February 2014

Ritchie on Chinese debt

Too good to miss this one:

There are now three credit cards for every Chinese mainlander.

I believe in the need for credit, but I also believe in the control of credit. This looks out of control.

There’s a lot of potential for this to end in tears.

Comment one:

Not sure you are reading that right.

I see number of credit cards to be about 200 m units, so 1 in 6 mainlanders has a cc.

For debit cards then yes it’s 3 for 1

Ritchie’s response:

I am quoting the FT

The FT:

Ten times more of them are debit cards than credit cards (3.8bn compared with 391m), but credit card issuance also rose by 19 per cent in 2013, and Euromonitor predicts credit card usage will grow faster than that of other cards over the next five years.

Wondrous, no?

We all make errors of course but the refusal to even check when one is drawn to attention is what so impresses.

Would Starbucks pass the Fair Tax Mark?

So Ritchie asks us to pitch in with ideas for the multinational version of the Fair Tax Mark:

If anyone wants to suggest methodology they’re welcome to do so but remember the focus is on:

tax policy
transparency about what the business does
tax accounting
disclosing tax avoidance


And this is appended to a piece that states the following:

Much of Starbuck’s good work building up a positive corporate social responsibility profile over sustainability and support for fair trade products was undone when it was revealed to have paid no tax for 14 out of the 15 years it had been operating in the UK.

Excellent. So. let us consider whether Starbuck’s would gain any conceivable version of the Fair Tax Mark?

I think it’s fairly obvious that they would not given that the entirely manufactured furore about their non-payment of tax is being used as a justification for the existence of the Fair Tax Mark.

However, this is something of a problem as Starbuck’s really was making a loss and their accounts did indeed reveal everything that was necessary to check this. There were really only two things out of the ordinary at all. The first was payment of royalties for the brand name into a Dutch company. This is entirely normal practice, indeed we’ve EU law to tell us that it’s illegal to try and tax such payments at source. Hell, HMRC even reviewed the rate and it was adjusted to one they would prefer.

The second was the payment of a 20% margin to the coffee bean purchasing operation in Switzerland. Again, there’s nothing unusual or even dodgy about this. Some money should be paid as margin to a bean purchasing organisation. Not to do so would of course be manipulating transfer pricing regs. For any arms length supplier would clearly be trying to charge a margin on its services: thus a wholly owned one should as well.

All of this was entirely obvious in the accounts. As was the fact that even if you adder these back in then the UK arm was still making a loss.

Which brings us to an interesting question. If a company that had clear accounts, was not dodging tax, a company like Starbuck’s, would not get the Fair Tax Mark, then what use is said Mark? And if it would get it then how can anyone be using Starbuck’s as an example of why we need said Mark?

A not very well thought out solution to the Ukraine

Yes, yes, we all know, Western, Uniate, Ukranian speaking, eastern, Orthodox, Russian. Fatally divided country etc.

However, Crimea is the one part that is really Russian dominated (a result of the expulsion of the Crimean Tatars by Stalin) and it’s also the one part that has never, historically, been a part of the Ukraine. Only became so in 1954.

So switch Crimea over to Russia. What the hell….the end result being that Ukraine becomes a majority Ukrainian/Uniate/state…….umm, I think. It would actually reduce Russia’s argument about being the Big Brother of the remaining state.

Or perhaps I shouldn’t be doing this realpolitik sorta stuff?

In which we prove that Britain is a Catholic country

The old definition of being a Catholic is that one feels guilty.

Italian men are in joint pole position with their French cousins, with 55 per cent of males from both countries saying that they have had sexual relations with a woman other than the person they were in a relationship with.

British men scored far lower, but were shown to be no angels, with 42 per cent of them saying they had had an affair, according to the survey of nearly 5,000 people in six countries.

Sure, it’s a survey by a married dating site. And the results seem to show that the Catholic countries have more straying than the Protestant. The usual reasoning given here is that in the Catholic countries there’s less divorce but much the same amount of shagging about. It just gets expressed differently: serial monogamy in Protestant countries and affairs in Catholic.

But wait!

About half of British respondents who admitted infidelity said they regretted it, while only 28 per cent of French did.

This shows the opposite. That guilt thing: Britain is a much more Catholic country than France. We Recusants should obviously celebrate even thought this isn’t quite what Cardinal Hume was hoping for hen he prayed for the Conversion of England.

The State is not your friend

The sense of anger is exacerbated by geographical anomalies. Half of pensioners who live abroad – those in France, Spain and the US, for instance – receive annual increases to their state payments.

