The Murphmonster on the taxation of rents

I had a discussion yesterday afternoon with a friend on where we saw capitalism going. The answer was neither of us saw it going very far at all. maybe we’re getting older, and maybe we’re just wrong, but we could not see what it was that capitalism could currently invest in that would create better outcomes for humankind than we could imagine might be available from public use of the same funds.

Everything’s already been invented so we should just close the patent office, eh?

And this at a time when we’re going through the fastest technological revolution ever. The smartphone is indeed the fastest adopted technology ever. From a standing start to a billion pieces a year in under a decade. But this is even better:

Martin Wolf ….. But most of all he says, by implication, that in the future we must tax rents, and of all these rents he suggests that intellectual property rights might be the one that will require most attention.

This is fascinating, because this is at the forefront of the current battle on international taxation. Google shifts the ‘rent’ it can earn from its (state funded) technology from the states where it should be taxed through Ireland into Bermuda. We all know other technology, pharmaceutical and similar rent earning companies (and most multinational corporations are now of this sort, for varying reasons) do similar things. And they are fighting very hard to defend their right to do so at the OECD, which has already backed off from making changes to tackle tax abuse in the digital economy.

So, the argument appears to be that because Google’s technology was state funded then the state should have some of that cash. Very similar to Mazzucato’s argument.

But, erm, it was the US government that funded Google’s technology, if any funding there was. So it should obviously be the US govt that gets to tax that cash: not the governments of Europe which is what Ritchie is arguing for.

33 comments on “The Murphmonster on the taxation of rents

  1. “maybe we’re getting older, and maybe we’re just wrong, but we could not see what it was that capitalism could currently invest in that would create better outcomes for humankind than we could imagine might be available from public use of the same funds.”

    It takes a brave or oblivious man to confess his total lack of imagination.

    Ritchie and his mates are ignorant, so give all your money to Ritchie and his mates to “invest”.

    And re: Google. The embrionic internet was indeed a US Gov project, funded by DARPA to create a decentralised computer network that could still function in the event of the Russkies nuking Washington DC.

    But the internet was almost entirely useless to mankind as a whole before those bastard capitalists at Google and Cisco and Yahoo and YouTube and Amazon and eBay and Valve and Expedia and so on spent billions of dollars of privately invested cash on turning it into a means of delivering services people would want to pay for.

    This wasn’t even remotely DARPA’s intention when it first conceived the internetwork. It was a happy accident resulting from Moore’s Law, Tim Berners-Lee’s application of the hypertext concepts Doug Engelbart and Xerox Parc championed in previous decades, clever engineering to send data signals down legacy copper phone lines, etc.

    So the lesson here, yet again, is that government doesn’t have a very good record of investing to create better outcomes for humankind.

  2. If the State had created the internet we’d all be on dial up modems, limited to a few hours per day, on a few websites of suitably ‘courageous’ content. And I when I say ‘we all would be on dial up modems’ I really mean all normal people would be on a waiting list to get a dial up modem, of about 2 years at least. Only the politically connected (ha ha) would actually have one.

  3. What a sad little man in a sad little world.

    I know he is pompous, ignorant and vain (I’ve seen the videos and listened to the audios, and these are descriptors of observed behaviour not insults) but he must also be incredibly boring as well. I know that is not a crime but the sum total bodes badly for him getting close to those running things.

    I think the USSR is probably the closest to what he is proposing. Can anyone give me a single consumer product or major development that improved humanity’s lot that came out of that mess? Vodka and caviar don’t count.

  4. “Everything’s already been invented so we should just close the patent office, eh?”

    Not what Ritchie believes in. He merely thinks that as the dictator in charge of a Nazi regime, he could spend our money better than we do – including directing all research and development.

  5. Google itself had part of its original development courtesy of the National Science Foundation (look at the google history on wiki).

    Note that I am not endorsing the mad idea that there can be no innovation without the State. Just pointing out that Google was built by people funded initially by the State.

  6. “Can anyone give me a single consumer product or major development that improved humanity’s lot that came out of that mess?”

