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Tim Worstall

Blimey, at last!

From a PR email:

Worldwatch Institute\’s State of the World 2011
Shows Agriculture Innovation Is Key to
Reducing Poverty, Stabilizing Climate

It\’s taken them what, 30 years to work this out?

Technological advance is the solution to most problems?

Better late than never I suppose…..

On the Anglo Saxon financing of business

Our Willy Hutton keeps telling us that we\’re screwed because the banks just won\’t lend money to business for investment in long term projects.

And as I keep trying to point out that\’s because we have a different system of financing investment. The markets.

But, we are told, markets only seem to be willing to finance short term profit seeking adventures. They\’ll not back anyone trying to do something that will take years to come through.

Oh yeah?

The Falklands explorer\’s shareholders have had a nail-biting year, after Desire claimed to have made an oil \”discovery\” at its Rachel North well earlier this month. Less than two weeks later, the company admitted the well held only water, causing its shares to crash 50pc in one day.

On Wednesday, Desire again found no evidence of oil in the Jacinta well, which analysts had claimed had just a one in 20 chance of success. It will now drill down further to a depth of 1,670 metres in the hope of finding oil deeper under the sea.

Desire has been funded for the last 12 years purely by the proceeds of share issues on AIM.

It may be a good investment, it may be a bad one, that\’s an irrelevance to the point here. You can fund long term, risky, business ideas through the public markets.

And can you imagine Willy\’s fury if he\’d heard that a bank had financed a company which, as it looks like it might, manages to piss away £100 million?

This isn\’t really sustainable

Ministers say people should prepare to spend more than a third of their lives in retirement due to the \”staggering\” rise in life expectancy.

In the first official projection of its kind, the Department for Work and Pensions today forecasts that almost a fifth of Britons will celebrate their 100th birthday.

The long lives are, that\’s just great.

It\’s the \”retirement\” bit that isn\’t.

Because someone, somewhere, has to pay for that third of life in economic inactivity. (Add to it the one fifth of a century, or perhaps more like a quarter of the average life spent economically inactive in youth.)

There are various ways of course: much greater savings during the periods of economic activity….this would imply much lower tax rates then present so as to allow room for such savings.

Or it could all be tax paid, which implies much greater taxes than at present.

Or to reduce the burden on those economically active we could reduce the level of consumption by the old that we\’re willing to pay for: but \”elderly poverty\” as a deliberate plan is unlikely to work.

And whichever of these we do plump for, we\’re still left with the fact that each economically active person is going to be carrying the costs of more economically inactive people: whether it\’s through returns to capital from previous savings or whether it\’s current transfers through the tax system.

(Umm, actually, that\’s an interesting idea. We know that we\’ve seen a rise in the return to capital over recent decades, measured as a percentage of the economy. And that we\’ve also seen a sharp rise in those in retirement. Might it be that some/all of that rise in the return to capital is in fact the transfer of current economic activity to those in retirement? Hmm, some of it defintitely is but whether it\’s an appreciable amount I\’ve no idea. Anyone able to work it out?….umm, private pensions paid out are some £35 billion a year I think? 3%, 2.5% of the economy? Anyone know what they were say 30 years ago?)

Now, there is one get out here. A way in which those currently working can (through either tax or profit share) support an increasing number of retired, without too much impact on the returns to their labour, while still providing a reasonable and rising living standard to those in retirement.

It\’s called economic growth. If trend growth were, say, 3%, then the economy doubles every 23 years. Four times in a working lifetime. That gives us enough flexibility, there\’s a sufficiently cornucopian amount of growth there, that we\’ll not notice too much nor mind too much about the amount that is going to support those retired.

4% would of ccourse be better.

So how do we do this? Raise trend growth from its current 2-2.5%? For that might be what we need to do.

At which point Classical Liberalism Man leaps into action. We can put aside all those lovely ideas about planning or growth, about the State taking a leading role. For even if you do believe the Ha Joon Chang\’s of this world, they are still talking about economies behind the production frontier. The UK is very definitely at that frontier.

In effect, what we need to do is move more closely to the Nordic or Scandandavian model. No, not the State takes care of every child\’s skinned knee part, for we\’ve already allocated our possible redistribution to those in retirement. But what we do need to do is have, as they do, that classically liberal economy humming away underneath that redistribution. For that\’s the only way we can generate the growth to keep the system humming along.

