No Ritchie, no, it isn’t

Wealth is not a measure of value – how much the nation is worth – but a measure of how much it makes.

Wealth is a stock. What the nation makes is a flow. Wealth is the net present value, the stock, of all future production, the flow.

And I’m really sorry here but if you’re going to start out your analysis of the fundamentals of the economy with such a howler might I suggest that you stop for a bit? So that you can go and catch up on those undergraduate studies of economics you insist you never paid any attention to?

And it has to be remembered that the vast majority of businesses in the UK are small. A policy for big business may well not be a policy for business as a whole. The aim has to be the creation of wealth from work right across the board.

Progressive taxation – both in rates and in the choice of what is taxed and how – can help that.

Shifting tax from work onto wealth accumulation and speculation can also help that.

Nope, wealth taxes are known to be more destrutive of economic growth than income taxes. And transactions taxes, like your FTT, more than either, consumption taxes (ie, VAT) less than any of the three. This isn’t one of those bits that is negotiable.

Growth is a macroeconomic issue. It comes from four sources: increased consumption, investment, exports and government spending. There are no other sources.

Nope, growth is a microeconomic issue. In the long run the only real source is an increase in total factor productivity (we’re long past the stage where simple more consumption of inputs is going to make much difference). And increases in TFP come from entrepreneurs, managers and workers figuring out how to do things more efficiently. This isn’t a macroeconomic issue.

Almost all economists now agree that a more equal society is good for growth:

Nope. Almost all economists would agree that some inequality is an essential perquisite for there to be growth. And the standard view about reducing inequality is that a modest amount of such can indeed be good for growth, too much will be bad for growth. The definition of modest appears to be moving the Gini by around 13 points. Roughly what the UK does today.

I think I will be busy.

And this post has only scratched the surface of this issues that will need to be addressed.

And we think you could usefully employ yourself in graspiong the basics of the subject you are so keen to pontificate upon.

23 thoughts on “No Ritchie, no, it isn’t”

  1. “Wealth is the net present value, the stock, of all future production”

    I think (?) this only works if you treat assets like housing, which clearly count towards our wealth despite already existing in the stock, as constituting a flow of future housing services, and similarly for other assets.

  2. How else would you value existing housing other from the benefit it provides into the future?

  3. Here follows a small monograph of mine on particle physics, socialist style;

    “Peter Mandelson was the first person to spin an electron…

  4. @Rolo

    Quite, but “future production” feels a funny (if correct) way of phrasing it. Would we normally describe a house as a “productive asset”?

  5. ”Almost all economists now agree that a more equal society is good for growth:”

    In my one and only foray onto his blog I asked him how much inequality was acceptable so we’d know when we could relax and think about other things. After a few tos and fros, I got banned. Man’s a complete and utter tool.

  6. I really hope that Labour read this post and act on it – if they do, with boundary changes and (potentially) the reintroduction of plural voting for wealth creators they could be in opposition for the next 50 years, condemned to a 4 million vote rump in their remaining urban wastelands in the North and fashionable London districts. Almost every one of his strictures have been treated with disdain or with fairly decisive rejection by the electorate but still his vanity and self -regard remain boundless and unchastened. Expect no reflection from him on why he is manifestly in error – his stupidity and total ignorance remains intact…..

  7. Arnald – of course Tim doesn’t link to the source post from Murphy (which is the post I meant) so I stand corrected – however, you’re right that Murphy is deluded – Thursday was the proof of that and he has learned nothing from it……

  8. Johnathan Pearce

    Murphy should know this basic fact. That he doesn’t is terrifying given the respect accorded to him in some places. At least last weeks election will have taken him down a peg.

  9. So if everyone is absolutely equal, who will be employing whom? Whence the growth at absolute equality?

    And even if some of the equal start employing some of their peers, won’t this immediately lead to inequality?

    Sorry, can’t get my head round this nonsense.

  10. ”And even if some of the equal start employing some of their peers, won’t this immediately lead to inequality?”

