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Posts Tagged: Economics

Stimulus

Tuesday 21st May 2013

There’s an argument made that the reason the UK’s economy is struggling is because the government is cutting spending. This line of logic originates with the work of John Maynard Keynes, who theorised that economic output is influenced by the total amount of spending in the economy, called aggregate demand. He argued that aggregate demand drops in recessions, and that when this happens the government should provide fiscal stimulus to make up the shortfall.

A key signal of aggregate demand is the unemployment level: higher unemployment, lower aggregate demand. In other words: in a recession lots of people lose their jobs, and so there is less spending in the economy, therefore the government should spend more money to make up the difference.

It’s an interesting idea and it might even be true. However, it is argued that this is the situation that Britain is in now, and so more fiscal stimulus is needed to help the recovery. But that doesn’t really stack up.

The signal for aggregate demand is unemployment, and one of the curious things in Britain throughout the downturn is that unemployment hasn’t actually risen that much, compared to the change in economic output. In fact, the drop in labour productivity during the downturn has had a lot of economists somewhat puzzled.

So if unemployment hasn’t risen, there can’t be a problem with aggregate demand. Fiscal stimulus solves aggregate demand. So why do we want more fiscal stimulus?

In fact, you could possibly argue the opposite. Yes, there have been real cuts in government spending, but actually they haven’t been that significant. The British government is still spending a historically high amount, and still has one of the largest deficits in the world. So the government has been providing fiscal stimulus, and that’s why unemployment didn’t rise as much. It might be true, I have no idea. It’s an interesting idea though, and if it is true it surely vindicates a lot of the Keynesian viewpoint.

So why is no-one making this argument?

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How to make a stimulus stimulating

Tuesday 13th December 2011

Here’s an interesting video on why the American stimulus has pretty much failed to do what it was designed to do:

I’m not going to claim that it definitively explains why the stimulus didn’t work. As far as I can tell it was made by a libertarian think-tank – so possibly some bias there – and it really only gives anecdotal evidence. Nevertheless I think it’s objectively fair to say that the American stimulus did fail, that we know that governments aren’t very good at spending money efficiently*, and so at the very least the explanation that is given in the video is plausible.

For the sake of argument, let’s assume that a stimulus was the right response for America in 2009, and that the problem was that the money wasn’t spent very well. Well, surely a more sensible approach would’ve been to use the stimulus money to lower taxes? Increasing the personal allowance on income tax (assuming they have this in America; I know it works differently because of State and Federal governments) seems like one reasonable way to do this, which would be pretty progressive too I imagine. Take less money from people so that they have more to spend, because people tend to spend money more usefully than governments do.

I suppose that it’s possible that the actual result might have been that people would’ve paid back some of their debts, rather than spend more money. I’m not sure if that would necessarily be a bad thing, but I guess it’d detract from the actual aim (to quickly stimulate growth). But if that’s true, it doesn’t necessarily follow that tax cuts would be less effective at stimulating growth than extra government spending was. And I think it’s pretty certain that if people used tax rebates to pay off debt, it’d do much less damage than does wasted government spending. If the stimulus is used to pay back debt, then we can probably think of it as a “deferred” stimulus; debt is paid off now, so that people can spend more in the future.

I’d like to make clear that I don’t necessarily think this is what the American government (or the British, for that matter) should’ve done. Fundamentally, I think that the economy would’ve been in a better situation in taxes and government spending were generally lower, particularly in the boom years. And I’m not really a fan of Keynesian economics in general (it seems way too full of magical thinking for my taste). But if we decide that a stimulus is a good idea, then it seems to me that cutting taxation – taking less money from people when times are tough – would be much more effective.

I do wonder why so few Keynesians seem to advocate this course of action though…

I realise that lately I’ve tended to write lots about economics and finance and politics. Mostly that’s because it’s topical and I find it interesting, and because I’m learning about this stuff and writing about it is a good way for me to get things clear in my mind. If I write something, I like to be pretty sure that it’s accurate, so I end up going away and reading lots more. Today I’ve been learning about how fractional reserve banking works (which is rather less intuitive than I thought), so I guess this entry could’ve been even drier…

Anyway. My next blog post will probably be about aeroplanes.

