When a Professor of Sociology does economics

Greg Philo (for it is he, how could Adam Smith\’s old Glasgow University have come to this?) tells us that the solution to all of our woes is a simple 20% tax on the accumulated wealth of the top 10%.

A straight 20% haircut of all their property, pensions, equities and all the rest.

Forgive me if I forsee a few little problems here but let\’s just start with the biggie shall we? You know, this Keynesian stuff about aggregate demand and recessions?

So, we\’re going to institute a one off £800 billion tax.

Mhm, hhm. That\’s about 60% of GDP.

Are we really absolutely certain that we want a 60% of GDP fiscal contraction in the middle of a recession? Tax rises are, after all, just as fiscally contractionary as cuts in government spending. The fiscal effect, the effect on aggregate demand, would be akin to keeping tax rates at current levels and stopping all government spending upon everything.

Really?

We really want sociologists suggesting economic policy now do we?

17 thoughts on “When a Professor of Sociology does economics”

  1. I’ve seen this elsewhere and you are right to pick up on it, Tim.

    People like this are a complete and utter menace; the implications behind his ridiculous remarks are even more shocking; that firstly he is teaching this guff and secondly that he really believes that incompetent and corrupt administrations should be let off the hook by a capital levy – rewarded for screwing up a perfectly successful economy and turning it into basket case.

    He is unfit to hold a tenure at any institution outside North Korea or Zimbabwe. Idiot.

  2. Greg Philo is, as I understand it, a professor at Glasgow.

    Let’s assume he earns £65,000 (seems to be a median professorial salary in the UK according to payscale.com).

    If we assume he joined the the University Super Annuation Scheme at 30 and retires at 65 then (according to the University Super Annuation Scheme website) he can expect a pension of £29,000 and a lump sum on retirement of £85,000.

    I don’t know how old Mr Philo is but let’s say he is 50.

    Using the FSA’s pension calculator I estimate Mr Philo’s pension entitlements have a net present value of around £500,000 to £600,000.

    That’s quite a bit of wealth. Do you think he realises he will be caught by his own tax (or at least that he ought to be on any sensible definition of wealth)?

  3. A key problem for the British economy is that much of the nation’s resources have been directed into inflated property values, which is where many of the bonuses ended up. This is in effect dead money but the tax would have the effect of re-circulating it as government spending, which could stimulate growth.

    Oh dear. For someone to buy property, someone else must have sold it. So if land prices double, then buying land costs you twice as much cash, but selling land brings in twice as much cash (some of which goes to the real estate agent).
    Consequently this money isn’t dead money. Whomever sold the land has the money (along with the real estate agents, and any other recipient who is paid based on the value of the sale) and has presumably circulated it. In Britain, if the sale was in British pounds.

    I’m amazed this got past the editor.

  4. Sorry Tracy but your assertation simply isn’t true. Price is a reflection of the limited numer of transactions that actually occur. And that number can be zero. If lots of people wanted to buy property but no one wanted to sell the price could continue up towards infinity & house owners would be congratulating themselves how incredibly rich they’d become.
    Oh, we’ve sort ofbeen there haven’t we……

  5. Sorry, hit the ‘submit’ before I finished the thought;
    If Philo got his fantasy the wealthy would have to sell their assets to pay the tax. But as there would be no wealthy with spare wealth to buy said assets, said assets would have greatly reduced value. Ergo the wealthy would no longer be wealthy & the taxman wouldn’t get a bean.

  6. Peteswordz, to quote the starting point of my argument: “For someone to buy property, someone else must have sold it. ”
    If there are zero transactions, as in your scenario, then clearly no one has sold any property. So I am rather puzzled, how can my assertion be other than true?
    I can believe that there are situations in which no one sells any property and so no one has bought it.
    I can believe in situations where someone steals property, and thus there is no seller.
    I can believe in situations where someone discovers unowned property (eg the first people to reach the Americas), and thus there is no seller.
    I can believe in someone inheriting property and thus there is no seller.
    I can believe in situations where two people, by some administrative mistake, both wind up honestly “owning” the same land, and thus there is no seller, although in that case there is probably going to be a big money transfer to lawyers.
    I can believe in a number of other situations.

    However I can’t believe in a situation where there are buyers without there also being sellers.

