September 2011

Defining a Monbiot

So, at least we know what amount a Monbiot is now.

£75,000 a year gross or thereabouts.

As opposed to a Toynbee which runs at £116,000 I\’m told, or a Rusbridger which is £500,000 plus bonus and pension contributions.

Entering into the spirit of things, my income from various sources:

From corporate paymasters, spinners and PR peeps: £0.

Freelance writing income*: £200 to £4,000 a month**.

Running the shadowy international scandium oligopoly: £0 – £40,000 a year***.


*This is everything from Anorak (beer money) the ASI (beer money again) to Forbes (beer money plus performance related), The Examiner (used to be good, now cat food money, performance related), occasional pieces for such as The Times, City AM, IEA, quite a lot at normal freelance rates for The Register and so on, including advertising on the blog etc.

**That top end is achieved very rarely. Like twice in the past three years.

*** Yes, amazingly, income from a small business is wildly variable. Feast or famine. Everyone else gets paid first, see?

What can be very annoying is that the feast and the famine in both the freelance and the metal income can come at the same time. Grr.

Robert Reich: Spouting nonsense again

In August, the United States created no jobs at all. Zero.

This simply isn\’t true.

It\’s nonsense.

The US created no net jobs is true, but the US created no jobs is nonsense.

It is Mr. Dillow who has been pointing this out for years. All economies are creating and destroying jobs all the time. The rise in unemployment, or the fall in it, comes when the process of creation or destruction becomes dominant. And that balancing figure is a small part of the whole movement too.

I think I\’m right in saying that the UK economy creates/destroys some 3 million jobs a year, about 10% of all jobs. That number, from memory, might be a little on the low side. The US economy it\’s a little higher, about 15% I think. I\’ve seen one number of 3 million a month which strikes me as a little over the top.

Now, OK, you might think this is trivial but it isn\’t. If you go around saying that \”no jobs\” have been created then you can end up starting to think that anything that creates jobs is just fine. Any job at all.

But when you understand that unemployment is the difference between the destruction/creation rate the whole problem becomes much more subtle. Yes, creating more jobs on net might well be a good idea: but you really do want to make sure that you\’re not increasing the destruction rate by doing so. Or perhaps slowing the creation rate in some part of the economy you\’re not looking at. Or even you\’re just creating jobs for those who would find them anyway.

Take that latest jobs report that Rubin mentions. Mining employment rose. Just market forces you understand. Yet many say that we should beat unemployment by putting up windmills. Create jobs. So, those people who put up windmills: are they likely to be the inner city deadbeats? Or those who could already get a job in mining (the skills are not exactly the same but they\’re comparable)?

It all becomes more complicated in this real world, doesn\’t it?

As to this proposal:

And a wealth surtax of 2% should be applied to all wealth in excess of $7m.

Twat. Capital taxation is the worst of all forms of taxation if its growth you want to see. And he is saying that he\’d like to see some growth, isn\’t he?

Interesting point about eurozone debt

So, this idea that Germany has benefitted from the euro and should thus chip something back in to help those who have borrowed.

You do see this idea around at times. The Italian trade deficit is the German trade surplus in reverse. There is one handy response to this:

The Germans should not accept responsibility for debts built up by Italians over decades, from long before the euro was established.

Quite: leave aside that trade deficits are not the same as govt ones and think about the actual stock of debt. Even if the euro has meant addition to that stock in recent years (and in the Italian example, not all that sure that it has. Except for the recession, I thought that Italy generally ran a primary budget surplus?) and think that the current stock of debt has been mounting since 1945: heck, might be since 1861 for all I know.

And why should current Germans pay for all of that?

Ritchie on the FTT

He says, again, that he\’s cracked it.

A Robin Hood Tax – a financial transaction tax – is back on the agenda thanks to the EU, and rightly so.

I wrote about this in 2010 in a joint publication called ‘Taxing Banks‘. In it I set out the data supporting such a tax, estimated how much it would raise and suggested – contrary to the claim of bankers – that the charge would not end up falling on bank customers but on the banks themselves.