* Lots of studies (for example) which have compared growth rates and tax rates in different countries show that there’s a negative relationship between the rate of tax (and thus the size of government) and growth rate (i.e. bigger government leads to less growth and poorer people). I did read one interesting paper recently (which I now can’t find) which found that up to a point, an increase in government increases growth. But that above a (comparatively low) level, the relationship is negative. That kinda makes sense; government is useful for some things. A country with a small government which – for example – just maintains the rule of law (i.e. provides courts, police etc) might be expected to have more growth than a country that doesn’t have these things. The trick is finding those things that the government can genuinely deliver efficiently, and stopping it from doing other stuff (in practise, it’s easy for politicians to pander to special interests; its a good vote winner).

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Thinking about climate change

Wednesday 23rd November 2011

Climate change is a significant topic that affects the lives of pretty much every living human. As such, discussions about the subject can often get quite heated, with two distinct camps. One side says that climate change is caused by carbon dioxide emissions, and that the consequences for humanity will be absolutely dire. The other side seems to claim that the climate isn’t changing, or that the other side are making things up. To stoke up their claims both sides resort to bad science, misrepresentation of good science, and lots of good old ad hominem attacks. Here are a few things which we know to be true, at least as far as we can be sure about these things:

  1. Climate is changing. It always has, it always will.
  2. Global temperatures have risen.
  3. CO2 levels in the atmosphere have risen in the last circa 200 years, driven by industrialisation.
  4. CO2 is a greenhouse gas. Its presence in the atmosphere does have a warming effect (we’re dependant upon this for our survival!)

Sensible discussion of the topic has to start from at least these facts, as they represent the state of our current knowledge. It is ridiculous to claim that any of these 4 are untrue, because as far as we know all the evidence suggests that they’re not. But equally, sensible discussion of this topic cannot simply stop here. Because these facts raise some questions which need to be answered before we can devise any meaningful response to this issue:

  1. To what extent does CO2 cause changes in temperature? If there is x amount of CO2 added to the atmosphere, what is the corresponding change in temperature?
  2. To what extent is this a problem? What is the cost of doing nothing to stop climate change?
  3. If we can find ways to reduce/stop CO2 emission, what are the costs of doing so?

To think about those three questions, I’ll break them down into the appropriate subject areas. Question 1 is about the science, about working out what’s happening with the climate. Question 2 is about how we can deal with the effects of climate change and the cost of doing so, and so is really about engineering. And the heart of the third question is about reducing the reliance on energy sources which cause CO2 to be emitted (as energy use is the principal cause of CO2 emissions).

Science

When we’re talking about climate, we’re talking about a huge, chaotic system. To start to understand how it works, we’re talking about modelling the flow of fluids (namely water and air) across the entirety of the Earth’s surface, taking into account countless different variables and the way they interact with each other. This is really hard to do, at least with any accuracy. And it’s really hard to look at such a system and to derive the effect that one particular variable has (namely CO2 concentration). So to come back to the first question I posed. Do we know the extent to which CO2 causes warming? No, we don’t. We can run all kinds of models to find some sort of estimate, yes, but finding out whether that model is accurate is not a trivial problem.

There’s lots of confusion about this, it seems. One side of the climate debate tries to make out that climate change is caused by anything but the activities of mankind, whilst the other is pretty set on the idea that it’s all down to CO2. Both sides vilify the other, and that doesn’t really make any sense. We can’t yet say – with any certainty – what effect the CO2 generated by our activities is having on the environment; but CO2 is a greenhouse gas, so it really isn’t a leap to say it’s having some effect.

A good example of this problem can be found when we examine the temperature change over the last decade, and compare it with the change in CO2 concentration in the atmosphere:


Temperature data are global averages from the HadCRUT3 dataset of temperature records. CO2 concentrations recorded at Mauna Loa Observatory, Hawaii.

