Ragging on Ritchie

Many organisations on the left of UK politics are now calling for wealth taxes. The Taxing Wealth Report 2024 does not do so. It is appropriate to explain why that is the case.

There’s really no other explanation. Spud has decided. Without bothering to read the literature – lots of bright people have devoted time and effort to understanding this area over the decades and centuries – and without bothering to bounce his conclusions off anyone else. But Spud has decided. Therefore his decisions is correct. And that’s just the way it is. And should be – according to Spud.

To suggest that he’s got to say something different in order to justify spending the Popham Trust’s money would be scurrilous. So, we won’t do that.

George is right, of course. It is obscene that they can do this.

And one answer is that we need to tax the rich a great deal more.

I do not think that all the problems that are created by the rich can be solved by taxing them. But doing so will certainly reduce their capacity to consume – and that is vital.

Because Spud would then spend all that money on other people. Who would then consume.

Sigh.

And, it gets worse. Because rich people, wealth – wealth is non-consumption. But as we know, poorer people spend a larger portion of their income upon consumption. Therefore, removing wealth and then passing it on to poorer people *increases* consumption. It’s the marginal propensity to consume/save. And we know that Spud knows about this because he’s used it as a justification for one of his schemes before.

That foreign direct investment is often ‘fly-by-night’.

#It’s foreign portfolio investment which is often fly by night. FDI is sa static as British investment is. Because it’s in hte same buildings, factories and companies.

I am simply staggered by this.

The Elgin Marbles were looted by the UK two centuries ago.

They are not ours.

They belong to Greece.

To pretend otherwise is deeply embarrassing.

To refuse their return is simply wrong.

Oh

A UK parliamentary inquiry in 1816 concluded that Elgin had acquired the marbles legally

What is the explanation? It’s straightforward. Landlords are selling up because their costs – almost entirely down to borrowing costs – are going through the roof, and all of that is down to the Bank of England and their interest rate rises.

Millions of households are now living closer to destitution because the Bank of England has no idea how to identify the cause of inflation or tackle it in the circumstances in which we found ourselves.

In response, Labour and Tories lend the Bank their total support.

What sort of conspiracy against the people of this country is going on here?

Still, we know how to solve this, don’t we? I’m sure Spud was all in favour of limiting landlord access to interest relief. And he’s certainly claimed that such investment income should be subject to a 15% surcharge.

Those will help, don;t you think?

Pensions are complicated. At a micro level it makes sense to accumulate assets today that can be exchanged for the services we will need (healthcare, personal care etc.) when we get old. But this fails if the assets we accumulate cannot be exchanged for what we will need and at a macro level, this is a real risk. With ever growing numbers of elderly will there be sufficient workers prepared to labour in the care industry to look after them all – however much “wealth” the older folk have accumulated? Yes, but only if the investments made today are delivering the right things – real things…. not just shuffling paper in a huge Ponzi scheme.

OK, so those assets we’ve got. Those bonds, bank accounts, shares, whatever. We need to exchange them. Which means we’ve got to be able to sell our 40 year old investments to someone. That means a market in second hand investment paper.

Spud an acolytes see money being saved into pensions as the investment fund. It isn’t. It is only the excess of new savings over the consumption of mature pensions which is the new investment fund. Everything else is buying the old savings instruments off those who now need to consume while buying those savings instruments for ourselves.

Everyting Spud sayson this subject is killed by his inability to grasp this basic fact. The pensions savings of the young in a FTSE tracker – say – are in fact buying the FTSE tracker off some old codger who’s selling in order to be able to eat. The second hand transfer market is vastly larger than the new investment going into the real economy for exactly this reason.

The answers are relatively straightforward. Apart from paying decent benefits and appropriate pensions (neither of which happens in the UK at present) we also need to:

Build affordable social housing in sufficient quantity that everybody might enjoy it.
Ensure that essential public services, such as water, gas, electricity, telecoms and transport are affordably accessible to everyone.
Guarantee free healthcare and social care from cradle to grave.
Deliver high-quality education so that people can, if they wish, change their situations and are encouraged to do so.
Have a policy of full employment at a living wage.
All of this is possible, and entirely affordable. All we need to do is:

Have a genuinely progressive tax system of the sort that I describe in the Taxing Wealth Report 2024.
Turn private savings into public capital in the way that I describe here.
Have a government that makes the meeting of need its highest priority, rather than the servicing of the wants of the clients of the financial services industry the focus of its attention.
Have a government that believes in a genuinely mixed economy, which has to be the basis of our future prosperity. The market-based dogma of the right, and the state-based dogma of the left, cannot solve the problems of poverty: only mixing the best can do that.
Such a government would also, necessarily, be focussed on delivering sustainability, but those now in poverty do not threaten that. The threat to our planet comes from the wealthy.

