Skip to content

Tim Worstall

More on Ritchie\’s report

I will give him this: he\’s raised an interesting point:

My research shows that this may be the wrong question. The most important question is not the incidence of the tax on these transactions, but the incidence of the cost of these transactions. If, as the opponents of the tax argue, the tax charge will fall on ordinary people then it follows that the excessive charges made by banks to fuel their own profits and to pay the wholly unreasonable rewards of bankers also fall on ordinary people. That is something of an own-goal on their part. It is also somewhat simplistic.

He\’s right of course: profits do come from somewhere.

However, he\’s made the assumption that bank profits come from transactions which are either zero sum or even negative sum. Thus the fact that bankers get paid well and make profits must mean that consumers have lost something in the transaction.

Entirely ignoring the possibility that even though the bankers are well paid and that banks make profits, consumers are better off in total because the transactions themselves are positive sum.

And we do tend to think that voluntary transactions are positive sum: that\’s why people undertake them after all.

So, while it\’s a nice try I\’m afraid it\’s a fail. I would point this out to him but unfortuantely I cannot:

Note: This post is open for comments. Comments will only be accepted if they contribute positively to debate on this issue. Those that do not will be deleted.

Ritchie\’s report on a financial transactions tax

Yes, he does get it wrong.

Tax incidence that is.

He wibbles about what the incidence of Stamp Duty is (\”more research called for\”!) and then claims that the other FTTs, on currency and derivatives won\’t have anything like that incidence, they\’ll fall solely on bankers.

Not the most logical of bits of logic really.

What a report, eh?

Ritchie flags up this in the FT.

The report, entitled Taxing Banks, proposes a global 0.005 per cent tax on currency exchanges and derivatives.

The report, authored by the Trades Union Congress, Christian Aid, Tax Justice Network, Tax Research UK and the Task Force on Financial Integrity and Economic Development,

A hugely impressive list I think you\’ll agree.

Well, except…..

TUC: advisor on international tax issues: Richard Murphy.

Christian Aid. Advisor on international tax issues: Richard Murphy.

Tax Justice Network: main bod: Richard Murphy.

Tax Research UK: this is Richard Murphy.

TFFIED: not Richard Murphy directly, but their reports on international taxation all quote, draw upon and use the methodologies of the TUC, Christian Aid, Tax Justice Network and Tax Research UK. That is, Richard Murphy.

In short, the whole alphabet soup is a self-referential cobweb with, at the centre, a retired accountant whose speciality in the trade was advising self employed actors, musicians and artists on their personal tax returns.

Now I entirely agree that it\’s possible for people to flower, grow and learn: I\’ve no qualifications or work experience that justify my own propensity to adjudge matters economic. But if we\’re talking about changing the taxation system for the entire financial world, shouldn\’t we be looking for a slightly wider base, a slightly less individual source of information?

Hmm, I wonder?

This couple who have won a fortune on the euro lottery.

A couple who live near Cirencester.

I know a couple who live near Cirencester. Wonder if it\’s them?

Now, before you deride me as being entirely lunatic, the possibility that the winners are the couple I know who live near Cirencester is a great deal higher than the odds that all those lottery ticket buyers face when they buy a ticket.

I\’ve forgotten what the odds are for the euro lottery but they\’re a great deal higher than the 14 million to one or so for the UK one. You\’ve got to get more numbers you see.

Now Cirencester and environs isn\’t the most heavily populated area of the country. There might be, say, 50,000 people, perhaps 100,000 (with a wide definition of \”near\”).  Of whom not all are couples of course. Say, umm, just as a guess, one in 25,000? One in 10,000?

The only problem I can see with this is that the specific couple I\’m thinking of are most unlikely to be lottery ticket buyers in the first place…..

Rates going up on petrol stations

Well, yes, one can see the point:

The Valuation Office Agency insisted it was working closely with petrol retailers to reach an agreement on its new rates.