The basic theory is that CO2 is causing mean temperatures to increase, and yet looking at the above graph, it’s rather hard to find such a relationship. HadCRUT and BEST both show that there has been no warming in the last decade (in fact, the HadCRUT data used here show that mean temperatures have decreased very slightly), even though CO2 concentration has steadily increased. More than likely, we can’t draw too many conclusions from this; 10 years is quite a small period of time when discussing climatic events which take place over a significantly longer amount of time. But at the very least, it causes us to question the claims about the significance of CO2. Because if CO2 really is as dangerous as we’re told, has such a dominant effect that we need to make drastic steps to reduce the amount we emit, we really should have seen accelerated warming in this period.

Now, for the sake of clarity, I am most definitely not saying that CO2 does not cause warming at all; simply that we haven’t properly quantified the warming effect that’s caused by our CO2 emissions. And that, whilst the temperature rose during the 20th century, we probably don’t know the whole story of why that happened; most likely it’s been caused by a number of things, and human activity could be a large or a small component (for instance, we know that solar activity has increased during the last few decades). Climate is variable, it always has been and it always will be, and so there isn’t a steady baseline to make comparisons from. We can’t say that CO2 and temperature have both risen, therefore increased CO2 has caused the temperature rise; it simply isn’t that straightforward. And it’s rather foolish to dedicate lots of resources to the cessation of CO2 emission, when we don’t know whether that really is causing unnatural climate change.

Engineering

So. For the sake of argument, let’s ignore everything I’ve just said. Let’s make the assumption that CO2 is driving climate change, and that if we continue to pump it into the atmosphere it’ll cause a global temperature rise that will cause the environment to change. How could we deal with that?

Fundamentally, this is a problem about the maintenance of the natural and built environment. That’s not a new issue, we’ve been doing this for millennia, and engineers have been doing it using a scientifically rigorous approach for centuries. It’s what Civil Engineering is all about, and we’ve gotten pretty good at it by now. So, let’s look at one particular issue that is likely to be a problem, should global temperatures continue to rise: higher sea levels.

The first step in solving an engineering problem is to work out what exactly the problem is, so we’ve got to find out how much the sea is likely to rise. At the moment, the consensus seems to be that the sea level will rise between 75cm and 2m in the next 100 years. It’s quite hard to visualise what that looks like, what that really means for us. Happily it’s quite easy to model this, to see which bits of land will be flooded after a given change in sea level:


Map of British Isles with 2m rise in sea levels. Areas of land which are below the increased sea level are shaded blue. Source: geology.com.

Not a particularly significant change, actually. The worst-affected area is landlocked anyway, so I guess it might not be encroached by the sea, although flooding may become more likely. But if we really wanted to, these are problems which we can easily solve. If a place is under threat from a 2m sea level rise, then we can build a dyke (or similar) to stop it from being flooded. If flood risk in a region is increased, then there are lots of techniques we can use to deal with that too. Or, in some cases it might be best to simply move away from the areas which are likely to flood, as there’s still plenty of higher land left. None of these approaches should really be that costly, certainly in comparison to some of the alternatives.

These problems can be solved, and in many cases are already being solved. It’s also worth mentioning that on the global scale, climate change might actually cause positive effects in some locations, for example by moderating the climate of places which are currently very cold. And so when we examine these issues to try to think about how to deal with the possible effects of climate change, it quickly becomes apparent that this is something that we know how to do, and that climate change really isn’t the end of the world.

Energy

Now let’s go even further with our assumptions by saying that we’ve decided that we should try to reduce the amount of CO2 we emit. The largest cause of anthropogenic CO2 emission is the burning of fossil fuels for energy. Therefore to make a meaningful reduction in emissions, we must use alternative sources of energy as much as possible.

Several countries have agreed to targets to reduce their CO2 emissions, and there are several policies which are in place to try to achieve this. Firstly, there are high taxes on CO2 emission, in order to discourage activities which cause pollution. There are also subsidies available for the production of certain (supposedly) sustainable sources of energy – wind power, solar power, etc. – to encourage people to install these facilities. And to try to make current fuels “greener”, a certain amount of bio-ethanol is blended with petrol and diesel used for transport.

There are problems with this: it’s expensive, and often grossly unfair. Taxes on energy affect everyone; directly in the price we pay for transportation, heating and electricity, and indirectly in the price we pay for goods. You might argue that, well, we’re wealthy, and we can afford it. And we probably can. If we think it’s an acceptable trade-off, then we can probably afford to sacrifice some luxuries, or lose a certain amount of investment – and jobs – even with the current state of the economy. It makes life difficult for ourselves, but not impossible.

