Umm, yeah Spud, umm, yeah

There are three ways they do this. All should be obvious to anyone who has studied economics. First, those who have done so will know that effective markets that allocate resources efficiently require what economists call ‘perfect information’. That means (absurd as it sounds) that everyone has to know everything about everyone else’s intentions in the market. Now, I admit, that perfect information never exists, simply because it is obviously impossible that it can. But what is true is that the closer markets get to fulfilling this assumption the more likely it is that business risk will be low. That’s because businesses will know who can, and cannot pay them for what is sold, and so avoid bad debt. And investors will also have the information they need on which corporations are good at using their capital, and which aren’t. What tax haven secrecy does is deny businesses and investors that essential information. The result is that risk goes up, and so the rate of return required on investments increases, which reduces the amount of investment that actually takes place, which in turn cuts productivity, and that reduces real wage rates, and so GDP, and the result is we all suffer as a result.

But that’s only the first cost that tax havens impose on us. The second is that tax havens create unfair competition between businesses. That is because some business will, as a result of their inability to access tax havens, pay tax and whilst their competitors who can use tax havens will not. This matters because to work properly markets require that all businesses compete on a level playing field. With tax havens in the mix that clearly does not happen. And that means that those that do not pay tax have an unfair competitive advantage over those that do. This means that they can either undercut their tax paying competitors on price or they can invest more out of their after tax profits, which will of course be bigger because little or no tax will be paid. The result is that the taxpaying businesses tend to disappear: they simply can’t compete. But that’s not how markets are meant to work.

Tax havens decrease investment because of risk, lower returns meaning less investment. But tax paying, which reduces returns on investment so much that only tax haven based businesses can complete, does not reduce investment, no sirree!

At which point economists are rolling in the graves they’re not in yet. Because the standard analysis, something which escapes Spud, is that taxes upon investment reduce the amount of it, to our general detriment.

Sheesh.

32 comments on “Umm, yeah Spud, umm, yeah

  1. Im stuffed up with hayfever, so I cannot be quite sure, but I’m relatively sure that I can see a couple of howlers in the first point he makes.

    I fear his grasp of the subject is worse than his first year students’.

  2. This makes me want to bang my head against the wall:

    First, those who have done so will know that effective markets that allocate resources efficiently require what economists call ‘perfect information’. That means (absurd as it sounds) that everyone has to know everything about everyone else’s intentions in the market. Now, I admit, that perfect information never exists, simply because it is obviously impossible that it can. But what is true is that the closer markets get to fulfilling this assumption the more likely it is that business risk will be low. That’s because businesses will know who can, and cannot pay them for what is sold, and so avoid bad debt. And investors will also have the information they need on which corporations are good at using their capital, and which aren’t

    So he talks about the assumptions behind “perfect competition”, without saying that this is a conceptual model, the starting point for analysis of how firms operate in a market. Informed teachers then tell the students that these assumptions are hard to find in real life, apart from, perhaps, open outcry exchanges or public markets – the food market in Triana seemed fairly good, if one stall had its produce out of line with the rest, there was a reason,either good or bad or just reputational.
    Murph, the moronic Prof, then extends that into an attack on tax havens that is precisely irrelevant.

    Is Maugham the Uber hater, or the fake Prof Murph the more stupid and evil?

    I resort to Harry Hill……. There’s only one way to find out…. FIGHT!!!!!!

  3. “…to work properly markets require that all businesses compete on a level playing field.”

    So, all businesses need perfect information? Else they clearly won’t be on a level playing field?

    “…perfect information never exists, simply because it is obviously impossible that it can.”

    FFS, he can’t keep the logic going from one paragraph to the next.

  4. Tsk, it’s worse. If perfect information is impossible then how can the Curajus State plan?

  5. And that means that those that do not pay tax have an unfair competitive advantage over those that do. This means that they can either undercut their tax paying competitors on price or they can invest more out of their after tax profits, which will of course be bigger because little or no tax will be paid.

    But what if the tax-dodging company supplies a product that few people want? The Guardian springs to mind. How is its circulation standing up after all that tax dodging? Is it simply a matter of tax that means that people are not watching the BBC? He is a Murphy grade cock end.

    What sort of person is only able to view the world through the prism of tax? It is like a weird exotic disease. For a man with a hammer, every problem needs a hammer. What is the equivalent for this idiot?

  6. We could have lots of little Courageous States – local authorities able to make their own planning rules, competing on taxes, free movement of labour, minimum wage setting, drug and vice liberalisation optional in each area. A sort of
    UK leinstaaterei – weak pun.
    Failures at small levels should get quickly punished by electors.
    Like a lot of different little beagles running off in different directions. Ritchie though would rather have one great big guard dog barking out rules for the whole of these Isles.
    This doesn’t fit in with his support for SCO independence though.

  7. To apply the twat’s profound analysis to the BBC is interesting. It sets great store by the licence fee yet makes big profits from foreign sales of flagship programmes.

    So it could make more by charging on a subscription basis. If you want Downton, Strictly and all those shows, how much would you pay?

    The fact that the BBC is permitted by law to charge everyone for programmes they have no intention of watching is a failure of competition policy. The BBC is being allowed to undercharge which leads to a misallocation issue. The BBC could be more independent if it really wanted to be

  8. Diogenes,

    Interesting theory.

    On an hours watched per pound basis in our household, the BBC would get nowhere near Sky Atlantic on its own, let alone the rest of the network.

    I watch more C4 than I do BBC. How does that work ?

  9. I wonder what would happen if you sat The Great Tuber™ down and told him “as the Efficient Market Hypothesis moves from weak-form to strong-form, arbitrage opportunities tend toward zero”. I imagine it would involve the sort of head tilting one would get upon declaiming The Love Song of J. Alfred Prufrock to a border collie.

