To Spend is to Tax

Worth remembering that:

We should not be surprised by such profligacy. In 2001 Brown stated that the UK would borrow a total of £28bn between 2001 and 2006. He ended up borrowing £129bn during that period. So his "prediction" was more than £100bn astray.

It\’s not just the tax rises, it\’s also the rise in borrowings: and, even more than that, the rise in promises of future spending (on pensions and the like) which are not being accrued.

Future taxes have gone up by vastly more than current ones have.

Geeky Economics Request

I see in Wikipedia the following:

Ricardo became interested in economics after reading Adam Smith\’s The Wealth of Nations in 1799 on a vacation to the English resort of Bath. This was Ricardo\’s first contact with economics. He wrote his first economics article at age 37 and within another ten years he reached the height of his fame.

Ricardo\’s work with the stock exchange made him quite wealthy, which allowed him to retire from business in 1814 at the age of 42. He then purchased and moved to Gatcombe Park, an estate in Gloucestershire.

Gatcombe Park is of course where the Princess Royal lives now. But other than that, does anyone know the address in Bath where Ricardo first read Smith?

Being a Bathonian and, as is well, known, something of an economics geek, I\’d love to find out. Any ideas? Any ideas about how to even find out?

S\’Not My Fault!

Interesting little thought:

The paper, published today in the Proceedings of the National Academy of Sciences, looked at the ultimatum game, in which a proposer makes an offer to another person on how to divide a sum of money.

The researchers found that twins were more likely to behave in the same way as each other when deciding whether to accept an offer.

"This raises the intriguing possibility that many of our preferences and personal economic choices are subject to substantial genetic influence," said the study\’s lead author, Bjorn Wallace of the Stockholm School of Economics.

See, I can\’t help being a greedy capitalist bastard: I was born this way!

Will Hutton on Football

Yes, he\’s as confused on this subject as he is on all the others.

Instead of the profits being spread to the roots of the game and the communities in which the clubs are embedded, the Premier League has become the vehicle for financial engineering that makes private equity look honourable. In essence, clubs are being bought at astronomic prices, then the revenue they generate is used to pay back the debt their new owners incurred. The winners are the selling shareholders, the loser is football.

So the winners are the selling shareholders. That\’s the Brits who currently own the clubs, eh? You\’d think that a bunch of Brits doing well from hte way they hav developed an industry over some decades would be regarded as a good thing but no, in Hutton World, this is a bad thing.

Last week, Russian billionaire Alisher Usmanov took his stake in Arsenal closer to the 30 per cent that would trigger a full bid. Despite the club\’s robust talk of staying British, the eye-watering price he can afford to pay for the shares, to be financed by the club\’s own revenues post takeover, surely means it is only a matter of time before even this citadel falls.

But Will. If it\’s all being financed out of the club\’s own revenues then it doesn\’t have to be a billionaire that buys it, does it?

Chelsea and England captain John Terry\’s recent £135,000-a-week contract, a catch-up with the pay of Chelsea imports Michael Ballack and Andrei Shevchenko, is a classic example of the inflationary dynamic.

Indeed, this is absolutely a classic example. Of the way in which in talent based industries, all the money flows to those with the talent. They might only be 1% better than the other hundreds of thousands of soccer players in the country but that 1% means that they are in great demand. The same is true of merchant bankers, film stars, actors and so on. The owners (whether individuals or more widely spread shareholders in listed companies) get the short end of the stick here as that competition to hire that rare talent means that the workers\’ wages spiral ever upwards.

But then I thought that as a man of the left, Hutton was in favour of the workers getting the money, rather than the capitalist overlords?

What to do? Ten days ago, Michael Platini, incoming president of the Union of European Football Associations (Uefa) wrote to Gordon Brown arguing passionately that \’the values championed by football are a powerful source of social integration and civic education\’. Now the values are money. He wants pan-European action: wage caps on players; quotas for home-grown players; regulations on agents; financial checks on owners; revenue sharing between clubs; and redistribution of revenue into lower leagues. Platini even wants a reference to sport\’s special nature in the EU Reform Treaty.

Does Hutton want this? Salary caps for God\’s sake? That the workers should not get the full value of their contribution?