Subsidies are less excusable. It’s the classic argument that subsidies distort the market and make it less efficient. Which is a good argument; we want to use alternative sources of energy when it’s actually efficient to do so, not just because we think we should, as that simply makes energy more expensive than it needs to be. This is also deeply unfair, as it benefits those who can afford to invest in “green” energy, at the expense of those who cannot. Frankly, I think it’s inexcusable to drive up energy prices for the majority with a scheme to provide cheap energy to the minority who are wealthy enough to buy into the scheme.

On the subject of unfairness, there’s also a broader point to be made. Firstly, we’re telling poorer parts of the world that they need to not emit CO2, but often the only affordable sources of energy available in such parts of the world are those which cause lots of CO2 to be emitted. So in a way, we’re asking less developed parts of the world to stay undeveloped, to stay poor. Which limits access to things like healthcare and education in those parts of the world, and so undoubtedly causes a huge amount of damage (or rather, it would if they all listened to us).

On top of this, we impose “green” policies which directly cause actual damage. For example, the requirement that fuels be blended with bio-ethanol has had the effect of raising the price of some foods. This increased price has meant that some people simply haven’t been able to afford to eat, which is thought to have caused at least 192,000 extra deaths last year. Some of the poorest people in the world are being starved because we want to burn their food to reduce our CO2 emissions. Whatever your views on climate change, that should make you mad.

What should we do?

The point that I’m trying to make is that our approach to climate change needs to be more intelligent. The science is very complicated, and probably not well-understood enough to be the basis of policy decisions which can have profound effects. We cannot say with confidence that we are the cause of the changes in climate that we observe.

Given this, it seems sensible to have a different approach to dealing with climate change: to analyse the costs and the benefits of the situation, to work out what really is the best course of action.

The cost of doing something about the possible threat of anthropogenic climate change is massive, as it calls for a fundamental change in the way we do things. It calls for us to abandon the sources of energy which allow us to access many of the resources we need to maintain our standard of living, and it calls for us to deny poorer parts of the world the opportunity to grow and develop and improve their basic standard of living. That is a massive cost. Given that the modest things we’ve already done have resulted in hundreds of thousands of deaths, it’s scary to consider the possible cost of doing more.

Additionally, the potential benefits of reducing CO2 to combat climate change are comparatively small. All we’d do is avoid a certain amount of engineering work which would be required to adapt to the changing environment. It’s not clear that we’d save all that much; the built environment will need to be maintained in the coming years regardless of climate change, and so all we’d do is change the parameters of problems that need to be solved anyway. But solving those problems becomes infinitely easier if we maintain our access to cheap, abundant energy.

Fundamentally, it seems to me that our response to the possible threat of anthropogenic climate change is wholly disproportionate. We’re causing more harm than we could ever hope to stop; we’re spending lots of money (and causing lots of deaths) for solutions that might not work, for a problem that probably isn’t that severe. Whatever way you slice it, that isn’t an intelligent trade-off.

Posted In: EngineeringPolitics Tagged: | 2 Comments

The Eurozone

Wednesday 2nd November 2011

It’s a bit like a bad joke at the moment.

Last week, the Eurozone leaders announced their latest agreement to save the Euro. Essentially, what they announced was what it is that they’d like to do, but they haven’t really worked out the details of how they’ll do it. It’s only small details that are left to sort out, for example where exactly the money is going to come from…

So they haven’t really agreed much at all. And the stuff they did agree, doesn’t even solve the underlying problem. So for the umpteenth time, the EU leaders have just kicked the can down the road.

Straight after it was announced, some people were sort of facetiously wondering how long it’d take before the plan would fall apart. As it turns out, less than a week! Because the Greek leaders have decided to have a referendum about whether to sign up to the plans. EU leaders aren’t used to the concept of people having a say on Europe, so this has perplexed them. And everyone is worried that when the referendum takes place next year, the Greek voters will give the wrong answer.