“In recent years, the rental value of petrol filling stations has grown considerably and it is only fair to all ratepayers that this is reflected in the rateable value,” a spokeswoman said.

At heart the argument is about who gets the rise in that rental value? The owner of the land? Or the society around it which creates that value through tax?

Land Value Tax….yes, this is what we\’re talking about here.

However, this nicely illustrates one of the things which will have to be done before a land value tax would work here.

Here\’s the situation at present.

Market rental values (and thus presumably capital values) change at some speed, x. But rateable values change at a different, slower, speed. Say, 1/2 x (or whatever).

So, rental values go up, that increase in value being captured by the landlords. Then along we come and increase rates to reflect this (and this would be true of an LVT as well). But now we\’re trying to capture more than the total increase in that rental value: imagine, originally it was 100. Made up of 80 in rent and 20 in rates for of course to hte renter, the two are the same thing, added together they are the total amount he\’s willing to pay to rent that land for that use.

OK, rental values go up to 150. But our landlord moves faster than the rating officer. Rent goes to 130….and then only later to we raise rates to 30 to reflect the new total value. But we\’re now, in total, extracting 160 for what is worth to the renter 150.

Ahh.

So, we need tow things to happen. The first is simply that rates need to change more often if we\’re to have an LVT. Not that we\’d call them rates but still. The second is more recondite.

Currently almost all commercial leases are on an upwards rent review only. So if the rent plus rates charges go over rental value, there\’s no mechanism at all which can bring them back down to it. So we need to change that: if we\’re going to be arguing over who gets the value of the land rental, we have to make it possible for the landlord\’s part of it shrink if as and when taxes on that land rise.

So, this democracy thing then

A poll for popular newspaper Bild am Sonntag found that 53pc of Germans wanted Greece to be expelled from the euro if necessary in the coming months. Two-thirds were adamantly against German money being put towards a bail-out of the troubled country, the paper also found.

Will of the people or will of the euro-elite?

Does money get taken from the German taxpayer to be spent on Greece or not?

Given that we\’re talking about the EU here I think we know the answer, don\’t we?

Dick Francis RIP

\”My brother, Merrick, and I are, of course devastated by the loss of our father, but we rejoice in having been the sons of such an extraordinary man.\”

Felix Francis

Not a bad way to be remembered after 89 years on the planet, is it?

Tom Friedman\’s version of history

Following the defeat of Egypt and other Arab armies by Israel in the 1967 war, Nasserism, a k a Arab nationalism, the abiding ideology of the day, was demolished.

Err, it was \”pan-Arab nationalism\” that was defeated. The idea that all Arabs should be brothers together, rather than fighting for their own national interests.

GFS report: tax losses due to trade fiddles. Sorry, valueless report

Or if you prefer, here\’s today\’s Ritchie!

Developing countries are losing approximately $100 billion dollars every year due to trade mispricing, according to a new report from Global Financial Integrity (GFI).

Ooooh, my! So, what does the report actually say?

Well, they measure the amount of trade they think is mispriced, then look at corporate tax rates, click the calculator and say multiply one by the other and you\’ve got the tax lost.

Now, umm, where have we seen a similar technique then?

Ah, yes, Richard Murphy\’s estimate of the tax gap, wasn\’t it?

And GFS do in fact say that their new report is based upon a Christian Aid one….which was written with the aid of Richard Murphy and John Christansen. And another one from the Tax Justice Network which is essentially the same two people again.

Let us remind ourselves of what the problem with Ritchie\’s calculation was. You cannot take headline tax rates and compare them to tax collected and then claim (or assume, assert) that the gap between the two is because people are being very naughty boys.

For governments deliberately and specifically put into the tax code allowances for certain activities they think desirable which reduce taxes legally owed from those headline rates. In the case of our domestic UK corporate tax system we\’ve got R&D allowances (125% of amount spent on R&D from memory), various odd depreciation thingies, training allowances and for all I know a turkey dinner for Tom Cobbleigh allowance.

