Author Archives: Tim Leunig

Opinion: How we’ve been going wrong for the last 20 years

By Tim Leunig | Published 27th October 2011 - 10:54 am

Social mobility means more than whether people are in the same income group as their parents. It also means that the lives of people “below” look more like those “above” them as time goes on.

Most of the twentieth century saw a clear demarcation between blue and white collar workers. Blue collar workers were paid less, and their lives were much less secure. They were more likely to be on short-term contracts – labourers were often hired by the day. Their work involved a greater risk of injury, and thus loss of work. They were less likely to have unemployment insurance and a company pension. The employment conditions for white collar workers were much more reliable – and that, as much as the difference in income, meant that white collar workers were able to buy a house, giving them a security not enjoyed by blue collar workers.

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Opinion: Education matters in tackling social mobility

By Tim Leunig | Published 25th October 2011 - 2:26 pm

Social mobility is core to the Coalition and Nick Clegg personally. It means that your birth plays little or no role in determining your life outcomes. It is the opposite of feudalism. Economic mobility is an important part of social mobility. Where you end up economically is determined by your ability and hard work, for sure, but also by whether you get a good education, good advice, and – for some – by whether you inherit.

Government should concentrate on what it can do, in this case education. Kids from poor backgrounds generally do much worse at school – and so they end up poor later on. Government can improve school results for such kids relative to others: Labour did it – a bit. There is big variation in this across the country, so every local authority except one should be ringing up those who are doing better and learning from them.

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Tim Leunig writes: The problem with Labour’s proposed tuition fees cap

By Tim Leunig | Published 27th September 2011 - 7:40 am

Ed Miliband has seized the initiative at the start of his conference, announcing that Labour would cap student fees at £6,000 per year. This policy is superficially attractive, and is clearly designed to win over LibDem supporters who remain angry at the rise in tuition fees.

Today I have published an analysis of Labour’s proposal. It uses the Business Innovation and Skills graduate income “ready reckoner”, which is based on data from the ONS Labour Force Survey. The underlying data are as good as they can be, although of course predicting graduate incomes in 30 years time is a dangerous …

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Tim Leunig writes: Riots, Justice and Reconciliation

By Tim Leunig | Published 14th August 2011 - 2:25 pm

Natasha Reid, a 24 year old graduate, was in McDonalds in Enfield on Sunday night. She noticed that Comet was being looted, and went in and helped herself to a £270 television. There is no suggestion that she caused any damage, or was violent in any way. She realised that what she had done was wrong, and handed herself in to the police.

She has been found guilty, and will be sentenced on 1 September. District judge Elizabeth Roscoe told her that her remorse would ‘very much go in your favour’ but warned that she could still face prison because of the ‘serious nature’ of the case.

That would not be appropriate. What Natasha Reid did was wrong, but, bluntly, since she got home with the television, and does not appear to have been caught on camera, she could probably have got away with it. She chose to confess, a remarkably brave thing to do given that sentencing was likely to be harsh.

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Tim Leunig writes: Why are utility companies hitting the poorest hardest?

By Tim Leunig | Published 13th August 2011 - 11:23 am

Global gas prices are going up, and prices for UK consumers are going up too. Gas suppliers are raising prices by around 18-20%.

Consumer price rises are inevitable when the wholesale price goes up. But my supplier, E.ON, has structured its price rises to hit the poor more than the rich. They are doing this by raising the cost of gas much more for small users than large users.

They have raised the price of the first 2680 kWh by 46%, but the price of additional units by only 15%. This means that the poor – and the green – will see …

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Opinion: Cameron should be as ruthless as Murdoch‏

By Tim Leunig | Published 8th July 2011 - 1:10 pm

In shutting the News of the World, the Murdochs have shown themselves to be ruthless. Their ruthlessness changed the story, although it has not killed it.

David Cameron needs to be as ruthless. So long as the Murdochs have a powerful media presence, his hiring of Andy Coulson and his closeness to Rebekah Brooks are real issues. The retoxification of the Tory party is underway.

Cameron should announce that he was lied to by Coulson, and that the level of rot can only have happened if people at the top were not managing the paper properly. It was Brooks and …

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Opinion: The cap doesn’t fit, so don’t wear it

By Tim Leunig | Published 15th June 2011 - 10:57 am

This week the £26,000 absolute cap on benefits is back in the news. To many people £26,000 sounds like a lot of money. It is, after all, the average wage. The idea that anyone out of work should get more than the average family appears offensive. That is why this policy plays so well with the public – and make no mistake, it does.

But the claim, repeated by the Department for Work and Pensions, that this policy is needed so that people on benefits do not get more than those on average earnings is a lie. People …

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Opinion: MPs have the power – so how do we involve the members?

