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November 2011

Pedantry question on titles

Some Tories believe that Cameron\’s attachment to the nobility will resurface when he no longer has to face the electorate. They believe that when he eventually stands down Cameron will revive the tradition of granting an earldom to a former prime minister. The Camerons would become the Earl and Countess of Witney, the name of his Oxfordshire constituency.

This is the opposite to Maurice Glasman\’s thing about wanting to become Baron \”of the City of London\”.

He couldn\’t because the City has, in matters of honours and precedence, the status of a County. Which his far too grand for a mere Baron to be of.

However, Witney might be somewhere too small for someone to be an Earl of. A Baron, yes, but an Earl? Two entire steps up?

Looking back, Earl of Stockton (Macmillan), but Stockton is much larger. Before that with PMs, Earl of Avon (umm, bloke with mustache), Earl Atlee (no geographic assignation) and pre-war I don\’t know about.

He certainly can\’t become Earl Cameron, half the Highlands would kill the other half over that.

So, if the Boy Dave does become and Earl, what would the Garter King at Arms (think he\’s the right bloke to decide this) allow him to use as his title?

Actually, might be Clarenceux who makes that decision.

Strange but true story: I once woke up to find the wife of the then Clarenceux asleep on my sofa. I\’d rented out the spare bedroom of my flat to a student from the university: deal was, no rent, but keep the place tidy, general light housework. Mother had come to make sure that\’s all there was, this wasn\’t to be an introduction to night time creeping.

Still not understanding the cost of housing

So we\’ve this lovely piece on self-build housing.

Building costs in Almere vary depending on how much the buyers do themselves, but she says they average from €800 per sq m to €1,800. That\’s around £72,000-£160,000 for someone wanting the same sort of floorspace as the typical British three-bed semi (around 105 sq m).

Yup, that\’s about right. Have done something with very similar sums down here. Although 105 sq m is pretty bloody small as floor space for a 3 bed house (ie, two floors). In fact it\’s tiny.

However, here\’s where they go off the rails:

Keeping homes affordable is key to the Homeruskwartier project, which means creating plots for self-build flats as well as houses. Tellinga cites one group of 25 individuals who built a block of flats. Including the plot and building, the cost of each flat was just £69,000, without any subsidy. Cutting out the developer\’s profit – and those expensive marketing suites – saves a small fortune.

No, that\’s not what reduces the costs, not at all.

Deon Lombard, an architect from Twickenham, is sceptical that the Dutch approach will work in Britain because of the \”stranglehold, inherent conservatism and lack of vision in the British planning system\”.

His own repeated attempts at self-build have fallen foul of Richmond upon Thames planners and the Planning Inspectorate, leaving his plot of land, purchased in 2001 in the hope of building a family home, lying fallow.

That\’s it.

They are comparing the cost of building a house once you have managed to gain planning permission with hte cost of a house including the cost of having to gain planning permission.

And, as we know, planning permission has a scarcity value.

So, if you really wanted to make self-build part of the solution (and why not?) what you would do is simply say that if you\’ve a plot of land that\’s roughly around and about where we\’d be happy for someone to build a house (ie, not in the middle of Hyde Park) and you own that piece of land, well, get on with it then. Have fun.

Ah, yes, silly me, I\’d forgotten. That is what the Coalition is trying to move towards (however hesitantly) and My God aren\’t people screaming about it?

Pedantry alert!

Italy had to pay record rates in a €10bn bond sale,

Hmm, those were 6 monthers that they sold.

So, if we adopt the terminology of the US markets, these were not bonds, they were bills (bills under 1 year, bonds over what is it, 5 or 10 years, notes inbetween?).

So the question we pedants want to know is, do we actually use the same terminology in the euro markets as in the US?

Are these bills or bonds?

Yeah but no but yeah but

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So if the euro breaks up, where are those currency values going to go?

As Jeremy Warner points out, they\’re not actually that far out of whack.

Except these are the numbers against the US$. Given how much more the eurozone economies are integrated with each other than they are exposed to the $, what really matters is the numbers relative to each other. To life as it is lived at least.

A 25-30% devaluation of the peseta against the DM…..well, that might actually help quite a lot. Get the Germans buying cheap Spanish property again maybe?