Taxes moved off capital and corporations, onto consumption. Land taxation would be a great idea. Hugely flexible labour markets (the Bob Crow\’s of this country howled out of public life).

In short, if we\’re going to have to have a lot more redistribution, which we will with a rising pensioner population, then we have to look to the only economic structures that manage to support both high levels of redistribution and high economic growth. That is the Nordics: which means that underneath the redistribution we need to have what they have. A largely classically liberal economy.

Err, yes, and?

Despite record profits this year, and 9% dividends to shareholders, Heinz managers are using the broad context of ‘austerity Britain’ to hold down wages below inflation, having imposed a pay freeze in 2009 because of ‘uncertainty’ about the international economy.  This includes explicit comparison to the low wage settlements across the UK, including the public sector, in a convenient reversal of the government-pushed line that the public sector has it cushy compared to the private.

Wages are not set by the worker\’s current occupation. They are set by the wages that worker could be earning elsewhere. By the worker\’s possible alternative occupations.

This is why hairdressers earn £10 an hour in England and thruppunce ha\’penny in China, because the alternative jobs that the people in England could be doing pay around £10 an hour and the alteratives in China pay spit.

So, yes, of course, if everyone elses\’ wages are being held down/reduced/compressed, then so will those at a factory that is actually making profits.

Best line yet on the Elton John baby

I wonder if the baby in question will ever have to be nervous about his parents finding out that he’s straight?

mister choos.

Which leads me to an interesting question. We\’re near, perhaps not now but getting close to, the first generation of children born by surrogacy/artifical insemination/ in vitro techniques to same sex couples reaching some form of sexual maturity.

At which point we can go looking to see whether there is a higher level of same sex attraction among those children from same sex couples than there is among the children of the heterosexual couples.

This will, at least I assume it will, enable us to answer the age old question of whether it\’s nature or nurture which leads to same sex or opposite sex attraction.

(Leaving aside of course the well known availability effect. Same sex action is of course much more prevalent in situations where opposite sex action is impossible simply due to the complete absence of the opposite sex).

And we might well be able to go even further in the future as well. For there are now (in the lab only so far I believe) which allow the genetic material to be taken from the same sex parents, using an egg purely as the development mechanism rather than a contributor of genetic material.

And when that generation grows up we will be able to observe whether same sex attraction is genetically inheritable.

Only thing is, are we sure that anyone will be able to get a grant to study such subjects?

What a Happy New Year

Britons will spend every penny they earn during the first five months of next year on taxes, a leading think-tank has calculated.

Yup.

From first Jan to the end of May, every single penny that you earn will go off to be spent by Gideon and Dave (and the legacy plans of Gordon of course) and not a single sous will be available to be spent by you on your desires.

Sure, some amount of government, therefore taxation, is both necessary and desirable.

But perhaps not this much, eh?

On this you can only get 20% in tax out of the US economy

Here.

It\’s a fairly common theme around at the moment. Federal taxation has been around 20% of GDP under a number of different tax regimes. So, maybe you can only get 20% in tax out of the US economy?

Unfortunately, I think there\’s a problem with this idea. And it\’s that people seem to be looking at one level of a federal tax system, the Federal level, and forgetting all the other levels.

Federal taxation is (and that\’s Federal, not federal) pretty much varieties of income taxation (income tax, FICA etc and for this purpose I\’ll pile capital gains taxation in as being taxation on incomes) and corporate taxation (which itslelf is a pretty small part of the whole, 3% maybe of GDP). There\’s a bit mroe coming from import tariffs but in hte grand scheme that\’s trivial.

And I have no real problem with thinking that the ability to tax incomes tops out at somewhere in the 20-25% of GDP level. I wouldn\’t want to prove it of course but income tax, NI and corporate and capital taxation in the UK are of roughly those levels. I wouldn\’t be surprised at all to see that they\’re similarish in other OECD countries as well.

What\’s very different about the US tax system is that at that Federal level we only see these taxes. In most other industrialised countries we see the more local taxation being reported at the country level. For example, Council Tax in the UK is roughly equivalent to property tax in the US. But property tax is levvied at the city or county level there. And spent at that level as well. So when we talk about the total level of taxation we are reporting property taxes as being part of the national burden in Europe but not in the US. Same with sales taxes (State and county), booze n\’ciggies (State) and so on.

