Ragging on Ritchie

The ever Glorious Richard Murphy!

Lordie be, the man\’s got some nerve. So the IMF comes out and says that we shouldn\’t have a Robin Hood Tax, that we shouldn\’t have a financial transactions tax. We should, instead, have an insurance levy on balance sheets (or liabilities, same thing).

Richard then says:

I have recommended both taxes here

And he refers us to his own report, \”Taxing Banks\”.

And in that report he says:

As the report notes, the short term alternative of an insurance charge that some promote as an alternative to
financial transaction taxes does not have any of the benefits flowing from adoption of these taxes as noted
above, nor can it raise equivalent revenues. In addition, whilst financial transaction taxes should only eliminate
marginal trades but leave markets intact with ample liquidity, the proposed rate of the US levy at 15 basis
points is well above margins on many of the trades noted in this report and is consequently likely to be
harmful to the operation of some markets. This should not be the case for financial transaction taxes which are
to be preferred as a result.

That is, he specifically argues AGAINST an insurance style levy on liabilities and IN FAVOUR of an FTT.

The IMF argues entirely the opposite, against an FTT and in favour of a liabilities tax.

And this is evidence that the IMF agrees with Ritchie.

One more lovely line:

And amazingly financial transaction taxes have been ignored – incorrectly in my opinion.

No, they haven\’t been ignored. They\’ve been considered and rejected.

It really would help if Ritchie read the reports he approves of.

Ritchie, here.

\”Bankers’ bonuses and pay at the top end of the financial services industry have driven Britain’s rising inequ ality over the past decade, new research from the London School of Economics shows.\”

But there are bankers, economists and Tories out there who deny this very obvious reality.

It could be said that this is a statement of the bleeding obvious.

And it could be asked why we needed research to prove this.

I dunno who he thinks has been denying this very obvious reality. Some small group of people start making money like gangbusters, inequality of incomes goes up.

And?

Well, the and is this little giggle in the report he\’s quoting (quite apart from Ritchie\’s assumption that a rise in inequality is bad, m\’kay?):

There are two common arguments against raising marginal tax rates on bankers (or
indeed more generally on high-skilled high-earners). First, it is suggested that the
behavioural responses of labour supply and effort, changes in the form in which
compensation is taken and reduced compliance will result in the tax yield being
significantly lower than expected. Evidence suggests that such responses are larger for
highly paid workers facing higher marginal tax rates.

And they footnote this as follows:

Gruber and Saez (2002) suggest that the overall elasticity of taxable income with respect to marginal tax
rates lies between 0.4 and 0.6, with higher elasticities for the highest earners.

Which is a little problem for Ritchie. For in one or other of the reports he\’s written recently he insists that raising the top rate of tax will actually increase tax revenues. For he argues that high earners have \”lower\” elasticity of taxable income with respect to marginal tax rates.

Ooops!

Snigger

Therefore, if all measures designed chiefly for the purpose of avoiding tax were outlawed, can anyone from the nef explain why they should not be subject to their own law, and forced to pay tax accordingly.

Most amusing.

Especially since the nef report mentioned was written by Our Ritchie who gets some of his funding for the Tax Justice Network from the Ford Foundation….a tax privileged organisation.

Ritchie today

\”Tax pays for new jobs\”.

Well, yes, no one doubts that the spending of tax money creates jobs. Even new jobs.

Where it gets more complex is that similarly no one (umm, no one actually clued in this is) doubts that the raising of taxes kills jobs, both new and old.

If we\’re to concern ourselves solely with jobs (we shouldn\’t, there are other things to think about as well but let\’s pretend) then what we want to do is hit the sweet spot. Where the number of jobs created by the spending of the tax money raised is greater than the number of jobs killed or not created by the tax raised.

Pretty standard marginal analysis from the neo-classical school but of course Ritchie doesn\’t do that, the neo-classicals are all wet, aren\’t they?

And you thought Ritchie knew about tax, didn\’t you?

Via Ritchie we get the Fair Pay Network. Which says, as the heart of its campaign, the following:

An employee earning the new NMW rate, working full time will earn around £11,500 per annum, and yet anti-poverty bodies such as The Joseph Rowntree Foundation state that a single person living in council Housing needs £13,400 a year to afford a basic but acceptable standard of living. This latest increase falls short of that.