However, it also shows the problem of the mechanics of the break up. If we all knew that the peseta was going to devalue by 30% next week then there wouldn\’t be any euros left in Spain, they\’d all be in Germany, waiting for the devaluation.

Which is something of a problem.

An interesting High Bonneville sighting

Good to see Hugh Bonneville making a rare public appearance with his wife, Lulu. The couple, who married in 1998, attended the first night of Matilda.

The West End musical, which is staged by the Royal Shakespeare Company, will have brought back happy memories for the actor, 48, who began his career at the RSC, where he starred in such productions as \’Tis Pity She’s a Whore.

Bonneville, who later appeared in Conspiracy of Silence, is looking forward to the third series of Downton Abbey. In the last, his character, the Earl of Grantham, was overcome by passion for a woman in his pay. Naughty boy.

He does seem to be a favourite subject of the Mandrake column, doesn\’t he?

When satire reveals truths

Excellent. A higher marginal propensity to consume among retarded Americans is precisely what is needed to get us out of this slump. I see this as a strong buy signal for stocks.

If you don\’t believe that then you\’re not a Keynesian.

Collecting *All* The Tax Would Make Us Poorer

So here\’s an interesting little idea.

Yes, we\’ve a new report out from our retired accountant from Wandsworth today. About the huge amounts of tax revenue that are lost to governments as a result of the grey economy….the legal activities but illegal because they\’re not paying tax, not the black economy which is illegal activities whether they pay tax or not….

And now we need to introduce Richard to the most important part of neo-classical economics: marginalism.

Forget all about the rest of neo-classical econ for a moment: rational agents, blah blah blah, and think on just this idea that things happen at the margin. The arrival of neo-classical economics was after all called the Marginalist Revolution.

Now while we\’re thinking about this we can see that it\’s obviously true. For example, we know absolutely that the first beer is worth more to the consumer than the 38 th of the day. We also know that it works the other way, with costs as well. Cleaning up the first 10% of pollution is simple (just tell people to shit in holes) while cleaning up the last 1% of pollution is impossible (things just will turn to dust, whatever you try and do about it).

Excellent, these same thoughts can be turned to taxation. Getting the first bit of tax revenue is simple. There really are law abiding people out there who just love to give money to the State. Last time I looked there were actually 5, four of whom were dead, who sent extra cheques to the Treasury. Getting the last bit of tax revenue is harder: there are always accountants out there who perform income splitting, dodge employers\’ NI by paying low salaries plus taking dividends, even those who blatantly refuse to pay business rates on the spurious grounds that they don\’t actually owe them.

And there is one more concept that we need to introduce: the deadweight costs of taxation (good paper here). Deadweight costs are that economic activity which does not occur because we\’ve imposed the tax.

The concept is obvious: we deliberately impose taxes on fags so as to reduce the number of fags smoked. The same is true of just about every other tax (except LVT!). Tax something and you get less of it.

Excellent, so, now let us put together our marginal idea, our marginal costs idea, with deadweight costs of taxation.

As tax rates get higher we would expect those deadweight costs to rise. (See paper already mentioned.) We would also expect those activities which currently dodge taxes to be more sensitive to such deadweight costs than those that do not so dodge. This again is obvious: people are taking risks in dodging so the economic activity they are undertaking must be more sensitive to deadweight costs than activities where people happily pay up.

So, we\’ve deadweight costs (read paper!) estimated at anything from 8% of revenue raised to 50% and more of it. Depends upon the tax, the activity, whether we\’re talking about average or marginal etc. And for the reasons that we\’ve already discussed we\’d expect our currently tax dodging activities to be at the higher end of this spectrum (which actually goes rather higher than 50%).

So, what does this mean? It means that, assuming the logical and empirical chain of reasoning above is correct, that there\’s a level of grey economy, of illegally untaxed activity which we should simply put up with. For to insist upon taxing it would make us all poorer.

For, from Ritchie\’s paper, we can see that the average tax as percentage of GDP in European countries is 38.9%. Let us imagine that the sensitivity of currently untaxed activities to taxation is 40%. So, we go off and collect, on the next £10 billion of economic activity, our 38.9%. We get £3.89 billion in tax revenue.