This means that the observed gap between headline rate as a percentage of profits and the amount collected cannot be assigned to naughtiness. We have to strip out those entirely legal, legitimate and just as Parliament intended, allowances first.

Which Murphy, you might recall, did not. Indeed, he gets very touchy when you point out this to him.

So, what do GFS do? Yes, they look at headline rate and tax collected and assume the gap is because someone\’s being a naughty little girl.

They entirely ignore that some countries have tax subsidies (even rebates in some places) for exports. Entirely ignore that some (indeed, many) countries have tax free holidays for exporters and new companies.

In short, they make Ritchie\’s mistake. They do not account for the things which governments deliberately put into their tax codes in order to encourage behaviours they deem desirable.

As such their report is as value and content free as Ritchie\’s original was. No surprise that he praises it then and insists that this requires action, eh?

Click here to download a full copy of the report, which adds to the growing literature on this subject and stresses the urgent need for action to tackle this abuse.

Me personally I\’d like to see action against people who lie to us for political and ideological reasons….

Book Tip

This looks fascinating.

Especially since you don\’t have to buy the book, you can just read the original papers.

The question being asked is of course the most important one in economics: and quite possibly in all of the social sciences.

Why are some places shitholes and some places not, given that we all started with roughly the same people, abilities and attributes?*

*Well, given enough time we all started out in pretty much the same place, Olduvai Gorge or some such.

My word

A sensible environmentalist.

Now Ofgem says that a range of government interventions, even renationalisation, are needed if new investment is to be secured. I think everyone accepts that the market needs reform to incentivise investment but what we need is a better designed market, not state direction. That is a recipe for electricity that is more expensive, less reliable and not very green when the wind doesn’t blow. There is a case, dare I say it, for defaulting on the EU’s doctrinaire insistence that we invest in renewables and set in place incentives to save carbon instead, by whatever means energy companies find it cheapest to do so. What the past 30 years show us is that the move to low carbon technologies would be better left to thousands of competing companies with different expertise, than centralised in the hands of a few civil servants. Which would you trust more to keep the lights on, the vacillating boobies at Ofgem, or a free energy market?

Whatever next? Discovery of ursine pooh in the forests?

Willy on the euro

Hutton really is such a statist that he cannot even make the correct distinction between ownership by hte State and ownership by citizens of that State.

Britain owns a fifth of Greek bonds.

Britain does? The State?

I can imagine that in our foreign exchange reserves held by the State there are a few Greek bonds. We do indeed hold some euro assets there. But a fifth of all Greek issues? Nonsense.

I can also imagine that some number of banks domiciled in the UK hold some Greek bonds, even that some individuals do.

But to say that that latter is \”Britain\” is breathtakingly wrong: unless you\’re such a statist that you cannot in fact make the distinction between the State and the citizenry.

Those dreaming of the free-market utopia of floating exchange rates should be careful for what they wish.

Lemme see: the problem is to do with the single currency. One currency means, by definition, one interest rate. In a not optimal currency area, this leads to variously booms and busts being exaggerated in different parts of the single currency area. Things like 20% unemployment in Spain.

And Willy\’s view is that floating exchange rates are a bad idea?

This really is snigger worthy:

Any monetary regime in Europe has to deal with the reality of living alongside the world\’s most successful and, until China pipped it in 2009, largest exporter – ­Germany. Either there is the hard deutschmark, a world reserve currency second only to the dollar, against which the rest of Europe consistently devalues, or the euro. Up against the deutschmark, Greece would certainly be devaluing now – but so would Ireland, Portugal, Spain, Italy, Belgium, Austria, Holland and probably France. When the financial crisis struck most of them would have been in a similar, if less acute position to Iceland. There would have been a flight from their money markets to Frankfurt and New York. Who thinks Greece, Belgium, Ireland and Austria would not have had an unstoppable bank run? Or could have survived it? There would have been no co-ordination within a world reserve currency zone to bail out stricken banking systems. There would have been no enjoying 1% euro interest rates. No capacity to increase government borrowing to weather the crisis. Europe would have had a bank-run induced slump – and the contagion would have hit Britain hard. It would, simply, have been a variant of 1931.