    And in the sample case you give, while house owners may be congratulating themselves on how incredibly rich they’d become, as there are no house buyers in this hypothetical case clearly no one’s bonuses has ended up in property. So Philo’s argument would be irrelevant.

    Given that you are well-educated enough to say that prices “could continue up *towards* infinity” [emphasis mine], rather than prices would be infinity, I suspect you know what you are talking about (tutoring economics was enough to make me obsessive on the point of “infinity is not a number”). So I suspect I am missing something in your argument. Can you please explain how there can be buyers without sellers?

  7. “Do you think he realises he will be caught by his own tax”

    No. But as soon as he does, he’ll propose some kind of rule that omits pension funds. A loophole. Which will result in a tax gap from the headline 20%-of-your-wealth-confiscated. Which will trigger the usual suspects who will clamour for more powers to confiscate property. Until they realise they themselves will be hit, and then create more loopholes to exempt their own good efforts..

  8. “So I am rather puzzled, how can my assertion be other than true?”

    If there are a million house owners, and a dozen of them sell their houses then their tiny number of transactions set the value of the entire property stock. The flows of cash in the economy due to those dozen transactions can be ignored as nugatory. The effect on the value of the stock cannot.

    By “we’ve been here before” I think Pete refers to the mark-to-market rules that led to massive multi-billion paper losses due to distress sales of thinly traded CDOs.

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  10. Philo has has positioned himself as the ‘leader’ of media analysis with his Glasgow Media Studies unit.

    I freelance in this field for a commercial company and can categorically state that his research reports are a pile of sh*t.

    Just like this absurd proposal, actually.

    He does not disinterested research but directs towards a pre-determined answer. A charlatan.

  11. Kay Tie – remember that Philo made an argument for the tax based on the idea that money that went into housing is ” in effect dead money”, and re-circulating this could stimulate growth.
    I agree with you entirely that a very small number of house sellers could set the value of the entire property stock. But the number of transactions does not change the fact that every house that is bought, however few they be, and however high the price, means that cash is transferred from the buyer to the seller (plus the real estate agent, and any other interested party). There is no “dead money” from the transaction. The buyer gets an illiquid asset, the seller (and real estate agent and etc) gets a liquid asset – ie the cash.
    As for the case of rising value on paper, if anything, I would expect a rise in the paper value of houses to increase liquidity, all else being equal, as people leveraged against their houses. Again, the opposite of Philo’s argument.

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  13. Wow. This is wrong on a bunch of levels no one has even touched on yet.

    First, taking this “wealth” away from the wealthy won’t change the national balance sheet. So, the net worth of the country won’t change. It will obviously decrease the net worth of the rich, and increase the net worth of the government.

    Second, since it can’t change the net worth of the country, actually converting the “tax” into spendable money would mean changing its liquidity. this would require a transfer of liquidity into the country from someone else’s balance sheet, and a transfer of less-liquid wealth out of the country. No doubt there will a loss of value involved, since if this was such a great idea, people would already be doing it.

    Third, there’s a stock-flow problem here. He wants to tax a stock, to help pay for flows of spending. Does he think this will work more than once? What is the plan for next year – tax 20% of a smaller pie? Of course, he could tax the stock to make some sort of payment for some other stock – but that just gets us back to my first point.

    I could go on …

    I agree with some of the earlier comments. Most jurisdictions have some criminal penalties for suggesting to others (who are not as smart, mature, well, or informed) that they do something potentially harmful; for example, in the U.S. it is a crime to tell someone that they don’t have to pay their income tax (e.g., Wesley Snipes’ advisors). Basically, it isn’t free speech if it is fraudulent. As an economist, I think the world would be a better place if criminal codes were extended to cover nonsense like this: it’s already fraudulent, we’re just too polite to say so.

  14. Probably bit late to reply to this but:

    “However I can’t believe in a situation where there are buyers without there also being sellers.”

    Reverse the sign on the equation.

    I have a large pile of dog do in my garden. I am most definately a seller of dog do. Trouble is no one wants to buy dog do. Current price of dog do is zero.

    There are a lot of buyers of eternal life. Price on eternal life is at least Bill Gates’ horde which from where I sit is as close to infinity as I’ll see.
    Anybody selling verifiable eternal life?

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