Well, actually, no we don\’t. For by taxing it we\’ve reduced that economic activity by 40%. So, when taxed, there\’s only £6 billion in activity. We actually get £2.33 billion in revenue. But economic activity has fallen by £4 billion.

We\’re poorer overall.

We\’d be better off just not worrying about what those criminal bastards, the tax dodgers, are doing over there in hte last 10-15% of the economy. We\’re made richer by ignoring it.

Which is where our retired accountant goes wrong: he just doesn\’t, ever, bother with the economics of things.

NB. I do not say that the sensitivity of the next £10 billion of the grey economy is 40%. But only that there will come a point when it is.

We\’re doomed. @richardjmurphy is the UK\’s No 1 economics blogger

Unpacking this little piece from the UK\’s number 1 economics blogger:

The answer is that it matters for three reasons. The first is that we wouldn’t have a world economic crisis now if we hadn’t had tax evasion. The current crisis focuses on the Euro. Italy is at its epicentre. It has external debt of €1.9 trillion. If only it had suffered the UK’s rate of evasion in the last decade then its deficit would be less than half that sum now.

Lesse, Italy\’s external debt is around €1.9 trillion. Yes, yes it is, so says the Bank of Italy.

It is also true that Italy\’s government debt is around €1.9 trillion.

But external debt and government debt are not the same thing, are not the same thing at all. Look at the Bank of Italy report: about €825 billion of the government debt is external debt.

The majority of government debt is in fact owed to Italian households and financial institutions: something we already knew in fact for it\’s referred to often enough.

The rest of the external debt is borrowing by banks and companies etc: something which the rate of tax evasion or not has absolutely nothing at all to do with.

So, we\’ve the UK\’s number 1 economics blogger getting terribly confused over government debt, something at least potentially amenable to a change in the rate of tax evasion,  and external debt, which is something very different indeed.

Then of course there is the schoolboy howler there. The use of the word \”deficit\”. Which, as any fule kno, is the annual addition to the stock of government debt, not the stock of government debt itself.

If this is the level of knowledge of the UK\’s number 1 economics blogger then we\’re all entirely screwed, doomed, aren\’t we?

@richardjmurphy\’s new report

On tax evasion around the world.

Impressive number crunching but sadly there\’s a logical hole in it.

His method has been to take the average tax rate, the size of the shadow economy and then multiply one by the other to give the amount of tax evasion.

But that is making the assumption that all of that economic activity would have taken place if it were fully taxed.

Which is an entirely unwarranted assumption. In fact, it\’s not just unwarranted, it\’s an entirely incorrect assumption.

It is absolutely true that some portion of that economic activity simply would not exist if it were taxed in full at the usual rates.

We even have estimates for what this is: it\’s the deadweight cost of taxation. Which is, by definition, the economic activity that does not take place because we\’ve slapped a tax on it.

A reasonable rule of thumb is that the average deadweight cost is around 20%. That is, £1 raised in tax causes a contraction of 20 p in economic activity. That\’s a US, therefore pretty low tax, sort of place too. The marginal effect is thought to be more like 30%, again a US number.

And of course, we would expect the effect on those things that are already being done to dodge tax to be higher. For people are already taking the risk of fines and prisons to indulge in that economic activity but free from tax.

Wouldn\’t be at all surprised to find that the marginal deadweight cost of taxing those economic activities which are already dodging tax is well over 50%. Would be surprised but not shocked if it were over 75%.

So, take the numbers he\’s giving with a pinch of salt.

An amusing @richardjmurphy note

When I did a little report on the FTT I was taken to task thusly:

Third Worstall assume that marginal rates of tax in Europe are between 40% and 50%. That’s not true. Average overall rates in Europe are less than 40% based on research I will publish very soon and since most tax systems are regressive at the higher end where the impact of this tax is likely to be rates should be lower than he forecasts. That’s lazy on his part.

In Richard\’s report of today we get told what the average tax rate is in Europe (page 3):

38.9%

And anyone at all who believes that marginal tax rates are going to be lower than average tax rates really should hand in their accountant\’s secret decoder ring at once.