    Well they did put up Sputnik etc. And perhaps stretching things a bit, but the Soviet T-34 tank (if a major development) went a very long way to defeating the German army, without which humanity’s lot would have been much worse.

  7. Bravefart

    Hmmm. Sputnik was a precursor and led to nothing.

    The T-34’s value was it was good, basic (not ground-breaking) design (less to breakdown) and there were bloody thousands of the things.

    Add in the AK-47 (although you would have to be a revolutionary to see how that little gem improved humanity’s lot).

    But if that is the sum total, it’s looking pretty grim for central planning.

    Incidentally, with the state spraying money around like champagne at a F1 podium party, almost everybody has been blessed at some stage. War and the threat of same is the great stimulant for state investment.

  8. Soviet rocketry was, of course, based partially on the German scientists the Yanks didn’t cart off to the states in ’45. Who’d benefited from.pre-war Russian & American rocketry experience. And the AK47 owes a lot to the German StG44. Which, in its turn owed much to the Russian Fedorov Avtomat of WW1 vintage.
    Tech provenance is notoriously illusive.

  9. But what gets me about people like the Murphmeister is they, personally, have probably never actually created anything of any practical use in their entire lives. Apart from sewage based fertilser feedstock. They are entirely parasitic on the endeavors of others.

  10. ken,

    Just pointing out that Google was built by people funded initially by the State.

    The key word there is “initial”. $32K/student over 3 years. About the same as what we pay out to someone for student loans. if they then, as a result of those student loans, discover something at university, does the state get an extra cut of it over someone who discovered it in their bedroom? No. You pay back your loan.

  11. Tech provenance is notoriously illusive.
    The T34 is designed at the same time as the Soviets are cooperating with the Germans in tank development in Russia to beat the Versailles proscriptions on German military capability. Designs don’t materialise out of thin air. They’re the answer to a requirement. So one could say the T34 owes its design requirements from German necessities as much as Russian. Both of which are initiated by a British requirement in ’16.

  12. Jim – Actually we have an example of this. France’s Minitel system was more or less state run. It was great at first, although expensive compared to similar services AOL or Compuserve. After the initial burst of innovation, it ossified under the weight of bureaucracy and was unable to compete with the Internet, either on price or service.

  13. The public sector redesigning Google and improving it?

    Public sector funding of fundamental research is necessary. Brining that research out into developped usable utilities is best done by the private sector.

    If you asked the public sector to improve upon a race horse, they would develop the cow.

  14. @ Paddy
    Public sector funding of fundamental research is NOT necessary. With a very few exceptions, it is a relatively recent innovation. Please don’t quote Columbus because Isabella financing his expedition did *not* relate to fundamental research but to a pilot project which was intended to reap the commercial benefits of earlier research by gifted amateurs. All the core physics and chemistry that I learned for ‘O’ level was discovered by individuals researching with no state aid.
    If state funding of fundamental research is so wonderful why did the USSR have a network of spies to steal trade secrets from the western private sector? Not just Klaus Fuchs – the leading pencil manufacturer was called Karandasch using technology copied from the Swiss company.

  15. “Stealing is easier than producing, however effective or otherwise your production method is.”
    Except that it isn’t.
    Stealing gets you something, once.
    The process of producing gives not only the ability to continue producing. It gives the whole knowledge base produced that something & goes on to produce other somethings.
    The Sovs did indeed steal the odd idea from the West. But they couldn’t steal the whole basis those ideas came from. So they could put spacecraft into orbit but couldn’t produce a decent car.

  16. John77

    Alright, but I was fishing around for something, anything and I did say ‘major development that improved humanity’s lot ‘ and then qualified it when talking about the AK-47.

    Anyway, I am still waiting, you lot, for something, anything, I might really have wanted from the USSR……….

    Central planning as a long-term way of running a country brings poverty, misery and eventual disintegration of the state and does bu**er all for Pete and Mary and their kiddies.

    Nice to be reminded of the French and Minitel. A glorious victory for the corajus state.