Meanwhile, Greece is on track to have a primary surplus by 2012. Which will mean they can safely default, and the EU can go screw themselves…

What’s amazing is just how dysfunctional it is. The Eurozone leaders get to ponce around, looking self-important whilst managing to completely dodge the issue, making it all the more likely that the whole thing goes tits up. It would be quite hilarious to watch, if it weren’t all quite so serious.

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Ranting about occupations

Tuesday 25th October 2011

If you’ve seen the news recently, no doubt you’ve heard about the various “occupations” which are occurring in various places. It’s all spread from “Occupy Wall Street” in the States, and in the UK we have our own version in “Occupy LSX”, who are currently occupying that well-known fortress of capitalism, er, St. Paul’s Cathedral. Hmm, oh well.

As far as I’m aware, one of the main messages that they’re trying to get across is the idea of the “99 percent”; or the idea that 99% of people are struggling in the current economic climate whilst 1% are prospering, and that the 99% are angry. It’s a simple idea. Okay, for all sorts of reasons it’s also a little bit inaccurate, but the general thrust is good enough. Because fundamentally, the protesters are probably right to say that most people should be pretty pissed off at the state of our economy. But the protesters are angry at banks and stock markets (wtf?) and capitalism in general. This seems to me to be a little bit confused. Do they really want to dismantle capitalism?


A protest, last week.

Capitalism is generally taken to mean things like the right to private property and to free trade. And are the Occupiers honestly against those things? Well, if I went down to the  occupation camp and tried to pinch their big anti-capitalism sign, one of their tents, or the iPhones they use to post updates to Twitter (yes, the poor 99% who can afford some of the most expensive consumer electronics in the world), I think they’d be rather keen to uphold their right to private property. And are they against free trade? Well, by choosing how to use their labour, arguably they are exercising precisely that right. Because a part of free trade is the right to freely trade your own labour; and in this case, the occupiers have exercised that right by choosing to use their labour to protest the state of the economy (and so one can argue that implicit in their protest is the idea that they’re protesting against their right to hold that protest. Consistency FTW!). If the government (or anyone else) tried to remove that right – by arresting the occupiers, for instance – then I’m confident that they’d be pretty upset.

So to be angry at capitalism is, I think, a mistake. At least, it’s a mistake to be angry at properly-implemented capitalism. OccupyLSX shouldn’t necessarily direct their anger at the banks or stockbrokers (unless they own shares in a bank which has lost value, in which case, feel free). They should be angry at governments, for oh so many things. For allowing themselves to be open to lobbying, and bowing to the influence of vested interests. For meddling too much in the economy, trying to maintain the housing bubble which lead to this crisis. For the arrogance of the Euro project and repeating the mistakes of the past. For spending too much in the boom years, ramping up debts which we now need to repay. For breaking one of the golden rules of capitalism – that bad businesses must fail – by bailing out the banks which behaved so irresponsibly prior to the downturn.

The problem isn’t capitalism; at least, not capitalism in it’s proper form. The crisis is not the failure of economic liberalism, and the answer is not something like a laughably-impractical “Resource-Based Economy“. Actually, we want our government to be more liberal; to spend less, to leave more money in the pockets of the populace, and to not interfere in matters best left to the market. Because when you trace it back, a good chunk of our problems stem from bad government interventions, or the “crony capitalism” we see at present.

Of course, this would involve politicians deciding to make themselves less powerful. And I have a sneaking suspicion that the type of person most likely to want to be a politician, is not the type who is likely to take power away from themselves once they’ve gained it. So we’re probably screwed.

Photo by flickr user wheelzwheeler, licensed under Creative Commons.

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Is the minimum wage working, or just stopping work?

Wednesday 12th October 2011

It’s been announced today that unemployment is at a 17-year high, and that 16-24 year olds are being particularly affected. In that group, unemployment is higher than it’s ever been.

Back when the minimum wage was introduced, there was a particularly interesting argument put forward against it. This was that it would have an adverse impact upon people whose labour is not worth the minimum wage. In particular, it was argued that younger people with less training or experience, would simply not be worth hiring any more. Given today’s unemployment figures, this argument seems at least plausible.