But others in South Africa, Australia, Trinidad, New Zealand, Canada and nearly every other Commonwealth nation do not.

Some pensioners in these regions in their 90s receive as little as £17 a week; one 102-year-old receives less than £7 a week.

Creating a level playing field is deemed too expensive by the Government. It would cost £590m to “unfreeze” the pensions for the next year.


That you’ve paid in for 40 years to a contributory pensions matters not. If they need the money to pay for duck houses then that’s what they’ll do.


And seriously, there is no justification for this at all other than that they prefer to do other things with the cash. All the explanations they offer are just weaseling around this simple fact.

Ritchie on the IMF paper

This will, of course, be a complete shock to neoliberal economists. The whole logic of their approach is that without the differential of inequality then there is no incentive for growth. This study shows that is not just not true, but that the reverse is true.

Actually, to anyone with an understanding of both human nature and economic reality (neither apparently possessed by neoliberal economists and so absent from the assumptions which automatically lead to the conclusions of their work) this finding is glaringly obvious.

Wondrous. He takes a paper that says that modest action to remove glaring inequality is a pretty good idea and then uses it to insist that therefore we should reduce all inequality.

It’s worth noting that the database used in the paper does not include the Soviet block, either the USSR in the 1920s or Eastern Europe post WWII. You know, when very strong efforts were made to reduce inequality and these had something of an impact upon growth?

It gets better though:

Let’s deal with the economics first. Reduced inequality inevitably means a broader base of ownership for capital. That means more people have access to opportunity to create businesses and unsurprisingly increased growth will follow.

The IMF paper is a study of income inequality, not wealth inequality. Thus access to capital has nothing to do with it at all.

Drivelling cocknobbery

Packets of ten cigarettes will be banned in the UK by 2016 after the European Parliament voted in favour of tough new anti-smoking rules governing the tobacco market.

The raft of new measures also include the introduction of mandatory picture and text health warnings covering about two-thirds of cigarette packs in an effort to reduce the number of smokers by 2.4 million.

There will also be a ban on flavoured cigarettes such as menthol varieties.

And just to show that these people really are drowning in their own syphilitic puss there’s this:

a maximum nicotine-concentration level for e-cigarettes.

Limitations on the most effective known method of people stopping smoking?

And, may I ask, what the hell has this got to do with stopping Germany from invading France again?

And I am back at Forbes

Now in the Op/Ed department to talk about economics and finance rather than going on about tech stuff.

In this first episode, riffing off Bryan Caplan about whether the welfare system subsidises workers or employers.

In the UK it’s that everything except tax credits goes to the worker, while some part of tax credits probably does go to hte employer. But there’s a twist to it as well!

Ritchie is complaining about charities being political

The consequences are obvious, but to take a simple example, the deeply right wing Institute for Economic Affairs is a charity because it, apparently, does not offer political opinion and yet to question the role of the market is, apparently, political. The dichotomy is obvious, unless of course, you’re a neoliberal. Then it’s natural.

This from a man who gets £35k a year from a charity to be political?

This is absolutely fascinating

From someone wibbling in a guest blog at Ritchie’s:

Ignoring for a moment Barclays role in the recent LIBOR scandal and its impact on public finances, the real public procurement issue appears when we explore Barclays corporation tax profile, and the implications of tax avoidance on public sector finances.

Local government is reliant upon central government grants for its survival, so you might think that Barclays paying a shockingly low 1% effective tax rate on £11.6bn UK profit in 2010 may be cause for alarm within public procurement circles. You would be wrong.

Justin Thompson, Director of Social Inclusion, Knowsley Metropolitan Borough Council said that: “if you can’t measure it, from a procurement perspective, it doesn’t exist.”

Justin is correct. Through my procurement research, I knew council banking procurement is completely silent on tax avoidance and the use of tax havens. As councils do not measure corporate tax avoidance within procurement, they effectively pretend it does not exist.

As the session was opened up to questions from the floor, I asked Nick Starkey how we could take social value commissioning seriously, whilst public procurement frameworks continue to ignore the glaring issue of corporate tax avoidance by firms like Barclays, which robs councils including Oldham of the taxes required to fund basic services including schools?

Starkey’s response was that he would need to take the issue up with HMRC.

With brutal 34% austerity cuts to council funding since the 2008 banking crisis and 2010 budgetary review, anger at the banks runs deep within local government.