Their numbers are a little out of date (they\’ve used last year\’s JRF number) but the important thing to note is the following. The JSF number is a *pre-tax* number. If you take the tax off that, the tax which, absurdly and immorally, we charge to the poor, then their post tax income is that very £11,500 they get full time on the minimum wage.

Thus those on minimum wage are not poor because they are paid too little but because they are taxed too much. The solution therefore is to stop taxing them. Stick the personal allowance up to that £11,500 which is the min wage and we\’re done. All those working full time are out of poverty. As recommended by the ASI, UKIP, Oxfam and, nearly, the Lib Dems.

Simples.

Er, no Ritchie, no….

OK, so we\’ve got several people saying that big banks need to be broken up so that none of them are \”too big to fail\”.

Hmm, not sure I agree really. Still, leave that aside for a moment, here\’s what Ritchie has to say about it:

And if ever evidence was needed of why we need financial transaction taxes to retrain bank trading this is more to add to the existing pile in its favour.

Err, no, actually, it doesn\’t.

What is being said is that the level of trading we\’ve got is just fine we\’d just rather that it was spread among more players so that no individual player is systematically important.

In fact, it\’s the very opposite of what Ritchie says.

Having looked at the problems in the banking system these wise men have decided that it isn\’t the level or amount of trading that is the problem. They\’ve decided that it\’s the concentration of risk that is. Thus they recommend dispersing the risk rather than reducing the amount of trading.

I also have this feeling that if financial transaction taxes were felt to be the solution they\’d have said so but maybe that\’s just me being picky.

My word

Who could Ritchie be thinking of?

But let me also say why hgis wish may at present be forlorn. Step outside the accepted paradigm and I can assure you the whispering campaign against you is very powerful and very strong indeed.

I know. I’m well aware of the whispering campaign against me from big business, vested interests in academia and more besides.

The new movie

Via Obo:

Double Entry Man
Calculator Boy
Wonder Auditing Woman
The Cash Book Kid
Invoice Reconciliation Girl

All are ready to battle the dreaded Evil Bankers, who The Justice League OF Accountancy vow will never again be able to bring the world to the verge edge of financial ruin in their power-lust for ever-larger bonuses!

With the Justice League of Accountancy on guard against the rapacious Hedge-fund managers the world is safe once more.

But for how long?

What financial malfeasance is now being planned on the secret island tax-shelters where the world’s evil financial barons plan and plot together to cause a collapse in world share prices, destroy interest rates and bankrupt some once-famous High Street shops.

Armed only with their secret accountancy powers, a super-human knowledge of the tax laws and several spare batteries for their calculators, The Justice League Of Accountancy go into the ultimate auditing battle, to undertake the greatest feat of accountancy the world has ever known.

Script by you know who.

On the Washington Consensus

Ritchie decides to critique the Washington Consensus.

It\’s the usual amusement from him, anything which reduces the power of the State is bad m\’kay?

But what\’s really fun is that he uses as his source document this. Which is a very good source document indeed, showing that a goodly portion of the things Ritchie complains about aren\’t in fact part of the consensus he\’s complaining about.

It also contains this lovely point:

The third interpretation of the term “Washington Consensus” uses it as a synonym
for neoliberalism or market fundamentalism. This I regard as a thoroughly objectionable
perversion of the original meaning. Whatever else the term “Washington Consensus”
may mean, it should surely refer to a set of policies that command or commanded a
consensus in some significant part of Washington, either the US government or the IFIs
or both, or perhaps both plus some other group. Even in the early years of the Reagan
administration, or during Bush 43, it would be difficult to contend that any of the
distinctively neoliberal policies, such as supply-side economics, monetarism, or minimal
government, commanded much of a consensus, certainly not in the IFIs. And it would be
preposterous to associate any of those policies with the Clinton administration. Yet most
of the political diatribes against the Washington Consensus have been directed against
this third concept, with those using the term this way apparently unconcerned with the
need to establish that there actually was a consensus in favor of the policies they love to
hate.5

Which is just what Ritchie has done.

Which leads to the question: does he actually read his own source documents?

Apparently the idea of homo economicus should be buried as well. Ritchie himself links to that page BTW:

Homo economicus is seen as \”rational\” in the sense that well-being as defined by the utility function is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of \”rationality\” does not say that the individual\’s actual goals are \”rational\” in some larger ethical, social, or human sense, only that he tries to attain them at minimal cost.

