Dear God this is fucking ignorance

So Edward Luce says something very silly indeed in the FT:

For every dollar the top US public companies spend on investment, they are returning eight or nine dollars to shareholders.

Guess who repeats this:

For every dollar the top US public companies spend on investment, they are returning eight or nine dollars to shareholders.

And tells us that:

In one sentence the whole crisis if neoliberal capitalism is succinctly summarised. And it is not that much different here.

When the cost of capital is low and investment should, as a result, be a top priority for business it is investing tiny amounts and is instead fuelling inequality by paying exceptional dividend returns and by buying back shares to boost share prices and so trigger executive bonus schemes.

No wonder people have no faith in big business.

No wonder the rhetoric of the capitalist entrepreneur is so hollow.

No wonder no one believes the claim that business needs tax cuts in order to invest: it already has all the cash it needs to do that.

But it uses that cash to fuel inequality.

This is what it’s game is about. And radical reform is needed.

And this is from an accountant recall. An expert accountant even, one who writes reports for the TUC, one who would change the very structure of our entire economy for us. And an accountant who is willing to believe such dribble?

It’s not even remotely true: so far from reality that you’d need to be leaking brain fluid into your cornflakes to give it a shred of credence.

Luce can be forgiven for he’s just a columnist but Ritchie’s supposed to be, insists in fact that he is, an expert.

The number itself is derived as follows. Stock buybacks and dividends make up about (around and about) 80 to 90% of larger US corporation’s post-tax earnings.

But as an accountant would note companies can finance investment through borrowing. And the cost of repaying that borrowing, the interest paid upon it, is deducted from the numbers before we calculate the post tax earnings of the company.

Thus the amount of post tax earnings that is invested, as against the amount paid to the suppliers of capital, is not a particularly relevant number when looking at the amount that companies are investing.

Because borrowing.

At which point, a look at the actual capex (a reasonable proxy for investment) by S&P 500 companies.

SP-500-Earnings-1-1024x378

Ignore the right hand side, not relevant. Dunno about you but I take that to be around and about 1:1 actually. Investment (or capex) to shareholder payout. Roughly.

An accountant should know this shit. So that’s accountancy that we have to add to the list of things that Ritchie is ignorant of.

37 thoughts on “Dear God this is fucking ignorance”

  1. Is this the same Ritchie who insists that cash is just building up on company balance sheets because there’s nothing to invest in? Ergo, we need to tax it off them to reduce inequality?

  2. Someone should be emailing examples of Murphy’s pig-ignorance to the idiots in the media who ask for his advice and the bigger idiots who give him grants.

  3. Do you have a compendium of Murphy’s greatest hits?

    I sometimes try and warn people of his grievious unreliability – usually when they are sticking something on facebook about the tax gap, or the Fair Tax scheme, and quoting him as an unimpeachable source.

    What I need is a link which explains to a newcomer what he’s like.

    A gif of a head banging against a wall only partly covers it.

  4. @Jack C

    The problem here is that dividends are nearly all being paid to tax havens.

    There is no evidence at all to back up this claim but if you say it often enough and cross-reference later claims with earlier claims of the same thing, it becomes an accepted fact.

  5. “If I had a business that returned $8-9 for every $1 I invested in it, I’d be jolly pleased!”

    It’s just the absolute lack of a sense of figures and numbers that gets me with these stories.

    There is no scepticism and no thought that “hmm, that looks quite high – maybe I’m missing something?”

  6. I don’t know how common this is, but the dividends I get paid from my share options in my employer get ploughed straight back into more shares. I figured I’d only need to start collecting the cash once I’ve retired. So in my case, the money returned to the shareholders is also investment.

  7. No Tim, you’re doing it wrong! You should be filling your swimming pool with banknotes and lighting your cigars with them.

    We’ll gloss over the fact that building your swimming pool and buying your cigars, caviar, champagne and all the rest is increasing the wealth of the community.

    And the fact that investors are actually putting their money where their mouth is and, you know, investing in increasing the wealth of the community in the hope of getting a small portion of that increased wealth in return for their investment.

    No! You’re a parasite who steals money from the poor taxman and those who unselfishly advise him.

  8. Has he said much about the effect his plan to tax investment costs at the corporate tax rate will have on investment?

  9. @ GlenDorran
    Naivety rules OK!
    Even Murphy isn’t stupid enough to believe in 900% pa returns on capital.
    It isn’t a lack of scepticism on his part, it is a lack of ethics.

  10. Why is the cost of capital so low? What happens when the cost of capital is so low? Who suffers when the cost of capital is so low?

    The unchanging story of socialism: exploitation of state power for the private interests of the politically connected.

  11. @ Tim N
    You are increasing your risk to your employer’s future problems (e.g. hiring Transocean to drill a well) http://www.reuters.com/article/2012/03/22/us-chevron-spill-idUSBRE82K0PL20120322
    Given your pre-existing risk to your employer’s failure, that implies either that you don’t need the money at all (not just prior to retirement) or a blind faith in fair treatment of Britiosh nationals being included in a certain government’s backing for its “national champion”.

  12. @ Tim N
    You are increasing your risk to your employer’s future problems (e.g. hiring Transocean to drill a well) http://www.reuters.com/article/2012/03/22/us-chevron-spill-idUSBRE82K0PL20120322
    Given your pre-existing risk to your employer’s failure, that implies either that you don’t need the money at all (not just prior to retirement) or a blind faith in fair treatment of British nationals being included in a certain government’s backing for its “national champion”.

  13. Also note that investment should include R&D as well as capital. This is even more important as companies outsource their manufacturing and need less capital in those areas. In that case from the figures given its more like 60:40 in favour of investment

  14. And of course, should he read this and realise what a twat he’s made himself look (or when he turns comments back on when someone points it out to him) will he recant what he has said or will he bluster his way round having to admit he’s made a mistake?