It is simply not true that we do not know how to eliminate poverty.

Amzin’ how he doesn;t talk about the simplest method of reducin’ poverty – grow the economy so that everyone has more.

Anton Newcombe says:
November 24 2023 at 9:28 am
The rise in gilt ownership is purely down to valuation as rising interest rates have forced prices down making now a much more attractive entry point. Short dated gilts currently yield 5% and if you buy low coupon gilts the bulk of the return will be as capital gain and this is especially attractive for private investors as capital gains on gilts are tax free.

When gilt yields were sub 1% they represented very poor value and were mainly owned by pension fund managers who were forced to own them for regulatory purposes. Buying gilts around that time, even as recent as 2020 would have been a poor investment.

So the rise in interest rates has led to gilt prices falling sharply hence making them more attractive to buy now. The ending of QE and emergence of QT has led to price falls across all maturities where long dated yields touched 5% and again they were attractive for private investors to buy.

So guilts are much more attractive now than they have been compared to equities. As interest rates fall and gilt prices rise this will become less so as gilts can only offer you a finite amount of return.

+3
Reply
Richard Murphy says:
November 24 2023 at 10:35 am
You so totally miss the point. It’s quite scary really.

+4
Reply
Anton Newcombe says:
November 24 2023 at 11:52 am
“You so totally miss the point. It’s quite scary really.”

What point do i miss? Do you think people want to invest in gilts irrespective of value? Do you think those who bought a few years ago are happy sitting on 20-59% losses? But that loss is tempered by the fact they made losses on govt gilts? of course not… it’s about value.

+2
Richard Murphy says:
November 24 2023 at 1:01 pm
You still miss the point

If yoy really think people are as rational as you imply then youy do not understand why they save as they do

+4
Anton Newcombe says:
November 24 2023 at 1:57 pm
“If yoy really think people are as rational as you imply then youy do not understand why they save as they do”

Yes i agree many high street savers through inertia do not behave entirely rationally. But the increased buying of gilts through the platforms like HL and AJ Bell is rationally motivated by he value offered by gilts post the fall in prices after the rise in interest rates and the end of QE /start of QT. It will reverse when the value has been extracted.

+1
Richard Murphy says:
November 24 2023 at 5:17 pm
You still don’t get it

I suggest you go and play elsewhere where your ‘talents’ might be appreciated

+2

The FT features an interview with Huw Pill, the chief economist at the Bank of England, today. In it, he says:

The decline in headline inflation is largely exogenously driven. It’s basically driven by the fact that we’ve seen this decline in energy prices and slowing food price inflation, and we’ve seen international goods prices basically stabilise. Those are the three main external sources that drove inflation up, and they have all now gone in the other direction and are bringing inflation down.

In other words, the fall in inflation that we have seen has nothing whatsoever to do with the increase in interest rates in the UK. It is all down to factors totally beyond the control of the Bank.
….
As I read it, I think he means that because the UK economy has structural weaknesses in it (most especially a shortage of skills) then even if demand falls there might still be inflationary pressure because the economy is unable to meet even normal low levels of demand for goods and services now without inflation arising. That, I think he is saying, means that inflationary pressure still exists and so that weakness in the structure of our economy must be punished through penal interest rates, causing untold misery and havoc.

Well, no. What Pill is saying is that headline CPI is falling because food and energy are. But core CPI – which excludes food and energy – is still high at above 6%. So, it’s not that headline rate that really matters, it’s that core rate. That’s what we’ve got to deal with through both interest rates and QT. Becausethe cause of the high core inflation is linked to the size of the money supply, d’ye see?

As the FT also notes in another article:

Hargreaves Lansdown, the UK’s largest investment platform, said its conventional gilt sales had risen more than six fold over the past 12 months, compared with a 72 per cent rise for index-linked gilts.

Third, people want to save with the government. It really is time for the government to let them do so, as much as they want.