I find it very hard indeed to understand why we\’d want to junk that description of human beings. Can someone explain it to me please?

Ritchie tells me off!

I hope Tim knew he was being absurd writing what he did, but all he wrote after the above suggested he did not. It’s unsurprising that throughout the entire left he is treated as a buffoon. Oh, a buffoon who knows economic theory quite well. But a buffoon because of his complete inability to exercise any wisdom when it comes to interpreting it, as this latest blog shows.

But if blogging about me keeps you happy Tim, keep going. It does amuse us that you waste so much time and effort getting things so spectacularly wrong time, after time, after time.

Naughty, naughty Timmy.

And the buffoonishness of my commentary is proved by my attitude towards the Washington Consensus of course.

Why? Because the reality is it’s been about destroying the state, opening up markets to unfair competition, moving to regressive indirect tax bases, denying resources to industries that need them, denying labour rights whilst enhancing capital rights, allowing the free flow of capital and denying that right to labour, undermining the property rights of onshore states and enhancing those of offshore, allowing unfettered finance rights over all else and so much more.

I suppose it\’s possible that that is indeed what it\’s about but, well, you see, proof is in the pudding. Leave aside both rhetoric and ideological positioning and ponder the important question:

Look what it’s done to Africa and you’ll know why.

So what has been happening to Africa?

The conventional wisdom that Africa is not reducing poverty is wrong. Using the
methodology of Pinkovskiy and Sala?i?Martin (2009), we estimate income distributions, poverty
rates, and inequality and welfare indices for African countries for the period 1970?2006. We
show that: (1) African poverty is falling and is falling rapidly. (2) If present trends continue, the
poverty Millennium Development Goal of halving the proportion of people with incomes less
than one dollar a day will be achieved on time. (3) The growth spurt that began in 1995
decreased African income inequality instead of increasing it. (4) African poverty reduction is
remarkably general: it cannot be explained by a large country, or even by a single set of
countries possessing some beneficial geographical or historical characteristic. All classes of
countries, including those with disadvantageous geography and history, experience reductions
in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for
mineral?rich as well as mineral?poor countries; for countries with favorable or with unfavorable
agriculture; for countries regardless of colonial origin; and for countries with below? or abovemedian
slave exports per capita during the African slave trade.

Now I don\’t know about you but I regard that as very good news indeed. Hundreds of millions of our fellow humans are becoming better off. Absolute poverty is falling in Africa, just as it has fallen in Asia. And, given that we\’ve been \”imposing\” (in fact, what we\’ve been doing is saying that if you want our money we recommend that you follow some fairly basic \”good\” economic policies) the Washington Consensus in such places we should probably credit said Consensus with the results that are appearing.

Now I\’m sure that you can claim that it\’s not that Consensus which is causing that fall in poverty. But if you do then you\’ve really rather got to argue that the Consensus hasn\’t actually been imposed. In which case of course it can\’t be blamed for any of the bad things that have happened just as much as it cannot take credit for the good. But if you argue that it has indeed been imposed, if Africa is reeling under that imposition, then we need to look at what is actually happening in Africa under said imposition. And a general reduction in poverty is what is happening which, if you\’ll excuse me for saying so, is actually what we\’d rather like to be the result of a socio-economic system. Which brings me onto a further point:

Tim Worstall is a very strange man. As far as I can see he’s written 13 blogs about me – in the past fortnight. I call that an unhealthy obsession.

And despite his clearly being my biggest fan and #1 cheerleader he also gets me quite wildly wrong.

There is certainly a possibility of an obsession there I agree. But I don\’t in fact get Ritchie wrong, far from it. This is something I\’ve said many times before but people still seem to be not quite understanding it.

I\’m a lefty. No, really, I am. I\’m a liberal, a progressive and a radical. Liberals are, as the word itself suggests, concerned with liberty, as I am. Progressives are those who believe in the power of the State to make things better and I most certainly agree with that. Radicals are those who think that we cannot simply tinker at the edges, we need some fairly major changes. About the only way in which I disagree with the basic propositions as usually understood is that in terms of progressivism I think that one of the ways the State can make things better is to stop doing some of the damn fool things it\’s already doing.