However, there is one other huge difference. Consumption taxes. Fuel duty (gas taxes) in the UK are, on their own, something like 1.5-2% of GDP. VAT is a huge number, 5-6% of GDP perhaps. As they are in most other EU countries.

So, as a first sketch of an answer, I\’d posit that maybe, yes maybe, you only can get 20% in tax out of the US economy at the Federal level. But that\’s because you can only really get 20-25% (don\’t forget there are State income  taxes there as well) of the economy out of people in taxes upon their income. In order to get more of the economy in tax you\’ve got to have excise and consumption taxes.

Which, in the US, just aren\’t levvied at the Federal level. Which means that unless you do start having Federal excise and consumption taxes then yes, the Federal Government is stuck with playing with 20% of the economy that can be extracted in those taxes that the Federal Government levvies.

As I say, not sure I\’d want to defend this very strongly, but would be interested to hear what others think.

Irony of ironies

Geroge Monbiot is worrying about fuel poverty.

It is, of course, George Mombiot who has been screaming loudly that energy must be made more expensive so that people use less of it in order to combat climate change.

And, just to complete the loop, fuel poverty is increasing because the price of energy is going up as a result of the policies designed to make energy more expensive and so combat climate change.

There\’s nothing quite like complaining about the outcomes of your own policies, is there?

Ooooh, excellent catch from Bishop Hill here.

Of the EU 15 capitals, London is 12 th most expensive for electricity and least expensive for gas.

Sounds like that free market system works rather well actually.

They don\’t like it up \’em, do they?

An ICM poll that questioned more than 2,000 people found that 44% were opposed to the deal, with just 5% supporting it. A further 41% said they had no strong view and 11% were don\’t knows.

News Corp, the media giant that Murdoch chairs, wants to buy the 61% of BSkyB it does not already own. Last week, the business secretary, Vince Cable, who was to rule on whether it could proceed, was tape-recorded telling undercover journalists he had \”declared war\” on Murdoch and subsequently lost the responsibility.

The survey – commissioned by Guardian Media Group, owners of this newspaper, and BT, Associated Newspapers Ltd, Northcliffe Media, Trinity Mirror plc and Telegraph Media Group….

As we all know you can write a survey to get any damn result you want.

And those that would be competing against a (one assumes) newly invigorated Sky really don\’t want to have to face a newly invigorated Sky.

Fancy that eh? Businesses against competition?

One might think of Adam Smith\’s comments about businessmen seldom meeting except to plot against the public…..

Once again our Russian friends come to the rescue

Neil Clark told us that we really should renationalise our airports because having private business run them was obviously just awwwwwful when they couldn\’t cope with the snow.

We should move to something like the US system, where the State or municipalities own the airport with contractors actually running it.

Once again, as they did nor much of the past century, our Russian friends leap into action and show us the perils of such communal ownership.

Angry passengers revolted at Moscow\’s Domodedovo airport on Monday as freezing rain and power cuts disrupted flights for a second day.

How is the airport run?

Since 1996, Domodedovo Airport has been operated by East Line Group on a 75-year lease, although the runways continue to be controlled by the state.

Yup, precisely that system that Clark recommends as solving the problems with snow disrupting flights.

Strange evidence really

So, you\’re off to London to see the sights.

Police were said to have found a list of six sites, including the full postal address of the Stock Exchange, Boris Johnson’s London mayoral office and the US embassy.

Defendants were seen studying the tower of Big Ben, before inspecting Westminster Abbey, the London Eye and the Church of Scientology.

So you take the addresses of the sites and go look at them.

A reconnaissance trip is alleged to have been made from Trafalgar Square, down Whitehall to Westminster Bridge where Big Ben was studied intently.

A mobile phone had appeared to be raised and pointed towards the clock tower, the court heard.

And as thousands of tourists do each and every day, you take a photo of Big Ben on your mobile phone, having walked down one of the major tourists avenues in the city.

I would rather hope that there\’s more evidence of terrorist intent than this.

Police searches are said to have uncovered two issues of the al Qaeda extremist magazine Inspire, which is published in English in Yemen and is aimed at a Western audience. An article in issue one was entitled “How to make a pipe bomb in the kitchen of your mom”, while issue two included “What to expect in jihad” and “Tips for our brothers in the US”.

Other allegedly extremist material found was entitled 39 Ways which said it was intended to help people “serve and participate in jihad”.