    Not if wages were the same for employer and employee. You’re making the neoliberal assumption the person employing would be earning more….

  11. “Not if wages were the same for employer and employee. You’re making the neoliberal assumption the person employing would be earning more….”

    No, I’m trying to work out where the money is to come from. “The State” is not a good answer.

  12. Bloke in Costa Rica

    Pendantry: perquisite ≠ prerequisite.

    He really is a risible figure. It would be slightly less head-slappingly astonishing if these portentous, ex cathedra pronouncements of his had a) any relation to the truth whatever or b) some concession to humility and introspection.

  13. “Nope, growth is a microeconomic issue.”

    I see your point. But what if macroeconomic policy is consistently wrong? Does that have no effect? What if the BoE always set daft interest rates? Just like goalkeepers don’t win games, they can definitely lose them.

  14. Bad policy can fuck over growth in the short term, yes. Good macro policy might (hmm, not sure, but *might*) help in the short term. But in the long term it’s all micro. Another way of putting this, bad micro will mean that growth just does not hapen. Good macro might aid the short term but makes no long term difference.

    My view, obviously.

  15. bicr, vanpy

    easy from costa rica or portugal.

    worstall is hardly humble or forgiving, in fact he’s mostly childish and politically wayward, imho, and yeah x-y bang on about the 100 million dead.

    however it’s interesting to read things from a different pov.

    my stupid keyboard is broken so don.t pendant my text

  16. And why do you kept quoting Ritchie who I had quite genuinely not heard of before I read this blog? (Speaking as an Islington liberal/labour voter/guardian reader who came to this blog via, I think, Chris Dillow.) I know of no one who quotes him so frequently.

  17. Richie certainly used to be on the BBC’s list of “people to call for comment on tax stories” – I’ve heard him peddling various made up bits of “research” on Jeremy Vine’s radio 2 show over the years. He’s superficially quite plausible, and the interviewers rarely ask the relevant questions.

    I think it was because he was tired of Ritchie distorting debate and getting away with it that Tim took to mocking him on a daily basis…

  18. Aw, love him.

    “I saw some friends last night. The situation in which it arose is far from political: I do not spend my whole life isolated from real life and real people.”

    The honour. Of Ritchie bestowing his presence on the little people!

    “Give that this is East Anglia I was ribbed about the election result. There was a sense of gloating on some parts, but by and large the subject is avoided: it is known I can hold my own.”

    Translation, your “friends” think you are a cunt.

    “And so I came to the reluctant conclusion that what I was witnessing was racism. These people would have been horrified at the suggestion. I decided not to make it, although I regret that now.”

    I hope they see it on your blog. Your “friends” will *know* you are a cunt.

  19. He simply attracted my ire and it’s now become a tradition. He’s out to change the world into his image. An image that I profoundly disagree with. He’s also got some influence: he works for various charities, unions etc at times. Writes reports for them. And it amuses me to check and see where he’s gone wrong.

    For example, one time he wrote the TUC’s budget submission. Now these are only ever PR exercises but still. And he claimed that riasing the income tax rate would call forth more labout from married women. That’s how he got around the Laffer Curve idea that perhaps 80% income tax rate lose revenue, not gain it.

    The problem is we know that married women are much more sensitive to higher tax rates than are men. Yes, this is something we *know*. Essentially, he had assumed the wrong sign, a positive, on the subsitution effect for married women, when it’s, in reality, a negative.

    This is the sort of work that underpins many of those charity and union reports.

    He and Howard Reed have also been claiming that as the labour share of GDP has been falling then therefore the profit share is rising. Again, this is not so. The labour share has been falling, yes, the profit share is static (ish) and the self employed and tax share have been rising.

    But they urge us to base policy in the idea that the profit share is rising. So, it’s all rather fun to continually point out where they’re going wrong.

  20. That would be bad. The Fed and BoE have roughly got things right recently, the ECB has not. Greece would be sdcrewed either way but the rest of the eurozone has definitely suffered.

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