So, as such a lefty, why am I so in favour of things like markets, free trade, capitalism and so on? Those things which are generally thought of as the preserve of the \”right\”? (Let us leave aside that \”the right\” ain\’t been a friend of free trade shall we?)

Because they work.

If what you want is that the poor get richer, if what you want is an improvement in general living standards, if what you want is that the absolutely poor become only the relatively poor, then capitalism, markets and free trade are the only games in town. The unique thing about this really rather strange economic system is that it is the only one which has produced a general and long lasting rise in the standard of living of the average chelovek on the Chelyabinsk omnibus.

Which is why I Rag on Ritchie quite so much. To the possible point of obsession. I do him the courtesy of assuming that he wants just what I do. A better and richer world for those currently stuck in the absolute poverty that has been humanity\’s historical lot. Certainly he works with a lot of organisations who claim that this is their aim (Action Aid, Oxfam I think, Christian Aid and so on). It\’s just that his actual suggestions of how to get from here to our jointly desired goal strike me as entirely wrong.

And as such, as suggestions which are entirely wrong, they should be critiqued in the hope that by doing so his suggestions can be improved. For we do both desire exactly the same thing. That those in Africa, indeed those anywhere, should become just as fat, rich and happy as we pinkish people who by historical happenstance were the first to leave the Malthusian world behind.

It\’s a simple and observable fact about the world around us that those places which have been roughly capitalism and market based for a century or more are places where people are rich, fat and happy. Those places which have been roughly capitalist and market based for mere decades are those places where people are becoming rich, fat and happy, in what has been generally noted as the greatest reduction in poverty in the history of our species. Those places which have only just adopted these twin capitalist and market based policies are those places where the first stirrings of becoming rich, fat and happy are starting.

Those places which have never been and are not even attempting to adopt the capitalist, market based, structure are those places where people are not and are not becoming, rich, fat and happy.

Thus, as a good little lefty, one who desires that all of humanity share our own good fortune in being rich, fat and happy, I recommend that all of humanity adopt the economic system which made us so and which is making those who do adopt it as rich, fat and happy as we are.

And the Ragging on Ritchie is that, while he claims to want the same things, his recommendations are not that those others adopt the system that worked for us and is working for those that do adopt it. That is, that his recommendations are wrong.

Which seems like something worth getting obsessed about quite frankly.

Glorious Ritchie!

I have a feeling that Richard doesn\’t in fact understand what he\’s talking about here.

Has he learned nothing as yet?

This the old paradigm of the Washington Consensus writ large. Haven’t they noticed it was this that failed? It was this that created the crisis.

So, let\’s see what the Washington Consensus actually says, shall we?

The consensus included ten broad sets of recommendations:[1]

* Fiscal policy discipline;
* Redirection of public spending from subsidies (\”especially indiscriminate subsidies\”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
* Tax reform – broadening the tax base and adopting moderate marginal tax rates;
* Interest rates that are market determined and positive (but moderate) in real terms;
* Competitive exchange rates;
* Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
* Liberalization of inward foreign direct investment;
* Privatization of state enterprises;
* Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
* Legal security for property rights.

Now I cannot see there any policy proposal that I would argue against. In fact, I cannot see any policy proposals there that Ritchie would want to argue against.

I also cannot see anything in that which led to the current \”crisis\”.

Indeed, I can see that all of the varying (and entirely different) posited explanations of the causes of the crisis violate one or more of those suggestions.

If you go for the simple credit bubble leading to an asset bubble which then bursts explanation then that was in violation of point 4. If you go for the bankers getting out of hand one then that\’s a violation of point 9. If you go for Brown (or Bush, whoever) spending like a drunken sailor when the boom, according to basic Keynesian thought, should have been leading to fiscal contraction then that\’s a violation of point 1. If it\’s all about an overvalued dollar and an undervalued renmimbi then that violates point 5.

And so on, through the various different possible explanations of what actually happened.

So no, I don\’t see that the Washington Consensus can be blamed for what went wrong.

However, I can see that same consensus taking the credit where it was actually applied, in the developing nations….for yes, do note that the preachers weren\’t in fact following (as above) their preaching at home. Quelle Surprise. Jim Bakker and Jimmy Swaggart really were role models….

And what was the result of applying that Washington Consensus?

