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October 2010

Mr. Chakrabortty writes a Guardian editorial

My comment there:

This might be another of Mr. Chakrabortty\’s pieces. Has the symptoms:

Output in the building industry shot up 4% over the quarter, making it the largest contributor to growth.

Rilly? This is what the ONS (you know, the people who collate these statistics) says:

Manufacturing made the largest contribution to the growth, where output rose 1.0 per cent compared with an increase of 1.6 per cent in the previous quarter.

Quite how that morphs into construction being the largest contributor to growth I\’m not sure.

construction is obviously seasonal

Indeed it is. As the ONS say:

Figures are seasonally adjusted.

So that\’s taken care of then.

\”And this is before the chancellor makes the biggest spending cuts since the 1920s\”

1976 actually.

Space tourists could speed up global warming

Fascinating stuff really:

Environmentalists have already raised concerns about the carbon footprint of proposed space tourism flights, such as that planned by British billionaire Richard Branson, but according to new research the controversial flights could have an even more immediate impact on the world\’s climate.

A new study, accepted for publication in Geophysical Research Letters, predicts that soot emitted by rockets in the upper atmosphere would lead to significant disruption to the world\’s climatic system resulting in a net increase in temperatures.

The report, which was funded by NASA….

Bureaucratic incumbent disses private sector insurgent.

Ho hum.

Murph in The Guardian

He is a wag, isn\’t he?

Approximately £100bn–£125bn of British investors\’ money is believed to be in Swiss banks.

OK.

The Treasury said earlier this week that the agreement, due to be hammered out in the new year, would bring in extra revenues currently held in Swiss bank accounts beyond the reach of the UK exchequer. It is understood Treasury minister David Gauke, who will lead the negotiations, expects to raise more than £1bn.

OK.

So, interest rates are low, half of the interest being paid would (or possibly should) be paid in UK tax, 1% of the assets sounds not all that far from what should be due in tax actually.

It\’s worth noting that within the EU we have very similar deals: you\’ve a bank account somewhere you can say, well, I\’ll pay some (I think it\’s 15%?) tax rate on my interest but don\’t tell anyone or you can get your interest gross but they tell the taxman.

Oh, and Switzerland is an independent country and yes, they do offer absolutely the same deal to Swiss residents and Swiss citizens. So it\’s not just a for foreigners thing here.

Then we\’ve got Ritchie:

Richard Murphy, head of Tax Research, said: \”No indication is given as to how these accounts are to be regularised. Indeed, there is no prospect they can be because the £40bn or so of evaded assets will not have to be declared by name by the Swiss. In that case there is no prospect of UK interest or penalties being charged.

\”In other words David Gauke has just announced his intention to sign a total tax amnesty for UK tax evaders who have used Switzerland. Given that penalties and interest would have added well over 100% to the tax bills it is highly likely that all these evaded assets should have been due to HM Treasury. But Gauke looks like he will give away the whole lot.\”

He\’s assuming that all of that money in those accounts avoided tax in the first place and that therefore 40% or whatever of the total £100 billion should be paid in tax.

That\’s one hell of an assumption to make really: but it gives Murph a nice number to wave around and get his name in the papers.

On that assumption: can we think of any way in which assets can pile up in a Swiss bank, owned by British taxpayers, and yet not be subject to British tax?

Well, actually, yes, we can. Imagine that for some years someone stops being a British taxpayer. Goes off to work in Dubai, just as one example. Expat earnings stack up in Switzerland, entirely free of any liability to UK tax at all. Contract over, our expat engineer returns to the UK. Those earnings in Switzerland are still not subject to UK tax: now that he\’s resident in the UK again the interest on them is liable to UK tax, yes. But the capital sum only becomes liable if he tries to bring it into the UK.

So, we\’ve an entirely legitimate route, process, for a UK resident to have a bank account in Switzerland, the interest upon which is taxable in the UK, the capital not.

Note, please, that I don\’t claim that this makes up all the £100 billion. But Murph is making the seeming claim that none of it is.

Quote of the Day

No, my actual (rather small) point is that when the aspirational poor were previously shunted to distant dumping grounds, the biggest error was in not sending us far enough away from people like Polly Toynbee and her metrocentric ilk; those for whom if it doesn’t happen in London, then it doesn’t really happen at all.

Who, Who?

An international superstar told a court she felt \’vulnerable and violated\’ after a blackmailer gained possession of highly sensitive pictures of her.

The celebrity received a series of threatening and anonymous letters and emails from the crook, demanding she hand over tens of thousands of pounds in return for the images.

The musician – who cannot be named for legal reasons – would have suffered enormous personal distress and embarrassment if the 27 photographs stored on one of two Apple Mac laptops stolen from her home had surfaced.