In 1931 there was a single currency (ish). The gold standard. And those countries which fared worst were those which tried to stay on it. Those that dumped it (like, for example, the UK, Sept 1931, 25% depreciation following rapidly) found that the Great Depression didn\’t last very long and output was back up to its former level pretty shortly.

The euro has been a brilliant shock absorber.

Ahahahahaha…the euro has meant that the devaluation has to appear in the real economy. This is such a strange thing for a Keynesian like Will to believe you see. He already thinks that prices are sticky. That wages especially are very difficult to reduce in nominal terms. So grinding out a deflation in wages is horribly difficult and painful while doing something similar through a currency depreciation is a great deal easier. But here he\’s arguing against his own bedrock beliefs about the economy. Some cognitive dissonance or what?

And there is a last reform. The financial markets invented toxic credit default swaps (CDS) – allegedly insurance against bond default which the markets could buy and sell – in the deregulatory mania of the last decade. But England banned trading insurance policies in which nobody took responsibility for paying insurance as the worst form of financial depravity in the 18th century. Now the practice is back as \”innovation\”, except we know after Lehmans that the contracts are as worthless as they were under George I. However, hedge funds love them because they are such a juicy tool with which to speculate. It has been the CDS market that has prompted such a rapid confidence collapse in Greece. As they currently work, they should be banned.

What is he blathering about here? Is he saying that Lehman\’s didn\’t pay out on the CDS contracts it had written? Sure they did, they were paying out collateral every time prices slipped. Is he saying that other people didn\’t pay out on CDSs on Lehamn bonds? They sure as hell did. What ios he really trying to say here given that what he is saying is so obviously and clearly wrong?

And of course we\’ve the marvellous sight of a statist insisting that the markets which show the bankruptcy of a statist vision should be shut down. Can\’t have people revealing that the Emperor ain\’t got no skivvies on now can we?

How does this bloke keep his column?

Baroness Warnock

Strange that a philosopher should not know this.

Falling and being in love is a glorious feeling. We need a different word to describe our love for our neighbour

We have two perfectly good words which make this distinction.

Eros and agape.

True, we simply nicked \’em from the Greeks but then we\’ve done that with large parts of our language along with a goodly chunk of mathematics and other things.

On the stranglehold of neoclassical economics on the Nobel

Ritchie says we should look at this.

So we do.

And the example given of how neoclassical economics has a stranglehold on the Nobel is Gunnar Myrdal.

Since our societies claim to be democracies, the exclusion of competing perspectives at university departments of economics means that such departments take a stand for some ideological orientations in society and against others and indeed acquire a role as political propaganda centers.

One of the economists who at an early stage took an interest in value issues in research and education is Gunnar Myrdal. He argued that “values are always with us” in social science research; in the problems we choose to study, in the choice of conceptual and theoretical frame of reference; in the choice of method and in the choice of ways of presenting results.

You cannot choose without referring to some values. It can be added that Myrdal left the neoclassical camp to become an institutional economist.

That\’s the Gunnar Myrdal who won the Nobel in Economics in 1974 along with Hayek.

Genius, eh?

Plot spoiler

Two years ago the film director Roman Polanski and the writer Robert Harris set out to make a film of Harris’s novel The Ghost, a gripping fiction of a British Prime Minister — reminiscent of Tony Blair — holed up in a foreign country to avoid prosecution for a war crime.

Just so you don\’t feel the need to contribute to the coffers of a child rapist.

Cherie done it.

Bute Islanders vote to buy … forest

Err, no:

If the next stage of the purchase process seems onerous — the islanders have to raise £1.4million by the end of May to meet the price — the generous support of the Scottish government means there is little doubt they will achieve their goal.

Bute islanders vote for me and you to buy them forest.

Accuracy in such matters is important.