The intention of a minimum wage is – presumably – to ensure that people are paid enough money to allow them to have somewhere to live, food to eat, and some sort of good standard of living. And that’s an absolutely good intention. But is pricing people out of the job market really the best way to deliver this? Isn’t it better that people work for whatever wage they’re able to collect (and, of course, are willing to work for) so that they’re at least gaining experience which increases the value of their labour, and allows them ultimately to secure better-paid employment? And if a wage is deemed to be too low, wouldn’t it be better for the government to supplement it, rather than trying to force employers to pay over the odds?

Is it time to scrap the minimum wage and come up with a more intelligent way of dealing with this? Perhaps something like a negative income tax?

Posted In: Politics Tagged: | 4 Comments

The death of capitalism, apparently

Tuesday 27th September 2011

You would imagine that when a column in a newspaper begins with “I might be an economic dunce, but…”, it would serve as a pretty damn good signal to basically ignore much of what follows. Alas, no.

If you’re on Twitter then you may have seen this article by Charlie Brooker being retweeted today, as seems to happen most Mondays. Brooker’s articles are generally fairly popular amongst the Twitterati, and so they should be as they’re usually quite amusing. But with the latest one, I really couldn’t get past the pretty fundamental error.

The title of the article is “If capitalism has failed, how the hell do we pay for our Shreddies?“. And so we can see the issue. It’s a pretty basic error, but sadly it’s one which is commonly repeated in the present climate: the current economic crisis isn’t really a failure of capitalism – in many respects, quite the opposite. So it’s perhaps a little foolish to be pondering its death.

Fundamentally, the credit crunch which precipitated the present economic mess, happened for a number of reasons. Banks lent money to people to buy houses, which caused house prices to rise. Sadly, lots of money was lent to people who couldn’t afford really afford the loan (and it’s very easy to blame greedy bankers for this; no-one seems willing to blame the greedy consumers who took on debt they couldn’t afford. I suppose it’s politically more convenient to blame bankers though). So when those debts went bad, the banks repossessed the property and put them up for sale, to try to recoup their money. This influx of property into the market drove house prices down. Mortgages are loans secured against the value of a property, and so we reached the situation where there were lots of loans which were secured against property which was worth less than the value of the loan (i.e. if the bank sold the house, they wouldn’t get back all of the money they lent in the first place). Calamity ensued*.

Reading the preceding paragraph there are two blatantly obvious questions: why did the banks feel able to lend the money in the first place, and why did lots of people suddenly become unable to afford their debts? The answer is that central banks and governments set interest rates according to whatever agenda they have at the time. In the early 2000s interest rates were set low in an attempt to soften the effects of the dot-com crash and the terrorist attacks in America in 2001. This had the effect of reducing the cost of lending money, which meant that loans became affordable to more people. Because of the low interest rates, banks could now give mortgages to people who previously couldn’t afford them. And correspondingly, consumers presumably felt encouraged to take on this debt because they assumed that they’d always be able to find affordable finance, even if their initial loan became too expensive. After all, house prices were always going up…

Of course, the low interest rates weren’t sustainable, and when they rose in the latter part of the 2000s, the cost of debt rose accordingly. And then the people who could barely afford their loans when the rates were low, suddenly couldn’t afford the debt at a higher interest rate, and had no way to refinance their debt. And so they defaulted.

We can see then that one of the key weaknesses was nothing at all to do with capitalism, or the free-market liberalism which is often assumed to go with it. It was a housing bubble fuelled by low interest rates. A colossal failure of interventionist policy, and a reminder that centrally managing a fundamental part of the economy is not necessarily a wise thing to do. And this lesson is something that those people who are generally in favour of capitalism go to great pains to point out.

Which isn’t to say that there weren’t market failures as well; the existence of banks that were too big to fail, for instance. But without the interventionist policy – the setting of interest rates – it’s highly questionable whether the conditions would’ve existed for the rest of the crisis to follow, or for it to be as profound as it was/is. Far from the death of capitalism, this – along with the troubles we’re now seeing caused by excesses of sovereign debt – should really signal the end (or at least a reduction) of the interventionist state. Probably won’t be though, and we’re all the poorer for it.