Just to remind you, here\’s the entirety of his logic:

Before making recommendations it is important to address a contentious issue, which is whether a bank, as a
limited liability corporation can ever pay tax itself, or whether it acts as a mere conduit to transfer tax liability
to others.
Those who subscribe to the idea that banks (and other limited liability entities) do not pay tax refer to the
theory of tax incidence to support their views. This theory suggests that as legal liability entities are not real
people, and just agents for them, and only real people can actually pay tax, the burden of any tax imposed on
such an entity is always passed on to others and this has to be determined before the consequence of any tax
charge can be determined.
There can be little doubt that the theory of tax incidence has technical validity in economic theory. If, as that
theory assumes, corporations are run for their shareholders, and all consequences of corporate behaviour flow
to those who engage with the entity in one form or another – this being a view that essentially sees the limited
liability entity as little more than a bundle of contractual arrangements – then it follows, as the theory
suggests, that if a tax burden on a limited entity cannot be passed on by it to its customers by way of higher
prices to its suppliers by way of lower prices or its employees by way of lower wages then the shareholders will
suffer the burden of the tax, either through reduced earnings paid by way of dividend or through lower
retained earnings, the latter being assumed to be reflected directly in the price of equity in the company.
Unfortunately the impact of tax incidence in practice is less predictable then economic theory suggests likely
to be the case. Corporations can readily change where, when and at what rate they pay tax. They do this by
relocating transactions and whole businesses, by tax avoiding and by tax arbitraging. If they were not liable for
the taxes they pay there would be little logic to any of these actions and it is reasonable to assume they are
rational. In addition, when it appears that banks can to some degree choose the incidence of any tax imposed
on them (as the current reaction bonus taxes on bankers in the UK shows7) there is no reliable basis on which
to estimate or predict tax incidence resulting from any given change in policy.
Additionally, it may be a logical error to assume that corporations are mere agents and act as a bundle of
contracts. The reality is that corporations are synergistic entities that appear to create worth in their own
right. Indeed, if they did not there is no logical reason for them to exist. This does, however, suggest that it is
possible for the incidence of a tax to fall upon the corporation itself.
In that case the only rational thing to do is assume that banks are, at least in some cases, as noted in this
report, the taxpayer who does bear the burden of the tax charged to them. It is therefore reasonable to think
that additional taxes charged to banks might result in those banks making contribution to the governments
that have suffered the cost of repairing the banking system. This is assumed in this report unless noted

This is what the TUC, TJN, Christian Aid etc rely upon as their evidence that yes, really, banks will be the people who pay the tax.

Economic theory says that companies cannot pay the tax. Ritchie says that they can and that\’s it, settled. Never mind what the OECD has said about it, the IMF, even the EU report notes that banks themselves will not bear the incidence of the tax. Never mind that we\’ve actually known that companies do not bear the incidence of taxes since 1899, when Seligman wrote on the subject.

Ritchie declares that this is all a logical error and therefore, dangnammit, don\’t listen to them over there.

And people wonder why I snarl about him so much.

Bill Nighy on the Robin Hood Tax

He\’s back in The Guardian. My comment on his piece:

\”It would be passed on to ordinary people? According to the IMF it would be paid predominantly by the richest.\”

That\’s not actually what the IMF says, not completely and totally.

The IMF report is here:

In the short term the tax will lower the price of all securities which are subject to the tax. Many of these are held by rich people so yes, the rich will carry the burden. But do note that your pension plan also holds the same assets and your pension plan will fall by the same amount as those shares and bonds of the rich.

So, this is, in part, a tax upon your pension. However, the IMF goes on to point out that that is only the short term effect. The long term is something different:

How much overall investment would fall as a result of the STT would depend on the relative
elasticities of capital supply and demand. In a small, open economy, the after-tax return on
capital is determined on the world market. In response to imposition of the STT, capital
would flow out until its after-tax return was restored to the world market level. In the long
run, capital owners would therefore not bear the burden of the STT; it would fall on workers, who as a result of the smaller capital stock would be less productive and receive lower
wages. If, however, the capital supply is less than perfectly elastic, the STT will lower the
return on capital, and capital owners will share the burden of the tax with workers.

So the tax will lead to lower wages for everyone. Isn\’t that just lovely?