The identity of the victim, who has a home in London, is known to this newspaper but cannot be revealed because of a strict court order, which also bans us from revealing her age, nationality and whether she is in a relationship or has children.

Can\’t be Madge as she published a book of photos of it all: admittedly when it was all rather younger.

What or who could it be? Ms. Imbruglia getting it on with Kylie? Ms. Lewis and an Avatar? Cheryl without makeup?

How interesting

As if this is not enough, many of the public sector workers released will not have the skills the private sector businesses will need. Many will not have the attitude required for jobs in the cold outside world.

And in The Guardian as well.

Might we hope that the Great Cull does in fact engender that attitude required among those unculled?

Umm, no Dean, not really

Dean Baker, one of the few lefty economists I have much time for (no, really, some of his stuff is excellent. Like pointing out that the collapse of the housing boom in the US would have led to recession whatever happened to the banks, $7, $8 trillion of wealth disappearing will have that effect) I\’m afraid hasn\’t quite realised that the UK is actually rather different than the US.

This drive to austerity comes at a time when the short-term rate set by the Bank of England is 0.5% and the rate on 10-year bonds is just 3.0%. The timing is also perfectly wrong in that most of the UK\’s major trading partners are also suffering from weak economies and therefore unlikely to provide strong export markets. Nor are they likely to tolerate a substantial devaluation of the pound against their currency.

For example, we\’ve already had a substantial devaluation of the pound. Some 25% if memory serves me right.

It is really difficult to come up with an economic theory as to how the UK austerity drive even could work in principle. The UK, like the US, had enormous overbuilding of residential housing as a result of its housing bubble.

No, we didn\’t. We had a price bubble, certainly, but that didn\’t, probably as a result of our planning system, lead to a huge overbuild. Now I\’m willing to be corrected on these figures but I\’m pretty sure that new housing starts and completions is still below new household formation, as it has been for most of the last couple of decades.

The only part of the housing market that was overbuilt was flats, again as a result of that very planning system.

There are not many instances of countries adopting the sort of polices that the British government is now embracing, but the examples we have are not encouraging. For example, we have Herbert Hoover\’s efforts to balance the budget in 1932 and Franklin Roosevelt\’s drive in 1937. Both resulted in a considerable worsening of the economy. Of course, the UK had its own experiments with austerity in the middle of the Great Depression, which also did not turn out well for fans of economic growth and full employment.

And another difference about the US and UK experiences. The UK had a very different indeed experience of the 1920s and 30s. As can be seen here. (You might have to fiddle a bit to get the relevant years.)

The UK, like the US, had a big and bad recession after the end of WWI. Then growth resumed and UK had another stutter in 1925. We went back on the gold standard at the pre-war rate (bad, bad, Winston Churchill). Then we had a horror in 1931….and then we came off the gold standard and devalued. About 25% I think it was. As you can see from the GDP figures the UK economy then grew through the rest of the 1930s.

The sort of policies the UK is adopting….cut the deficit, devalue the currency, ….are exactly and precisely what did help the UK out of the Great Depression. It worked last time, why not this time?

I don\’t say it will mind, I\’m not a macro-economist. But when using the UK as a model, as a little brother for the likely course of the US economy, it\’s worth looking back into history and seeing what did in fact happen last time around. And the thing is, the UK experience of the Great Depression was very different indeed than the US one. UK real GDP in 1934 was above that in 1929. We may be similar but we\’re still different.

Not quite unprecedented Polly

Rent was always the glitch in the benefit system, and Beveridge never found a logical answer. Well, here at last is a final solution he never considered: put all poor people in distant dumping grounds where nobody wants to live because there is no work, then call them workless scroungers, lacking in aspiration for the children they have taken out of class to throw together in schools where nobody\’s parents work.

Never heard of New Towns Polly?

Mr Chakraborrty strikes out again

And he was doing so well too. He\’s got superstar economics, he\’s understood why someone like Rooney, who might be only 1 or 2% better than other strikers available, gets the really big bucks.

Then he falls over himself.

Ranking, the spread of technology, and the development of a common culture: superstars benefit from all of these and yet have little to do with any of them. There is therefore no reason why film stars, footballers or financiers should hold on to so much of their earnings.

That \”development of a common culture\” is a synonym for \”globalisation\”.

And globalisation means mobility of labour (certainly at the top end it does).

Thus the reason we don\’t/can\’t impose a special top tax rate is that it won\’t earn any money for the Treasury, for those liable to it can bugger off.

Mr. Chakraborrty writes the economics leaders for The Guardian you know.

World food problems

Food prices are rising, yes. But it really does annoy me when everything and the kitchen sink gets thrown in there as an explanation and the real causes get missed….or just mentioned alongside the nonsense.