Literally.

* I’m afraid I’m simplifying a little here; there are other factors, such as the way that risk was dispersed throughout the financial system, and the rationale behind subprime lending. That’s somewhat beyond the scope of the point I’m trying to make though.

Posted In: Politics Tagged: | 4 Comments

How to make everybody richer

Tuesday 31st May 2011

The World Bank have released a report looking at how 100 countries have performed economically in the last 30 years. Which is useful; there are lots of ideas about how to grow economies, so let’s see which ones work best:

“this paper finds new empirical evidence supporting the idea that economic freedom and civil and political liberties are the root causes of why some countries achieve and sustain better economic outcomes… These results tend to support earlier findings that beyond core functions of government responsibility — including the protection of liberty itself — the expansion of the state to provide for various entitlements, including so-called economic, social, and cultural rights, may not make people richer in the long run and may even make them poorer.”

So economically, its free markets, low taxes, and small government which makes us all richer. Good to know, eh?

The bewildering thing is that people have argued this for a century and a half, and this is not the first piece of evidence to support the argument, not by far. And yet lots of people (mostly in the Guardian, it seems…) will still argue against this, will argue against the evidence.

So much for pragmatism, I guess.

Posted In: Politics Tagged: | 5 Comments

UK Uncut Revisited

Friday 18th March 2011

In a previous post, I mentioned UK Uncut, the activist group that campaigns against tax avoidance. It was mostly a rant, because of a particular protest that seemed idiotic to me.

Today, a report has been published which looks at the 4 main victims of UK Uncut, and what the actual situation is. In each case, UK Uncut’s argument is incorrect, and often contradictory. The report also briefly looks at the economics of taxation, and suggests some ways to reform the tax system.

I think it’s well worth reading, to understand a little bit of the nuance that’s been so crassly ignored by the protests.

Posted In: Politics Tagged: | 17 Comments

Taxing my Patience

Saturday 26th February 2011

If you’re lucky, you won’t have heard of UK Uncut. If you haven’t, they’re an activist group who basically want businesses to volunteer to pay more tax than they legally need to, and who also dislike banks (for reasons which aren’t entirely clear to me).

So. In the last week, the Royal Bank of Scotland have announced that they lose £1.13bn in 2010. They’ve also announced that in the same year, they’ve paid £950m in bonuses to their staff.

UK Uncut don’t like this. I can’t for the life of me work out why; they don’t like banks, and this one just lost over a billion pounds. They want businesses to pay lots of tax; this one just paid out £950m in bonuses. Bonuses on which there will be an associated tax bill. So RBS will end up paying more tax than if they didn’t pay their employees. Excellent!

Okay, if I’m being slightly less facetious, bonuses with a loss might not make sense if you only take a superficial look at the headline figures. They lost £150bn, then paid bonuses of £950m; what gives? Well, it’s a large company, made of lots of different components. Some of those made money. The people who made money for the bank are then entitled to their bonus. This is not a tricky concept.

UK Uncut protest by staging sit-ins in banks. This is really, mind-numbingly stupid. I used to work for RBS Retail, so I know that the RBS staff being inconvenienced by UK Uncut are not the greedy bankers that they want to target. They’re people who aren’t paid a great deal in the scheme of things, trying to do what can be a pretty stressful job. On a Saturday. They don’t need a bunch of ignorant halfwits coming in to make their lives more difficult, and it doesn’t actually achieve anything.

I don’t mean to stick up for RBS in particular, or banking in general. The things they did prior to 2008 were fucking stupid, and it’s an absolute failure that they are such crucial businesses that the state was unwilling to let them fail. The real – bloody scary – issue here, that people like UK Uncut fail to address, is that very little has been done so far to stop banks from abusing this position again. Governments are too scared to have tighter regulation, because they don’t want to drive banks away from the country and lose the massive tax revenue they bring. Focussing on pay or taxes is a mere distraction, to focus attention on really trivial things instead of the real systemic issues.

If they don’t like certain banks, fine. Don’t use them. If they want businesses to pay more tax, fine. Campaign outside HMRC to get the tax laws changed. But misconceived, ill thought-out, stupid protests like this are just a waste of time.

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