A motion for a UK Robin Hood Tax on financial transactions has now been passed by 46 UK local authorities, where the proceeds of the Robin Hood Tax would fund struggling public services impacted by austerity cuts stemming from the banking crisis.

In the past fortnight, a new campaign known as the ‘Fair Tax Mark’ has launched to attempt to reframe the tax debate, by promoting the payment of fair taxes as a badge of honour, and point of differentiation vs tax avoiding competitors.

There is no industry where a Fair Tax Mark is more urgently needed than the UK banking and financial services sector, where corporate tax avoidance is not only the modus operandi for the banks themselves, but a highly profitable consulting business.

I well recall that Barclay’s tax bill.

The reason that the bill was low was because Chuka Umunna (yes, it was he) was comparing the UK corporation tax bill against global profits. And there were a few adjustments that needed to be made. For example, Barclay’s made a vast profit (some 50% of all of them) by selling off a subsidiary. On which they gained the substantial shareholding exemption (SSE, the same thing used by The Guardian more recently). Something specifically brought in by Gordon Brown so this was within both the letter and the spirit of the law. There were also tax losses from previous years to bring forward: again, entirely spirit and letter of law stuff. Further, there were taxes paid to other governments abroad where Barclays had made profits abroad.

All leading to Barclays having a small liability of UK corporation tax. And the thing is none of this was about evasion, avoidance, tax abuse or anything else. It was the straight and strict application of both the spirit and letter of tax law.

Which leads to an interesting conclusion. That Barclay’s tax bill would almost certainly pass the Fair Tax Mark. Yet it is that very bill itself that is being used as the justification for why there should be a shakedown operation Fair Tax Mark in hte first place.

In which I reveal that I’m a coward

Alice Herz-Sommer, who has died aged 110, was a pianist whose unending optimism came to symbolise the triumph of good over evil. She survived two years in Terezín, the “model” concentration camp used by the Nazis to convince the outside world that they were treating Jewish prisoners well, and at the time of her death was the oldest known Holocaust survivor.

Terezin is just down the road from where I’m working in Bohemia. And just up the road, over the border in Pirna, is the first of the “hospitals” the Nazis used to liquidate the disabled. Both are well run museums these days and being in this part of the world I really ought to check them out. But I’m afraid that I’m too much of a coward.

A couple of decades ago I went to a small museum in Prague. Based upon the toys that children (in Terezin I think) had left behind after their liquidation. I simply burst into tears at the evil of it all. Blubbered as if I too was 4 again.

Just not got the courage to go through all that again.

So Mt Gox has gone bust then, eh?

It’s all over the interwebs, the Mt. Gox bitcoin exchange appears to have gone bust. This will be an interesting test of whether I was wrong about bitcoin or simply wrong too early.

Worth pointing out the real problem that bitcoin solved. Which was how do you make sure that someone doesn’t spend a digital currency twice? That blockchain and the calculation of it was that method. Unfortunately, there seems to have been an error in there and it was possible to spoof the exchange (certainly Mt. Gox and possibly others) so that said bitcoins could indeed be spent twice. No, leave the technical details aside, that is really what happened.

As a result there’s a hole of 700,000 bitcoins or so inside Mt. Gox and this is something like 6% of all bitcoin in existence.

OK, break the bench and start over.

But this is where I think it all gets interesting. Some are saying that this will knock the confidence out of bitcoin and thus the grand experiment is all over. Unless, of course, confidence is quickly restored. There’s at least one document floating around suggesting that large holders of bitcoin should chuck a few into the pot in order to fill the hole. Which seems fair enough: if confidence is lost then the price falls: better perhaps to have 94% of your holding at a $500 valuation than 100% of it at a $1 one.

Could be, could be. But as I say I think this is where it all becomes interesting. I’ve long been of the view (whether because I’m wrong or because I was right too early) that it’s all going to end in tears. And the crucial point is, I think, about whether it is indeed confidence alone that is supporting bitcoin.

To make a digression: fractional reserve banking is a very silly system in many ways. Certainly there are innumerable people who have abused said system over the centuries. And vast numbers who have gone bust by doing so: others who have gone bust not by abusing it but purely through the bank runs that the system is liable to.

However, every time the system crashes and burns it is rebuilt. For despite its logical silliness it’s an incredibly useful thing for people to use. So much so that despite those repeated crashes and burnings we keep shoring it up again and starting the whole process over again.

And that, I think, is going to be the interesting test for bitcoin. Does this knock in confidence kill the whole thing? Or is it indeed such a useful tool that we gloss over the failure as part of the experimental process and thus full speed ahead anyway?