Nicolas Sarkozy\’s insistence that revenue should be used to help the poorest, the hungry and those hit by floods and other extreme weather episodes linked to climate change has been particularly important.

Well, yes, but we\’ve another problem here. What revenue? What extra revenue is that?

As the EU\’s own report points out there will be some income from this tax, yes. But the tax will also cause the economy to contract. Meaning that we get less revenue from all of the other taxes. And as the EU\’s own report goes on to say, the net effect on revenue will be negative. The FTT will actually *reduce* the amount of tax collected.

So, to recap: the Robin Hood Tax will reduce pensions, reduce wages and won\’t in fact raise any money. Could someone remind me why anyone wants to do this again?

George Wright

So this George Wright fella, found in a village in Portugal.

I used to cycle through that village occasionally, when we lived up near Lisbon.

It\’s a lovely part of the world, that does have to be said.

No, I\’ve no stories of cheerful waves from an elderly black man or anything.

Umm, bit boring really this piece of news, isn\’t it? \”Almocageme, nice place\”.

Sr. Barroso speaks out!

He added: \”It is a question of fairness. If our farmers, if our workers, if all the sectors of the economy from industry to agriculture to services, if they all pay a contribution to the society, also the banking sector should make a contribution to the society.\”

Oh, right. Hadn\’t thought about it like that before.

Umm, farmers pay tax upon their profits, workers on their wages. Banks pay tax upon their profits, bankers upon their wages.

So, the justification for a special extra tax on the banking sector is the same as the justification for that extra, special, tax upon every transaction in food and every pay cheque in the continent then, is it?

You know, those two taxes that don\’t exist?

BTW, as to the actual effects of this tax, assume that they go ahead and introduce it in the eurozone and not in London (Barroso has threatened the first and Osborne insisted on the second). Go short Frankfurt property and long London basically. What will happen to the European derivatives markets will be what happened to international $ bond financing in the 60s. It\’ll all move to London.

As far as The City is concnerned this is a real Br\’er Rabbitt moment. Oh, no, please don\’t introduce this tax only in the eurozone, oh, no, please don\’t!

Timmy on your radio

For those with World Service on your dial I should be, barring mishaps, on at 4.30 on \”Business Daily\”.

We\’re going to be snarling about the end game of the euro/Greek default etc.


Update: Oops. sorry, that was when we were recording for broadcast Friday.

The European FTT: The flaw in the plan


The EU seems to have agreed that it cannot legally apply it to FX transactions. Some of you know the markets much better than I do. I have a feeling that this means that everyone will just create synthetics which include an FX transaction and thus the tax will raise nothing.

Your comments please? Mark T? The others that work in the markets?

Oh dear Eoin


I have spoken before how oil prices have climbed 400% in the last ten years for UK customers. But I am struck by how little coal prices have increased.

You\’re using the wrong numbers laddie.

We in the UK don\’t in fact use oil to generate electricity. Well, a tiny bit, the very last tippy top of 1% of demand because oil fired stations can be spun up quickly.

But comparing the price of oil derived electricity to anything else is simply silly because we don\’t in fact have much oil derived electricity.

Gas versus coal is interesting, certainly, but then that find in Blackpool is going to rather change those relative prices in the near future……

Not quite le mot juste

The event is expected to be Tim Cook\’s first outing as chief executive

Not really, given the little spat over whether Tim\’s choice of sexual partner was something we should all celebrate and point to or simply ignore as it\’s just not important any more.

Erm, Polly?

You on Ed:

To stop giving government contracts to asset strippers such as Southern Cross that buy and sell your granny was no more than common sense.

A Our Man in York has pointed out:

We know the answer for market processes: bankruptcy and loss of investment, followed, normally, by a reorganisation of the assets. Again, the norm is that this is done by those \”asset-stripping predators\” Miliband so hates. They buy the assets at a distressed price and then put them to better use. In the case of care homes, there\’s not much you could do to change the use, so the acquirer simply tries to run them better than their predecessor.

We have seen the market processes in action quite effectively with Southern Cross. I would hazard to say that, in fact, so far from being a black mark against private-sector care, this is a positive sign, showing responsible error-handling by market participants.

