jared Meyer
22 August 2014
1 comment

Prime Minister David Cameron’s “all-in” push for developing the UK’s shale gas reserves continues to generate what seems to be strong public backlash. While vocal protesters...
Philip Booth and Kevin Dowd
20 August 2014
comments

Proponents of Bitcoin like to suggest that it will be the money of the future. Critics point to its price volatility, the evidence of a Bitcoin bubble and other problems. Both sides make valid points...