If that\’s really all it takes to get arrested then might I strongly suggest to any Irish cousins who might be thinking of visiting London that you dispose of any copies of An Poblacht you might have lying around the house before you do so?

And don\’t, whatever you do, work out where the sights are before you arrive?

This doesn\’t actually make sense

The cost of living in rural areas is £2,600 a year more than living in urban areas, according to official figures that lay bare the gulf in wealth between the countryside and town.

OK, willing to believe that.

Figures contained in a report into the cost of living, published by the Office for National Statistics, show that rural households had a weekly expenditure of £500 compared with those in urban areas which had an average outgoing of £450.20 per week.

Similarly, willing to believe that.

The report has raised concerns that the Government is not doing enough to combat the excessive costs of rural living, which contribute to high rates of rural poverty.

What?

So, we\’re looking at the expenditure of households. That is, their consumption. And we\’ve shown that rural households have higher consumption than urban ones.

And yet we\’re now saying that rural households are poorer than urban ones? How in buggery can that be? We\’ve just said they have higher consumption!

There\’s something very strange indeed about the way this is reported (and I cannot find the report at the ONS site, sorry).

Two possibilities:

1) The ONS figures are for the same consumption basket and thus show that the same standard of living is more expensive in the country. Which is possible I suppose but I would rather doubt it: especially when we include non-monetary benefits like, umm, living in the country. If this is so the reporter has entirely cocked the report.

2) The figures are showing higher consumption in the country and thus the following people are simply deluded:

Tom Watson, the Labour MP and former Cabinet Office minister said that “a rural subsidy is needed” and urged the Government to pursue policies to allow rural dwellers to “work at home so businesses can be widened without travel.”

Although, it is possible to have a bit of fun here.

We know that we have really quite large regional (and even county) differences in the cost of living. Housing in the North costs spit compared to housing in the South for example. And all prices move (roughly enough) in line with those housing prices. A pint in London is hugely more expensive than one in Middlesborough.

Yet public sector wages and benefits (other than housing benefit) are nationally set, making no reference at all to local prices.

So, if we\’re now going to start measuring poverty regionally, even by county, and furthermore measure it by consumption, not income, then we\’re actually closer to solving the great regional divides.

We can lower both public sector wages and benefits in the cheaper areas of the country (and, if we wish, raise them in the more expensive) thus making sure that we\’ve equality of consumption from such payments. And the advantage of this is that it will move local pay rates in line with local costs: thus increasing the incentive for industry to move to those cheaper areas.

Which is what we all want of course, the rejuvenation of those cheap areas by new industry moving/setting up there.

There\’s one final implication. Perhaps the \”poverty\” is calculated from the fact that rural household incomes are indeed higher. Thus there are more households (possibly) in rural areas below the 60% of rural median income (means and medians can diverge quite a lot when talking about income or consumpttion, as there\’s no obvious upper limit to either) and thus more relative poverty.

Something I\’m entirely willing to believe actually.

But then again, we know that we\’ve got these huge regional variations in incomes, in mean and median incomes, between regions. And our variation in the UK is much larger than it is in many other European countries. Which is why we have this higher poverty (relative that is) rate than many other countries.

As an example, a dimly remembered number: female white collar wages in the NE are 60% lower than female white collar wages in London. If we were to use FWC wages as our median income, therefore the median FWC in the NE is in poverty. Sure, that\’s an extreme, but using the national median does mean that people living in the lower cost and lower wage areas of the country are being described as in poverty when their consumption basket is nothing like, is much higher than, those living on the same incomes in high cost areas of the country.

So, again, if we\’re going to start taking account of regional and county variations in consumption (ie, taking account of different price levels) then we\’re going to reduce the poverty rate….some would say trivially, I would guesstimate by quite a lot actually.

And wouldn\’t that be lovely, reducing poverty? Just by measuring it correctly?

(There would, tee hee, be an interesting side effect to much of the above. Benefits and public sector wages would be cut in Labour seats, for they are by and large the low cost areas, and raised in Tory ones, for they are by and large the high cost ones. What political fun!)

Surprise!

A Moscow court Monday found tycoon Mikhail Khodorkovsky guilty of embezzling and laundering billions of dollars worth of oil from OAO Yukos, the company he once controlled, confirming widely held expectations of a conviction in a case that has come to define the rule of Vladimir Putin.

Couldn\’t see that one coming, could we?