On Tackle Tax Havens

It\’s the secrecy which does it you know. If only things weren\’t secret then kittens would gambol freely in the Sun, unicorns would poop rainbows and all would have a pony.

www.domainsbyproxy.com
\”Your identity is nobody\’s business but ours\” 🙂

whois tackletaxhavens.com
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[Redirected to whois.godaddy.com]
[Querying whois.godaddy.com]
[whois.godaddy.com]

Registrant:
Domains by Proxy, Inc.
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Scottsdale, Arizona 85260
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Registered through: GoDaddy.com, Inc. (http://www.godaddy.com)
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Technical Contact:
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United States
(480) 624-2599      Fax — (480) 624-2598

A terrible thing, secrecy (Ta to Simon R)

Strange

Trains, planes and ferries were at a standstill today as Portugal held what unions said was the biggest general strike for 20 years, with factories shutting down and the former president Mário Soares urging people to fight \”international financial anarchy\”.

I didn\’t actually notice a thing.

Nothing around here was any different at all.

This is a problem with the \”Spirit of the Law\” stuff

But perhaps the biggest sin of the lot was effectively to render all credit default swaps (a form of insurance against default) on sovereign debt essentially worthless, or void, by making the Greek default \”voluntary\”.

This has made it impossible to hedge against eurozone sovereign debt purchases, and thereby destroyed the market. Worse, it\’s made investors believe that the euro cannot be trusted, that it\’ll repeatedly find ways of reneging on contract. That\’s the point of no return. This is no longer a serious currency.

Yes, I agree, that\’s about CDS contracts, not taxation or anything like that.

However, it does show what actually happens when you do what you think politically correct, what accords with your view of the spirit of the law, rather than what\’s actually written down there in the law.

No one trusts you not to keep doing what you think politically desirable instead of what\’s actually written down in the law.

And yes, society, the economy, our modern world, do rather depend upon trust.

The eurozone\’s screwed then

Mrs Merkel said treaty changes would \”make clear that we must take steps toward a fiscal union to express the conviction that we know policies must be more closely coordinated if you have a common, stable currency.\”

\”It is political confidence in Europe that has been lost – we can only win it back politically,\” she added.

No love, it\’s a financial, banking, problem now, not a political one.

An interesting question

Under the Youth Contract, 160,000 workers aged between 18 and 24 will have half their wages paid for the first six months. The scheme will only pay half the minimum wage – worth £2,275 – to employers who will then make up the difference.

Wouldn\’t just halving the youth minimum wage achieve the same effect?

Discuss.

Ritchie in the Labour Left book

This is actually rather fun.

By that I mean Labour needs to begin talking about taxes as if they are a good thing
 –
 because that is true. Tax is what pays for so many things in life that we too easily takefor granted but which are essential to us all, like the NHS, education, pensions, socialwelfare, social housing, law and order, job creation, the fire service, defence and somuch more. These are things to celebrate. And in that case we should celebrate the taxthat pays for them and make clear that Labour does not apologise for tax: it thinks it isa good thing.
It\’s just so strange that an accountant cannot get costs and benefits right.
Sure, (some) of the things we get from the spending of taxes are just lovely to have. But the taxes that have to be charged are clearly a cost.
There is always thus a tension between the cost of the taxers that have to be raised and the benefits of the things that we get from the spending of the taxes that have been raised. Stating that tax, in and of itself, is a good thing is to ignore this really rather important distinction. A distinction that you\’d expect an accountant to really rather grasp.
Another way of putting it is that everyone, including Ritchie, agrees that some things that tax money are spent on are not worth the pain of the taxes raised to provide the money to spend. Take profits to people building PFI schemes for example: Ritchie is spitting with rage about that. He doesn\’t think that that what we get from such PFI profits is worth the cash being handed over. That is, that the costs of collecting the tax are not worth the benefits we get from the tax being spent.
I think the same about subsidies to luvvies: no doubt you\’ve your own pet hates as well.
But this is just a lovely typo:
That might seem like a statement of the obvious, but it is a philosophy very different from that promoted by thinking over the last thirty or so years.
All those people who have been thinking for 30 years. Obviously wrong, the lot of them. What he means of course is \”promoted by the thinking of the last thrity years\” (ie, the bastard neo-liberals) but that\’s not actually quite what he says.