Or, for those hard of understanding. The solution to Southern Cross was asset stripping.

Company has a bunch of assets. Contracts to run care homes, staff, systems etc. Company screws up on how they run them (specifically, S. Cross messed up on whether to own or rent the homes themselves and the contracts by which they did so).

So, what happens next? The asset strippers move in. The contracts to run care homes are reassigned, the staff moves to another employer. We have, or various people have, stripped the assets from S. Cross.

Granny is still being cared for in the home which she lives in. Nurses, carers, bed pan emptiers and cooks are still turning up to work. Buildings are still there.

All that has changed is the ownership and management of some of these assets: they\’ve been stripped out of the previous hulk and insterted into new formations.

Or, for the seriously hard of understanding: asset stripping is a reaction to failure and it\’s a reaction to failure that works very well indeed.

Just think what would have happened if the asset strippers had not existed.

So, S. Cross goes bust and all the contracts lapse. All the staff are laid off. All the contracts to run care homes cease. Food stops being delivered. Adult nappies are no longer changed. Tens of thousands of elderly are left rotting and starving.

Umm, isn\’t it better that some sharp cookies buy into these assets, strip them, than this happens?

Can these people do logic?

Karol Sikora is an extremely eminent man. Clearly bright. But somewhat lacking in logic:

The fact that the populations of the Western world are ageing, together with our increasingly unhealthy lifestyles, is dramatically increasing the incidence of cancer.

If we are all living longer then we do not have increasingly unhealthy lifestyles. Increasingly unhealthy lifestyles would show up in our all living fewer, not more, years.

This is just simple, basic, logic.

The other more basic problem is that when discussing the costs of the new cancer drugs no one seems to be looking at the patent system.

No, I don\’t mean whether this is the right way to research or pay for the research into new drugs. Rather, that by definition, these new drugs are not going to be expensive forever. It isn\’t some huge cost that is forever going to rise: it\’s a bolus of costs passing through the system, like a pig through a snake.

Because patents run out, the development costs (those hundreds of millions on the Phase III trials mostly) have been paid…..or not paid for an unsuccessful drug but that\’s Big Pharma\’s problem…..and these drugs now out of patent can be priced at or around their average production cost, not above their sunk cost.

The drug which is patented today becomes cheap in 17 years time. The drug which is approved today after trials is likely to be cheap in 10 years time (yes, patents run from time of patent, not time of approval). Herceptin comes off patent in 2015 or so: so all our arguments about the high cost per month of life gained change around and about then.

The same is true of all these other expensive drugs.

Someone, somewhere, whether through patents, direct taxpayer subsidy, auctions, prizes, whatever, needs to pay these development costs. Once they\’re paid all of these treatments are going to get a lot cheaper which really does change all of the calculations that we\’re making.

And what annoys me is that this basic fact doesn\’t seem to enter into the public conversation.

Herceptin may or may not become as cheap as aspirin: but it sure as hell ain\’t gonna stay at $100,000 per treatment per year.

Of course

Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is \”scaring the world\”.

\”It\’s always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government,\” he said.

Because of course when you\’re giving economic advice to others you don\’t have to worry about the politics.

Geithner doesn\’t have to consider being lynched in the streets of Berlin if the Germans have to pay for everyone else.

Ed Miliband, the outsider

In his address to the Labour conference he said he was “up for the fight” and promised he would restore that trust. The party leader claimed he was “an outsider”

This is what counts as being an outsider in today\’s Britain is it?

Born in London, Miliband graduated from the University of Oxford and the London School of Economics, becoming first a television journalist and then a Labour Party researcher, before rising to become one of Chancellor Gordon Brown\’s confidants and Chairman of HM Treasury\’s Council of Economic Advisers.

Son of a Marxist intellectual, intern to Tony Benn as a teenager? Some sort of wonky fiddle on inheritance tax and houses which I\’ve still not understood? Apart from that brief (how brief?) time as a TV journo, never actually had a job.

This, this is an outsider these days?

What in buggery did that make Maggie then? Or Heath, Major?

Even Johann bloody Hari has a better claim to have been an outsider.