#Anyone been stopped from buying gilts? No? Then people are able to “save with the goernment” then, aren’t they?

I suspect that inheritance tax cuts will be mentioned today. They may well be one of the many NITMO offerings (‘not in my term of office’), meaning that they will have no impact until after the coming general election, but I think that they are likely to be proposed, nonetheless. The entire benefit will, of course, go to those already wealthy.

The person leaving the estate is dead, so the benefit won’t go to them. It will go to the inheritors. Who, by not having inherited yet, may or may not be already wealthy.

More barkingness.

Since the incidence of corporation tax is almost entirely on shareholders (although there are economists who argue otherwise),

No, the initial incidence is upon shareholders. It’s what happens after that which matters. Imagine a 100% corporation tax upon any new business. Therefore there will be no new corporations. As time passes and labour productivity increases then extant firms will be laying people off. Who now cannot get new jobs at the new companies that don;t exist. So, who is carrying some of the cost of the 100% corporation tax? Workers.

This isn’t in doubt by any economist at all. It’s only the proportions that are discussed.

As I noted when being interviewed on Radio Five yesterday, in my entire career as a practising chartered accountant not one client told me that a cut in the tax rate would ever impact the amount of work that they were willing to do. Firstly, that was because very few knew what that rate was. Secondly, it was because those who were running their own businesses rarely knew precisely what their profits were until well after the time that they were earned. Thirdly, it was because, even if they knew what their income was, their ability to relate that directly to the amount of tax they might pay was decidedly limited because of the complexity of the tax system. In other words, whilst this link between tax paid and effort expended might look to be obvious on an economist’s whiteboard when teaching students, in the real world and with small tax changes the impact is almost certainly non-existent.

Blimey, small marginal changes have small marginal effects. Amazin’ – we’ll have him up to speed with the Marginalist Revolution soon enough, with neoclassical economics!

And aint this a terror?

then what we will be looking at is a Tory tax giveaway to those most likely to vote for them in exchange,

Government does stuff that voters want…..

The books must balance

There is nothing in economic or accounting theory that requires this. In fact, a growing economy will always pay tax late to the government that runs it meaning that government income will always lag behind either real or nominal growth, meaning that growth makes deficits inevitable, and that eliminating them makes no sense. But still the myth, or untruth, is perpetuated.

I mean the claim’s bollocks, but it’s interesting all the same. Economic growth closes budget deficits, not causes them…..

It’s typical Spud. He’s got an idea that he’s thought up, himself, ony his own, and he’s gonna use it. Despite many tens of thousands of people having chewed over the same ideas for a century or two – some of whome might even have something to say on the point.

This is also bollocks:

It is assumed that the rich are very clever and drive the economy. I am not a eugenicist, know that rich got where they are by exploiting others, and that they are deeply risk averse now they have arrived and so will not invest for growth or entrepreneurship. Nothing about the rich adds value to our society, and trickle down emphatically does not happen.

I beseech you to cut inheritance tax, Sir#
….
How many years can some people exist before they’re allowed to be free?

Forever, obviously. For MOAR TAX will pursue you to the grave and beyond…..

Third, the structure of government debt matters. So, index-linked bonds have proved to be a terrible idea. They have apparently increased the cost of government debt by many tens of billions a year. But no one mentions that, on average, this debt won’t be repaid for more than fifteen years, which is when the average index-linked bond is redeemed, which is the only time when this liability can fall due. Instead, it is portrayed as a current cost. That, though, is not true. The real question is not the cost, but how funds are to be set aside between now and the redemption date to fund the cash cost at that time. Properly understood in this way, we have no index-linked bond funding crisis at all. There is a long period to accumulate a redemption fund, and the right question to ask is how the funds in question should be used now to produce the return required fifteen years hence. But with totally crap accounting data, that point is totally missed. It is scandalous that it is.

Finally, because we do not use a national balance sheet we do not talk about what should be on it.

So people make balance sheet adjustments for those costs of index linked gilts. And the complaint is that we don’t do things by a national balance sheet?

The first of these claims will be that everything subject to inheritance tax has already been taxed once already.

That is total nonsense. Inheritance tax is, in part, a tax charge on untaxed capital gains, which are cancelled on death. These gains have not, by definition, been taxed in any other way already.