World poverty is falling. Between 1970 and 2006, the global poverty rate has been cut by nearly three quarters. The percentage of the world population living on less than $1 a day (in PPP-adjusted 2000 dollars) went from 26.8% in 1970 to 5.4% in 2006 (Figure 1).

Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.

I think I\’d call that a win really. Wouldn\’t you? The greatest reduction in poverty in the entire history of our species?

On the glory that is Richard Murphy

Ritchie reads a paper on the outcome of the Romanian flat tax.

It’s not a surprising finding – but it’s good to have it confirmed that flat taxes are unambiguously regressive.

What a glorious statement.

One flat tax in one country is regressive compared to the previous tax system in that country. Therefore all flat taxes in all countries are regressive compared to all other tax systems.

Just for the avoidance of doubt here, let us offer a small model.

Take the current UK tax system.

Now replace it with a flat tax (of, oooh, say, 50%) and a £22,500 personal allowance (roughly the median wage).

It would be very difficult indeed to state that the latter is regressive in any manner at all: especially as it would be vastly more progressive than the current system.

Yup, Ritchie again

But the issue is even more important than that. Without health and safety we would not have effective functioning markets in the UK.

You would not buy a coffee when out – it may not be safe. Or any food from supermarkets, for the same reason. Or drive a car – which would be a death trap.

The reality is health and safety gives us the confidence to buy. It does not harm markets and private enterprise – it’s the bed rock on which much of it is built.

Rilly?

So all those economists who have been shouting for decades that brand names are the market solution to exactly this problem are wrong then?

Please do note that I\’m not saying that regulation or legislation might not be better (or even worse) than the market solution. I\’m rather noting that Ritchie is insisting that regulation or legislation is the only possible answer.

As an example, the growth of Heinz was really rather built on the fact that in the early and unreliable days of food preservation their products killed rather fewer people than those of other manufacturers.

Or to offer a more modern example: who actually thinks that in the absence of legislation and regulation stating that it\’s a criminal offence to poison your customers that McDonalds would so relax their policies so as to poison their customers?

Or perhaps a slightly recondite example? As you regular readers know my day job involves dealing with weird and wonderful metals. In the metals markets we don\’t have legislation or regulation as to the quality of the materials that are sold. For things like copper, aluminium and so on we all use the London Metal Exchange system. You as a producer apply to have your production certified by this private sector organisation. Once you\’ve got it we all buy and sell this production quite happily. You can borrow against stocks and so on because banks agree that with an LME cert you\’re fine.

Move down the lists to minor metals like molybdenum, gallium, germanium and so on and there\’s not even such a central body. Sale and purchase is done by looking at the actual chemistry of the lot of material itself. We generally use a simple one page contract from the Minor Metals Traders Association (which has language along the lines of \”according to accepted industry standards\”) but there is no legislation or regulation. Those in the market know roughly what they expect to see and get.

The terms of how you complete a contract are generally understood (stick material into bonded, neutral, warehouse, get one of three or four companies to sample and analyse it, release it to buyer and get a telegraphic transfer in return) and are not based on legislation or regulation, simply on the basics of industry practice and a decent dose of Common Law.

Get to the weirdo stuff I deal with and there\’s not even something like the MMTA. Every deal, every specification, is unique. For example, in one oxide I deal with two customers insist that Th and U must be below 1 ppm and one will accept 5 ppm Fe and 2 or 3 ppm Zr while another demands Fe below 3 ppm and Zr below 1 ppm.

There is no regulation or legislation on any of this. It is purely my reputation on the line that I provide what the customer asks for. And if I don\’t I take the material back and do better next time.

No, I don\’t insist (at least not here and now) that this system is better than legislation or regulation. But I do insist (and with things like Th and U it is of course health and safety which is the issue) that in the absence of such legislation or regulation there is indeed a system still regulating the quality of goods provided.

It\’s called reputation: yes, I know this is an extreme example but in the tiny little world of weirdo and wonderful metals \”Worstall\” is a brand name and I make damn sure that that brand doesn\’t get damaged. Precisely and exactly because the maintenance of said brand makes me money.

As it does for Heinz, McDonalds\’, Johnson and Johnson* and everyone else out there trying to flog stuff to people.

*Anyone doubting this simple idea should try googling for \”Chicago Tylenol murders\”

What an interesting question from R. Murphy Esq.