By Tim Leunig | Published 25th September 2009 - 10:20 am

It is 1946, and Labour have just won a landslide under Clement Attlee. Harold Laski, head of Labour’s National Executive Committee, tells Attlee that he must not sign a peace treaty at Potsdam, because it is the NEC, not Attlee or the parliamentary party, which is the sovereign body of the Labour Party. Attlee replied that

You have no right whatever to speak on behalf of the Government. Foreign affairs are in the capable hands of Ernest Bevin . … a period of silence on your part would be welcome.”

Now imagine the Liberal Democrats win the 2010 election. For financial – or other – reasons the party leadership decide to defer or abolish our pledge to abolish tuition fees.

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Oil prices: understanding the past, predicting the future

By Tim Leunig | Published 7th January 2009 - 11:20 am

A year ago I predicted that “oil prices will not end 2008 materially higher than they are today, and that they will be at least a third lower in 5-10 years.”

The first prediction was right, in spades – I will write again in 5 and 10 years time about the second.

The prediction provoked a short but high quality exchange in the comment column. Not everyone agreed: Nick Rouse wrote of a “primitive economist’s models that bear no resemblance to reality” while in May, Mary Matthews wrote that “Boy, did you get it so wrong”, before adding “Economists cannot predict the future and trying is a waste of time.” (NB: I respect the fact that neither of you hid behind Anonymous in your commenting).

Economists’ predictions will always have large error bounds because we are trying to predict the aggregate results of individuals’ idiosyncratic decisions. But oil producers and users need to think about likely price trends when making investment decisions. Forecasting is necessary.

Predicting that a price will fall when it is more expensive than usual, and demand and supply are elastic, is likely to be right. As petrol prices rose in the forecourts, people cut back. The number of miles driven fell a little, sales of fuel inefficient cars fell (particularly in the US, where the price rise was highest in percentage terms), and people slowed down on the motorway, quite dramatically. In addition, the prospect of getting more than $100 a barrel for stuff that had been worth much less only a year before led oil producing nations to increase supply.

Demand fell, supply rose, and today Bloomberg report that West Texas Intermediate is $48.58 and Brent is $49.23. These are lower than long term prices, since at these levels deep water exploration, and Canadian and Venezualan oil shales will not be profitable. But oil prices may not rise this year, for three reasons.

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Why British universities need student fees

By Tim Leunig | Published 3rd December 2008 - 6:02 am

Following the debate for and against university fees, LSE lecturer Tim Leunig gives his take on that contest.

What are the benefits of going to university?

Going to university is profitable for individuals, on average, and for any given A-level grades. Although a handful of degrees (e.g. medicine) are particularly profitable, once you take into account A-level grades, most subjects are equally valuable (classicists earn more than media studs grads because classicists generally have better A-level grades).

Second, the “profitability” of going to university remains even as graduate numbers have increased. This tells us that demand for graduates is elastic: if …

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Posted in Op-eds, Party policy and internal matters | 47 Comments

Finance and economics: what we have learned, and what still needs to be done – part 6

By Tim Leunig | Published 29th November 2008 - 11:30 am

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts, bank lending, fiscal policy, interest rates and tax policy. Today’s final part looks to the long term future.

Getting the long term picture right

In its panic and determination to “do something now” government must not forget its role in securing the long-term underpinnings of the economy. There are three areas in which Britain has serious problems.

Our education system fails …

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Finance and economics: what we have learned, and what still needs to be done – part 5

By Tim Leunig | Published 28th November 2008 - 11:30 am

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts, bank lending, fiscal policy and interest rates.

Tax policy

The rapid deterioration in the fiscal position should worry us all. The British tax system is much more pro-cyclical than people previously thought, so that tax revenues fall dramatically even when the downturn is relatively small. (Remember, the economy has only just started to decline, so the fall in tax revenue so far …

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Finance and economics: what we have learned, and what still needs to be done – part 4

By Tim Leunig | Published 27th November 2008 - 11:30 am

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts, bank lending and fiscal policy.

Interest rates and the Bank of England

The Bank of England’s monetary policy committee has done well. They did not rush to cut interest rates when inflation still looked to be a real threat (don’t forget that this summer saw the highest level of inflation for a decade). But as soon as there was a serious prospect of …

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Finance and economics: what we have learned, and what still needs to be done – part 3

By Tim Leunig | Published 26th November 2008 - 11:30 am

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts and bank lending.

Fiscal policy

Much has been written about the need for a fiscal boost. The debate has been poor, with politicians and the media muddling up underfunded tax cuts, tax cuts funded by spending cuts, and tax cuts funded by rises in other taxes. The last two have no impact in this context, and will not be considered.

Underfunded tax cuts, or unfunded …

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Finance and economics: what we have learned, and what still needs to be done – part 2

By Tim Leunig | Published 25th November 2008 - 11:30 am

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. Yesterday was bank bailouts, and today…

Bank lending

It is important not to resume borrowing levels of two years ago. Indeed, we can calculate the optimal level of mortgage lending. Net lending should equal the value of new houses built, minus deposits on those houses, plus the same for houses bought by newly-formed households, and those moving to larger houses, minus regular capital repayments on the existing mortgage stock. Housebuilding rates are low …

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