But other analysts highlight the food riots in Mozambique that killed 12 people last month and claim that spiralling prices could promote further political turmoil.

For example, those riots were not triggered by any market change in the price of food. They were triggered by a reduction in the government subsidies for the consumption of food: specifically, a reduction in bread subsidies.

But look, those riots get used twice as an example of the danger of rising market prices of food:

\”The food riots in Mozambique can be repeated anywhere in the coming years,\” said Devinder Sharma, a leading Indian food analyst.

\”Unless the world encourages developing countries to become self-sufficient in food grains, the threat of impending food riots will remain hanging over nations.

And what the hell is the link between self-sufficiency and the reduction in subsidies?

Quite, it\’s simply some nutter with an axe to grind grasping at any example to bolster his point. As happens here:

But the World Development Movement (WDM) in London warned that food speculation by hedge funds, pension funds and investment banks was likely to prompt further inflation.

We dealt with the WDM report here earlier. What it actually shows, by pointing to greater volatility in rice prices, rice having less futures and derivatives speculation surrounding it than other soft commodities, is that derivatives speculation reduces, not increases, price volatility. That is, that as Adam Smith pointed out, speculation smooths price changes, not exacerbates them.

And by allowing the nutters their place on the stage we get an ignoring of the two major points which the adults are trying to make:

UN special rapporteur on the right to food, Olivier de Schutter, says a combination of environmental degradation, urbanisation and large-scale land acquisitions by foreign investors for biofuels is squeezing land suitable for agriculture.

\”Worldwide, 5m to 10m hectares of agricultural land are being lost annually due to severe degradation and another 19.5m are lost for industrial uses and urbanisation,\” he says in a new report.

\”But the pressure on land resulting from these factors has been boosted in recent years by policies favouring large-scale industrial plantations.

\”According to the World Bank, more than one-third of large-scale land acquisitions are intended to produce agrofuels.\”

Yup, biofuels and, from the special UN report:

The report identifies ways to confer legal security of tenure upon farmers, fishermen and indigenous people affected by the current pressure on land.

Property rights.

It\’s governments causing the problems: partly rich world governments driven by the more absurd of the Greens, insisting that food be put into cars not people, and poor world governments insistent that the State, not the individual people, not even the traditional communal forms of landholding, should own the land (Ethiopia being a poster child for this sort of idiocy).

Yes, I know, markets really aren\’t perfect, but just to remind you, to really fuck things up you need governments.

Great books of our time

The Aeneid and Zombies: In thys sequel to the moost-loved epique of classical tymes, the howlinge soule of Turnus gooth nat to helle but rathir infecteth the manye deade left from the horribel werres that the booke doth narrate. Zombie Pallas, Zombie Mezentius on hys Zombie horse Rhaebus, and Zombie stag-of-Tyrrus-that-Ascanius-accidentallye-killede, all lumber wyth muchel gore and litel speede Aeneas-toward. Aeneas hideth wyth the men of Troye in a shoppinge mall, in which he saith to them “Peraventure oon daye yt shall do us goode to thinke upon thes tymes,” and hys men saye to hym, “Peraventure oon daye ye shal get a newe lyne.” And then thei shal maken good battel ayeinst the Zombies, bewieldinge the many wepens that are redily founde yn an anciente Etruscan shoppinge malle. Many a zombie is slayne wyth a club of golf, a baseballe bat, or a smalle terracotta figuratyve sculpture. At the ende of the greate tournement ayeinst the undeade, Aeneas sheweth his hardinesse and knighthede by backinge ovir the last of the zombyes wyth a truck, commetinge upon which deede of chivalrie he saith: “Hic sunt lacrimae rearended!”

From the author of \”Serpents on a Shyppe!\”

The truth about Ozzy

And now it seems science may back up Ozzy Osbourne’s theory that he has a particularly hardy family tree.

Researchers studying his DNA have found that the singer is the descendant of a Neanderthal man.

I\’ve always had my suspicions about Brummies you know…..

Can you say \”Tragedy of the Commons\”?

This is one of those things that always amuses me. The incredible blindness of a certain type of Greenie environmentalist to what economists and others have been saying about the economics of being a Greenie environmentalist.

Blindness to what even such Greenie environmentalists hold as one of their core beliefs actually.

The fashion for collecting wild mushrooms began with celebrity chefs such as Antonio Carluccio, and has been encouraged by those with a revived interest in local food, such as Jamie Oliver.

This year\’s wet summer and mild autumn has produced bumper crops of colourful wax caps, common ceps and luscious chanterelles.

But this new generation of foodies and foragers are beginning to trample the forests and fields that feed them – as well as many animals and insects, warn those who look after the UK\’s woodlands and nature reserves.

Concern is particularly high at some of the country\’s best-known beauty spots, including the New Forest, Epping Forest, and around the North Downs hills and the Chilterns.