What is the incidence of ‘enormous’ advisory fees?

Indeed, what is the incidence of such fees?

When the TUC hires R. Murphy to write a report, who actually carries that burden?

I don\’t know what Ritchie charges but  my own experience of the market would indicate something in the high hundreds of pounds to the low thousands of pounds for such reports.

So some group of trade unionists, somewhere, are paying their union dues, some of which flow upwards to the national organisation and then to Mr. Murphy.

When Christian Aid or Action Aid hire Murphy to write a report, where does the incidence lie then? Presumably some alternative or combination of donors to said charities or, if paid from internal resources, some group of starving children somewhere doesn\’t get that last few hundred pounds which could have been spent on food for them but instead went to gracing the Murphy family table.

What is the incidence of the Ford Foundation\’s subvention to the Tax Justice Network? I\’m not sure I\’m right here but I have in the back of my mind that they\’ve handed over some $250,000 or so. Presumably this is $250,000 that cannot be spent upon healing the sick of this world or some other charitable endeavour.

It\’s an interesting thing, this incidence of advisory fees, isn\’t it?

For of course it\’s entirely possible to go on to say that while the above might be true, the end result of such work and fees is that the world is made a better place. Certainly, while I\’m not entirely convinced myself that Ritchie\’s activities do make for a happier and better globe, I\’m entirely certain that he believes that he is doing so and as such his actions are to be applauded. Making a living by attempting make said world a better place is admirable and should be admired.

But then it\’s not only Ritchie\’s advisory fees that are subject to the same defence, is it?

On the incidence of a levy on the banks

This isn\’t an entirely thought out position here, more of just a little note.

We\’ve not seen the banks and the finance industry complain very much about the Robin Hood Tax proposal. Could be that they don\’t think it will ever happen, this is true. Could also be that they don\’t think that they\’ll be the people who will end up paying it….something which is indeed true.

A banking levy though (say, something like Obama\’s levy in liabilities) does seem to have got them stirred up:

Senior London bankers said they were \”deeply worried\” by the proposals that emerged over the weekend for a new tax, adding that if any measure were enacted unilaterally it could have disastrous consequences for the City of London and the financial services industry in the UK.

Now, looking purely at the politics of it, one whold assume that the greater the squealing the greater the effect on those squealing.

So whether they\’re right or wrong, bankers seem to think that the incidence of a levy will be upon bankers whereas the RHT will not be.

Again, I haven\’t worked through it all but that does sound plausible to me. A levy on liabilities would hit leverage the most. Leverage being what produces the profits (no, banking is not wildly profitable, you get high returns on capital by piling lots of debt on capital). Thus a tax on leverage will lead to less leverage and thus lower profits and, presumably, lower bonus pots for bankers.

All of which is what makes it so strange that those shouting (like Ritchie) that we must have lower bonuses and lower bank profits tell us that said tax on liabilities is a bad idea while a transactions tax like the RHT is a good one.

Now it\’s absolutely true that there are other issues with such a liabilities tax as well. The effect is the same as demanding higher capital ratios (which we\’re also doing) for lower leverage means just that, less debt piled upon the bank\’s capital.

Both make it more difficult for a bank to lend (which is the point of course) meaning that they will each shrink the amount of bank loans possible to industry, consumers etc. This might not be exactly what we might want to do in the middle of a recession (given that insistence that the banks must increase their lending for example)….but we must also make the difference between the right thing to do in a recession and what we might need to do to balance the economy over the longer term.

Just as we should make the difference between cyclical and structural deficits, the correct level of interest rates, QE and so on.

As I say (yet again!) this is a first pass at the subject. But if there do need to be changes to banking then this charge on liabilities seems better than one on transactions. And the fact that the bankers are squealing more about the liability tax would seem to be an indication of exactly that point.

BTW, before we get the claim that such heretical thoughts mean that I must hand in my libertarian secret decoder ring. One of the differences between a libertarian and a classical liberal like myself is, I think, the acknowledgement that yes, banking really is different. It is a business where the State has a both necessary and desirable role. No, not running the banks, no, not directing their activites but yes, regulation.

Ritchie\’s done it again!

Yes, he\’s written the Robin Hood Tax submission for the budget.

The first is to raise revenues from banks and related organisations to help pay for the economic crisis they have caused.