And nor is the value of most estates made up of previously taxed savings. Most are made up of the value of homes – and these are never otherwise taxed at all.

We do not tax gains in principal residences in this country. OK, fair enough, we don’t.

So why should we at death?

For example, the basic personal allowance is frozen this year. It should have gone up by about 10% because of inflation. That increase should have been about £1,250, which would have given a £250 tax cut to most taxpayers in the UK. All 33 million of them.

The cost of that would have been a bit above £8 billion – near enough the same as the cost of abolishing inheritance tax. But the vast majority of those getting that £250 would have spent it straight away, unlike the person getting the gain from inheritance tax, who would have saved it.

D’ye recall when Spud was so against raising the personal allowance? I do – he spent a decade shrieking that most of the benefit went to higher earners.

And then this is just gorgeous:

The difference is really important. Spending the money keeps it in the economy. Each person’s spending is another person’s income. It is as simple as that when we think about the economy as a whole.

What that means is that the person getting a £250 income tax cut uses it to boost other people’s income – meaning that the recipient of their spending also pays tax on it, as does the next person who gets it, and so on, giving a real boost to us all – and the Exchequer.

If you told Spud that he’s supporting the Laffer Curve he would deny it, absolutely. And if you told spud that he’s supporting dynamic scoring of tax changes he’d deny it, absolutely. And yet that’s exactly what he is doing there. Sure, of course tax changes (up or down) have dynamic effects. And we must account for them on revenue collected. Certain tax cuts will ripply through the economy and the final tac revenue loss will be less than the headline and first order one. Sometimes that effect will be so large that final tax collection will be higher than the oroiginal before the tax cut – the Laffer Curve taxes paying for themselves.

But if you said to Spud – Laffer Curve, tax cuts, higher revenue – he’s say no. Because, umm, well why?

Re Rwanda:

The Law Lords and the Courts will be vilified.

What Law Lords? Now it’s not the House of Lords as the higest appeal court then experienced judges do not have to be appoointed to hte House of Lords to sit on the top court.

Our favourite autoeconomist:

Inflation in the UK has fallen below 5%.

I am not surprised. I always said it would. Supply chain disruptions after Covid were, inevitably, resolved. The disruption from the war in Ukraine proved to be the result of stupidity in the commodity markets, and prices returned to pre-war levels, as I expected. And so inflation was always going to go away.

Inflation always works like that. After a period of inflation – most of which periods are of very short duration – things go back to normal.

Always, eh? Venezuela, Zimbabwe, Argentina, they show that.

And now Rishi Sunak is claiming credit.

He should not be. This was a phenomenon that was largely beyond his control.

Barring one thing, that is. He could have made the impact of inflation much less than it was if only he had told the Bank of England to do nothing to tackle it.

Hmm

Now, me? I’m going to put a little faith in this money supply size theory thing about inflation. On the grounds that it probably is about right, d’ye see?

M1 being the thing that the central banks larlgey controls and which QT reduces, M4 being the wider thing not directly controlled but heavily influenced by interest rates. But, you know, maybe that’s just me and the entire economics profession there. What’s what when cofronted with Spud?

Ain’t ‘ee:

And now we have a new health secretary. She is the gloriously incompetent (in my opinion, based on watching many past performances) Victoria Atkins MP.

I have zero expectation of her. But what really worries me is that her husband is Paul Kenward, managing director of British Sugar.

Sweet dreams must be made of this as far as he is concerned.

A woman’s place in politics is to be decided by her husband’s job, is it?

Lord David Cameron (presumably of Greensill) is not the answer to any known question

The new Foreign Secretary is David, Lord Cameron. He is not the younger son of a Duke.

But that’s not really why I am writing this post. The reason for that is to highlight that this issue arises from microeconomic concerns. Macroeconomically, and thinking in the long term that this requires, the signal is clear: it is that the time for a strong, collective landlord with access to funds to provide stability in the housing market is required.

For a long time, I have suggested that changes to ISA and pension laws could provide more than £100 billion of funding a year for a Green New Deal and other socially necessary projects. Funding that strong collective landlord would be one such socially necessary project. And who would not want to know that their savings were actually being used for a socially useful purpose rather than being speculated on the stock exchange for the sole purpose of enriching someone in the financial services sector?

People buying houses with their own money to rent out is bad, very bad. Using everyone’s money to buy all the housing to rent out is good, very good.