It\’s one of the founding mantras of the whole \”oooh, look at pretty Gaia\” thing that there\’s a limit to nature. A limit to how quickly the biosphere can regenerate, how much we can take from nature without damaging the ability of nature to provide us with things in the future.

Yet it\’s these same people who profess to believe this who then go off yomping through the woods to pick all these natural foods. A poster boy for this could be George Monbiot and his kayaking for fish in Cardigan Bay.

For if two men and a dog go off and do this that\’s just fine. But when everyone who\’s seen the TV show with the wonderful wild mushroom omlette goes off to do it then the forests and fields are stripped of such.

It\’s the straight Tragedy of the Commons. The one thing that we really do know is absolutely and entirely true about environmental economics. Once demand for a natural good or service exceeds the ability unaided of that nature to supply it then we\’ve got to limit access somehow.

We just can\’t all go picking muchrooms, not unless there\’s a few farmers out there throwing manure into dark rooms and seeding it. You know, doing this invention of farming thing. And even then it\’s better to pick them up at the supermarket with the loo roll.

If it were the bastard capitalists doing the picking and the enviros shouting \”No!\” that I could understand. Even the other way around, the enviros doing it and the capitalist deploring it.

But it\’s this disconnect, almost to Murphy levels, of people adamantly insisting that nature has limits and then suggesting that 60 million people can live hunter gatherer lifestyles (even if only limited to mushrooms) on a small island that is so galling.

Shit, don\’t they realise that if we all went and collected out own firewood we\’d be like Easter Island by March?

Reforming the State pension

This looks good:

The changes, which are due to be detailed in a green paper by the end of the year, mean a single person could receive £7,280 a year and a couple £14,560.

Ministers believe that removing means testing and the resulting reduction in bureaucracy will save around £6bn a year. They believe a single-tier system would also reduce reliance on benefits.

The changes are likely to benefit married couples and stay-at-home mothers the most, as the latter often fail to qualify for the full basic pension because they have taken time out from work and have not built up enough national insurance contributions.

Having a (lowish) State pension topped up by means tested benefits means deterring people from saving for their own pension. If what you manage to save is simply going to be knocked off your extra means tested payment, why save?

But much more importantly for the long term, by decoupling the pension eligibility from national insurance contributions over the years they remove the last major barrier to abolishing national insurance.

No, of course this won\’t mean that what is snaffled from paycheques in NI payments (two of them remember, amounting to some 25% in total of wages between, what is it, £70 off a week and £600 odd a week? 13% on more than that?) but it will allow the whole system to be folded into the income tax system.

Desirable for two reasons. Firstly reducing complexity, thus costs of administration, is a good idea. Secondly, as a political aim.

It\’s generally accepted by economists that some or all of \”employers\’\” national insurance is in fact paid by the worker in the form of lower wages (quite how much is a matter of heated empirical argument but the arguments run from much to most to all, no one who can count even trying to argue for none). Making this clear, as NI is folded into income tax, helps to place an upper bound on how much can actually be raised in income tax.

When people realise that the upper rate is now not the headline 50%, but more like 64%, the basic rate not 20% but more like 45%, there will be a certain political pressure….well, maybe to reduce these rates, maybe just to insist that they don\’t rise any further.

For for some decades NI has really operated as a parallel and near hidden income tax. Making it clear and open makes the price of what is supplied in return clear.

Me, I think that\’s a good thing.

How excellent!

Britain\’s spending cuts have been branded as \”absolutely insane\” by one of the world\’s leading currency traders, who expects the pound to tumble beyond the low it has set this year.

As we know, fiscal contraction in a recession isn\’t being very Keynesian. However, there is another potential driver of growth: the external balance.

If the pound declines we raise the costs of imports, thus stimulating domestic demand for domestic production and we also lower the costs of our exports to others: thus stimulating domestic demand via exports.

We have thus stimulated domestic demand without continuing to throw vast gobs of cash at the public sector. So it\’s rather nice that the £ will be falling, isn\’t it?

Hey, it worked for us in 1931….one of the lessons of the 1930s that all too few seem to want to recall.

Well, yes Sir Alex

Sir Alex Ferguson has alluded to Wayne Rooney’s contract stand-off being driven by the player’s advisers after claiming that agents, rather than players, are the root cause of difficulties in negotiations.

This seems logical. You are, after all, a highly successful and experienced manager and businessman, you employ a number other of such. The players, on the other hand, to judge from the post match interviews, are inarticulate, thick as pig-shit chavs.

Thus the existence of agents: to even things up a little, to make sure that you and yours don\’t end up walking all over them.

Being \”difficult\”, you see, that\’s the purpose of agents. To be difficult on behalf of their clients.