Football values must be reasserted and some limits have to be negotiated and it will have to be an initiative on a pan-European scale. The way things are, it cannot and will not include free-market, Eurosceptic, every- asset-can-bought-by-anyone England.

Apparently so. What a liberal man Will Hutton is, to be sure.

 

Those Greek Fires

An interesting little detail in this story about the Greek fires this summer:

In the absence of a land registry and forest maps, Greeks invariably have been able to build with impunity in areas that would normally be protected.

So at least part of the cause of the fires was the absence of clearly delineated property rights. Tsk, it is something that people do try to point out a lot, that when they are not clearly marked out and registered, then you will get problems.

As with what used to happen in Portugal: if the forest burned down you would get planning permission for it. Now, as a result of a change in the law, you have to replant it. Amazingly, the number of fires has fallen.

So this summer\’s fires: not necessarily climate change, but a dereliction of duty by the Government….not necessarily the current one either. A systemic failure to allocate and then defend property rights.

Really?

This is interesting news don\’t you think?

The bull runs of the 1980s and 1990s, and the first half of this decade, with their epoch-making transfer of wealth to the richest 1% of the population, have distracted attention from the actual long-term weakening of advanced capitalist economies. Economic performance in the US, western Europe and Japan has, by virtually every standard indicator – output, investment, employment and wages – deteriorated, decade by decade, business cycle by business cycle, since the early 70s.

1) There\’s been no transfer of wealth. There\’s been a differential allocation of the new wealth created, yes, but not an actual transfer.

2) Err, output, investment and wages are all lower than they were in the early 1970s? It is to laugh.

The years since the current cycle began in early 2001 have been the worst of all – in the US, growth of GDP and jobs has been the slowest since the end of the 1940s, and real hourly wages for about 80% of the workforce have languished at about their 1979 level.

I would love to see where that wages number comes from, really, I would. I have a sneaking suspicion that he\’s looking at "real hourly wages of all employees". Which, given that there\’s been a huge structural change in the workfoce since thn, with part-timers and women flooding into it, is really not a very enlightening number.

The rest of it reads rather like the coming of the Marxist Gotterdamerung. Falling profitability…corporations oppressing the workers….wouldn\’t be surprised to see the reserve army of the unemployed turn up along with the progessive immiseration of the working classes.

Sigh, I thought we\’d rather given up on that failed analysis?

 

Explaining the Great Compression

The Great Compression is the extreme fall in income inequality that happened in the late 1930s, early 1940s in the US. The one that has largely reversed in recent decades (although I would prefer it if the people complaining about said reversal were willing to note that the earlier inequality was driven by returns to financial capital and the current by returns to human capital). Various explanations for all of this are put forward but I have to admit that I like Tyler Cowen\’s:

Crush the incomes at the top and then make the fat cats pay much higher wages to protect the world and become a superpower.  Impose wage and price controls as well.  See how long it takes before these distributional effects — which don\’t exactly match the distribution of economic talent– reverse themselves in the aggregate.

Martin Kettle\’s Quite Right, You Know?

Really, he is:

In the long history of Labour as a governing party, nothing – but nothing – has been as politically destructive as financial crisis. The slump of 1931, the devaluations of 1949 and 1967 and the IMF bail-out of 1976 inflicted mortal wounds that destroyed four Labour prime ministers and sent four Labour governments to their electoral graves. Collectively these events had an even more devastating effect, cumulatively undermining the plausibility of the entire 20th century Labour governmental project and barring the way to a sustained British social democratic settlement on European lines.

Whether the run on Northern Rock of 2007 has triggered another episode to rank with those past traumas it is still too early to say.

But there is a radical option too. This says that Northern Rock proves that the right sort of government regulation and intervention will support, not destroy, strong markets and good businesses.

Quite. The right sort of government intervention and regulation will indeed support strong markets and good businesses. There\’s no one (at least no one rational) who would dispute this. All we need now is to work out what is the right sort of government intervention. On the evidence that Martin himself offers, the Labour Party has failed to get the right answer to this question four times and the result at the fifth time of asking is as yet unknown.

There is a very good argument for the right type of intervention but I\’m not sure that the above is a very strong argument for Labour knowing what the right type is.