  17. Anyway, I am still waiting, you lot, for something, anything, I might really have wanted from the USSR……….

    Well contrary to Western propaganda at the time, a high proportion of their women were/are pretty gorgeous as I discovered when I first went there in 1985, and subsequent trips. Even married one…

  18. Murphy has a friend?

    Don’t think he’s ever mentioned one before. Perhaps he’s been sitting in with Miliband on the “how to seem normal” classes.

  19. “where we saw capitalism going”

    Capitalism is free trade and property rights.

    “we could not see what it was that capitalism could currently invest in”

    Capitalism is not an entity capable of doing anything.

    He uses the language of a drunk.

  20. Bravefart

    At the risk of sounding Life of Brianish,
    ‘Alright the women! But what else have the Russians given us’

    And I think they were probably beautiful in spite of the political regime, not because of it, and the sisters will probably have something to say about wimmen not being consumer goods.

  21. As most/a lot/some private health care is paid by companies through insurance plans wouldn’t this make it a B2B payment and therefore VAT recoverable somewhere along the line?

  22. Dear Mr Worstall

    “I had a discussion yesterday afternoon with a friend on where we saw capitalism going. The answer was neither of us saw it going very far at all.”

    I bet that’s the same conclusion he would have reached 5, 10, 15 and counting years ago.

    I can’t see where capitalism is going either, but I can’t wait to find out. It will be a damned sight more interesting than anywhere any other ‘ism will take its unfortunate victims.

    DP

  23. Capitalism is free trade and property rights.

    No it isn’t. Capitalism is a method of owning things – primarily productive businesses. As such it compares to state ownership, co-operatives and “sole trader”.

    Free markets and property rights exist independently and are, arguably, significantly more important. State owned entities, operating within a free or regulated market can actually work.

  24. @ bilbaoboy
    I did notice your qualification ” that improved humanity’s lot” but couldn’t resist it (also I didn’t pretend that it met your restricted criterion) because it illuminates the benefits of capitalism and communism – capitalism invents farming, fishing, the apple, the mill, bread, beer, ships, the loom, the steam engine, coaches, railways, motorcars … The USSR invents a more effective killing machine.

  25. @SE

    “State owned entities, operating within a free or regulated market can actually work”

    This is a topic that has rattling around my head for a while. I see no reason why what you say wouldn’t be true.. but I can’t think of any areas where the state and the free market are in competition, on even terms, for our patronage.. so it’s hard to say. Am I missing some obvious examples that either evidence or refute your point?

  26. @ TTG
    Many moons ago, when I was young, there were passenger airlines with private sector American companies trying to compete with state-owned European airlines. Technically they were on even terms because the US airlines were forbidden to offer cheaper fares.
    The fare from Luxembourg to Iceland plus the fare from Iceland to New York was less than the fare from London to New York; coincidentally the flight from Luxembourg to Iceland had a refuelling stop in London.
    Competition yay!
    You don’t even need to be private sector to compete.

  27. “he says, by implication, that in the future we must tax rents, and of all these rents he suggests that intellectual property rights might be the one that will require most attention.”

    To me, that’s a reasonable suggestion. As a free-marketeer, I’m not a big fan of intellectual monopolies, so reducing the benefit to the monopoly holder sounds appealing. Unfortunately, Murphy goes almost instantly wrong with this:

    “This is fascinating, because this is at the forefront of the current battle on international taxation. Google shifts the ‘rent’ it can earn from its (state funded) technology…”

    Google is one of the worst examples to use when discussing rents; he even seems to acknowledge it himself by putting rent in quotes. As technology companies go, Google isn’t especially reliant on intellectual monopolies and operates in areas which are open to competition.

  28. @ PaulL

    Yes, it seems odd.. until you follow his thought process:

    1. I don’t really know what ‘rents’ are, but I know that some smart people think they are bad and should be taxed.
    2. I think profit shifting is bad, and I think shifted profits should be taxed.
    3. Therefore shifted profits are rents.

  29. Syrupy Evil, my local gas company is owned by the county. So, yeah, state owned entities can work. Especially at a local level.

    The general problem with state owned businesses is that the management makes political decisions, not business decisions. Hence, a state owned enterprise is not likely to succeed long term. And it will take a stack of money with it, as the government diverts other funds to try to prop up the carcass.

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