    Rhetorical question.

  15. AndrewC:

    He often uses the “I didn’t express myself very clearly, I was typing hurriedly on an iPad, of course what I clearly meant was X and you are just a troll for not realising that.” excuse to try and extricate himself.

  16. “You are clearly adding nothing of value to the debate so you will be banned”

    Copy and paste under every comment pointing out his egregious fuck up.

  17. AndrewC

    “Someone should be emailing examples of Murphy’s pig-ignorance to the idiots in the media…”

    I did this, once to the BBC and once to the Guardian, linking to items on Tim’s blog. Answer came there none. I also emailed them links in which Tim demolished Woolly Willy. Silence, despite my polite and reasonable tone.

    Time for a more coordinated approach?

  18. Given your pre-existing risk to your employer’s failure, that implies either that you don’t need the money at all (not just prior to retirement) or a blind faith in fair treatment of British nationals being included in a certain government’s backing for its “national champion”.

    That’s quite an astute assessment: I’ll unload the lot the day I leave this mob, but will convert it to other shares. The company itself is fucked six ways from Sunday.

  19. Actually, there’s more ignorance than Tim’s highlighted:

    1) The cost of capital is only one of a number of variables that determine whether an investment should be undertaken. And it isn’t even close to being the most important. Evidently Murphy has forgotten (or – more likely – never learned) that the anticipated rate of return of a proposed investment trumps cost of capital in the grand scheme of things.

    2) Given that most publicly held shares are owned by the 99%, it’s difficult to see how increased dividend flows and share prices for the middle class types who purchase said shares for the purpose of, say, funding their retirement contributes to “income inequality”. The last time I checked, sending profits to an ownership of middle- and working-class small investors rather than 1% management types suggested a reduction in inequality.

    3) Given Murphy’s worldview about neoliberal capitalism, just how is increased investment going to lower income inequality? Shouldn’t he be concerned that increased investment would fuel even more income inequality? If neoliberal capitalism is bad, why would more of it be good?

  20. “diogenes
    I see that someone has pointed out his error on Twitter”

    It’ll be interesting to see how much bluster Murphy can get into 140 characters in reply.

  21. @ dee
    “Who suffers when the cost of capital is so low?”
    Savers – those consuming less than they produce (and/or spending less than they are paid) and especially (i) the poor guys saving in a building society because they’re not rich enough to buy shares and (ii) those retiring, through old age or sickness, who have to buy an annuity which returns less than they pay in unless they live to 100.
    Who gains – propery speculators using borrowed money.

  22. I see Murphy has a blog up about new funding for his activities, one donor being a private trust which asked Murphy to keep them anonymous, but the trust seems to have been named in the comments by Jolyon?

  23. @BraveFart

    Ritchie did have the name in his blog, but has edited it out.

    KENNETH MILLER TRUST

    …in case needed in the future!

    Of course, everyone in the world must disclose everything, apart from Ritchie who having had the reasons explained to him, and being the LHTD, is satisfied that he is ok to keep the funding confidential.

    Hypocritical twat.

  24. @Noel and BraveFart.

    Indeed, it would seem that the Kenneth Miller Trust must have asked Ritchie to keep it anonymous in case anyone else realised that the Kenneth Miller Trust must be a right soft touch in handing out grants to pompous buffoons. I wonder if the trustees of the Kenneth Miller Trust will be upset that the anonymity which the Kenneth Miller Trust requested hasn’t been upheld.

    Kenneth Miller Trust.

  25. Given that Richard moderates all comments, he must have decided to let the name stay when Jolyon posted it? And it’s still there under Jolyon’s post.

  26. @PF – You’re assuming that Murphy isn’t an idiot.

    I suspect that any congratulatory message is posted by Murphy without too much thought, he being too busy preening to read it properly.

    No doubt he’ll read Tim’s blog at some point then edit Jolyon’s post (although it’s a bit late for the Kenneth Miller Trust).

  27. I just Googled the Kenneth Miller Trust (I believe that’s the name that you said isn’t it AndrewC – the Kenneth Miller Trust?)

    Anyway, Anne Miller of the Kenneth Miller Trust is a signatory to a letter to the Telegraph which is objecting to them cap charity tax relief:

    “None of us view tax relief as a primary motive, although it may substantially increase our donations. But it is an important signal that the decision to use wealth to help others, rather than to enrich ourselves, is recognised, encouraged and supported by society.”

    http://www.telegraph.co.uk/comment/letters/9203761/Proposed-cap-to-charity-tax-relief-will-damage-philanthropy.html

    I seem to remember Ritchie vociferously denouncing the likes of Bill Gates for using their wealth to help others, and using tax relief as part of that charity. Perhaps he should have a word with his new benefactor to put them right about the evils of tax relief?

  28. In fact, Ritchie has opined on this very subject!

    ” I am not persuaded that tax incentives play a useful role in philanthropy. Those tax incentives might cost up to £2 billion a year in the UK, with much of the use of that money inevitably being dictated by donors rather than those in need. If that annual sum was instead dedicated to relieving poverty – by, say, funding a microfinance bank in the UK – might it not do more to relieve poverty than giving it in tax relief to those not in need of it?”

    http://www.taxresearch.org.uk/Blog/2013/12/12/tax-power-and-philanthropy-2/

    I’m looking forward to him “speaking truth to power” and telling Ann Miller of the Kenneth Miller Trust just how wrong she is.

  29. @Glendorran

    He has also on his blog denounced charity as ‘patronising’.

    Clearly it doesn’t prevent him taking money off of charities such as the Kenneth Miller Trust. Money which presumably could have been put to a worthwhile cause.

Leave a Reply

Your email address will not be published. Required fields are marked *