    His “explanation” of the EMH there is, like almost all of his writings, nicht einmal falsch. It’s a theory of stock pricing, not of asset allocation (d’you think he might have got it confused with Markowitz or CAPM?)

  10. Either a country is a tax haven or it isn’t. If it is then everyone operating in it is on a level field. No problem.

    If, as I suspect he means, we have corporations that operate in one for tax purposes, but sell in another. But again that is available for every business. If Google do it, then Bing can do it, and Alta Vista etc.

    There is only a theoretical problem if some businesses can access the tax haven and other businesses selling a competing product cannot. Are there any actual examples of this?

  11. ‘so the rate of return required on investments increases, which reduces the amount of investment that actually takes place’

    ‘This means that they can either undercut their tax paying competitors on price or they can invest more out of their after tax profits’

    So, on the one hand tax havens reduce investment, on the other companies who use tax havens can invest more. Amazing.

  12. “Geoff Taylor

    “Are there any actual examples of this?” – Amazon versus almost anyone?”

    Amazon is a market place. If you make widgets and want to sell widgets via Amazon, you can. You pay a commission but have a chance to sell to the world.

    Amazon is not in competition with “almost anyone” to sell things.

    It’s just one of the things Murphy doesn’t get. If I (based in the UK) sell widgets via Amazon, I will pay tax on my profits here in the UK. The commission I pay will be paid to Amazon in Luxemburg (or wherever) and be taxed there, just as would be the case if I was having a catalogue printed in Luxembourg in order to sell my products.

  13. If anyone can bear listening Ritchie will debating Kevin Hague on GERS on Radio Scotland at 12.30 today.

    I do not expect it to go well.

  14. John Square

    ‘I fear his grasp of the subject is worse than his first year students’

    My daughter is under two and I feel confident she has more grasp of economics as a subject than Murphy does. Indeed in a previous role in the Pharmaceuticals trade I’m fairly sure I have seen bacterial cultures with greater intelligence.

  15. GlenDorran

    I am hoping to follow that particular car crash later on when Kevin posts it on Twitter. Won’t stop Murphy claiming he knows more obviously.

  16. @BiND

    ‘“Tsk, it’s worse. If perfect information is impossible then how can the Curajus State plan?”

    Tsk, the Curajous State doesn’t need perfect information because it will give you what it wants you to have, not what you want.’

    Yeah- I take it as read nowadays that socialists aren’t interested in pretending that you are going to get what you want: the frequent use of ‘entitled’ by government over the last decade has set the scene for a small flat, BL car and basic rations for all

  17. Amazon is dominant, but will any competitors be prevented from having similar tax structures? I don’t think so.

    Or are you alleging Amazon is an effective monopoly because of its tax structure?

  18. As I’ve noted elsewhere, that book is bollocks. Am trying to find more about it to detail that…

  19. “Or are you alleging Amazon is an effective monopoly because of its tax structure?”

    Nope. I’m saying it has a competitive advantage because of its tax structure when compared to “physical” retailers who can’t relocate. And since they are both in the business of being the middleman between producers and consumers they can be said to be competitors.

    Please note, I am in no way being critical of Amazon – more power to their virtual elbow. Chester asked for a real-world example of tax structures giving a competitive advantage and this is one such example.

  20. Sorry, but fuck me.

    I’ve encountered this idiot statement before that free markets assume or require perfect information. Where does such an absurd fallacy comes from? It’s like Ritchie earnestly telling his readers that dogs can’t look up. His ignorance of economics is truly heroic.

    — “All should be obvious to anyone who has studied economics.”

    In this case it’s pretty fucking obvious even to those of us who haven’t.

    It’s call the knowledge problem, mate. The clue’s in the fucking name.

  21. First, those who have done so will know that effective markets that allocate resources efficiently require what economists call ‘perfect information’

    This ridiculous straw man again. For fucks sake.

  22. I think droppes kne here. Spud goes on to say:
    “Add on top of that the fact that they leave government’s short of revenue and the problem is compounded. Inefficient markets and cash strapped governments unable to access or tax ever-growing piles of offshore money..”

    Oh no Richard, just no. As “anyone who knows anything about economics” has written on his blog, governments do NOT need tax revenues to fund spending. No, they have already financed spending by introduced money into the economy. Tax is merely government claiming back what it created. Tax there is NOT about funding expenditure.

    Oh, I understand Richard. Todaynit’s a different audience and so it’s a different message. One entirely incompatible with yesterday’essay but nevertheless useful to win over today’s audience.. provided it is kept in ignorance of yesterday’s message.

    You dishonest bastard.

  23. perfect information never exists, simply because it is obviously impossible that it can. But what is true is that the closer markets get to fulfilling this assumption the more likely it is that business risk will be low. That’s because businesses will know who can, and cannot pay them for what is sold, and so avoid bad debt.

    Ah, the economics of the crysal ball. There’s curajus, if you like!

  24. Geoff,

    But Amazon are actually selling a physical product in a location. Therefore they are liable for tax in that location.

    The issue for them is not tax havens. It’s tracking small sales made remotely and the cost ineffectiveness of collecting small amounts.

    Sales from Amazon into NZ are due GST (VAT). It’s not collected because the sales are hard to track and mostly under the minimum collectible. They could be operating from the highest tax country in the world and still be avoiding their tax obligations.

  25. They teach enough economics on accountancy courses (ACCA and CIMA at least) that you would know he’s talking crap let alone specifically studying economics. I recall that even when looking at company valuations and financial instruments the perfect information in markets problem was part of the discussion, maybe he just learned this stuff rote without any understanding of the why not just the how

  26. Maybe 20% of a professor of practice just means someone with 20% of the knowledge expected of such a person.

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