And yes, as you can see, he\’s not been listening to a single word that people have been telling him for weeks.

It\’s that old tax incidence thing. The banks won\’t be the people paying up. It will be all of the users of financial markets who will. Yup, you and me again.

Oh for crying out loud. He actually tells us this in his own damn report!

This rate would have a minimal effect on spreads. A 0.005 per cent increase in the spread is well within normal market fluctuations ? spreads of all the major currencies commonly fluctuate by 1 basis point, sometimes more. In recent years the overall trend has been for spreads to narrow (between 1986 and 2006 for example the $/£ currency market spread decreased by 4.68 basis points), meaning a tax at this low rate would only increase spreads to levels seen a few years ago.

See! Even he\’s saying that spreads will widen! And thus this incidence of the tax will be on all those people who use financial markets because they\’ll have to pay the wider spreads!

This is what\’s so bloody infuriating about the man. He\’s got the (possibly misplaced) self-confidence to think that he knows how to correct the world\’s entire financial system and yet he\’s entirely incapable of seeing the logical implications of his own statements.

Right from the beginning of this I\’ve been saying that the incidence will fall upon all users of financial markets because spreads (margins, bid/ask differences call it what you will) will widen. All and every user of the markets will therefore have to pay these higher costs.

Richard has been saying that of course Worstall is simply a neo-liberal baby eater protecting his paymasters the bankers.

Richard now, in his own document pushing the case for the RHT says that margins will widen.

Which means that Worstall has been right all along of course.

Lordy, he gets worse:

Secondly, we argue that while banks and others could seek to pass on the cost of this tax to consumers this need not happen. Regulation could support this objective. Bank charges and rates to small businesses, individual customers and personal borrowers must be properly regulated to reflect the cost of providing those services, and not increased to cover costs incurred in other areas of bank operations. We suggest this regulation is streamlined with other bank regulation already under discussion.

We\’ve all kept telling him that incidence isn\’t about attempts to pass along a tax. It\’s that a tax will change behaviour and that such changes in behaviour will impose costs on some people. If margins widen then everyone has to pay those higher margins. There\’s absolutely Sweet FA to do with whether banks are trying to pass on the costs nor whether regulation could prevent it.

The kind of sums that experts estimate might be raised by a system of FTTs can easily be found from the profits of financial institutions and is not unreasonable – particularly given the moral duty on banks to help pay for the damage caused by a recession largely made in the finance sector.

Sweet Jesu, help us! How many bloody times does this have to be pointed out? The incidence comes from changes in the margins in the marketplace, not whether banks agree (or don\’t agree) to pay the tax out of their profits!

Even to the extent they can pass on extra costs it will tend to fall on high net worth individuals who benefit from the financial transactions, not a regular user of high?street bank services.

No, if margins increase then everyone has to pay the higher costs. The burden will be carried by the bloke changing money for booze on holiday just as much as anyone else. Gaaaah!

The argument of many who oppose Robin Hood Taxes is that they would reduce liquidity in financial markets. In this context liquidity is argued to be important because, in theory, if markets are sufficiently liquid no single transaction will be sufficiently significant to alter the price at which trades take place. The theory that significant liquidity of this type is optimal is, of course, based on the logic of the efficient market hypothesis, a theory that has now been questioned by the UK’s Financial Services Authority, amongst others.

What\’s he on about here? Snigger….he\’s not has he? Made a submission to the Treasury using his ghastly misunderstanding of what the EMH actually is?

You know, I think he has.

Richard, please read this. You\’ll become much better informed.

Sigh. The argument about liquidity is that if you reduce itn then margins will widen. If margins widen then the incidence of the tax is on all market users. Please see above…..

The reality is that theory and practice have clearly not coincided. The current exploitation of the euro in the face of problems within the Greek economy is clear indication that trades are being undertaken in large quantity with the explicit aim of moving prices whilst it is very obviously the case that the consequence of that movement in price is damaging to Greece and the whole population of Europe.

Yes, it\’s another Ritchconception. He\’s got confused (again) between the value of the euro and the premium that the Greek Government has to pay on its debt. A fall in the value of the euro of course helps Greece while a rise in the debt premium does not.

Is there no beginning to this man\’s understanding of finance?

Could I offer just a smidgeon of advice to anyone thinking of running a political (or as he would put it, \”civil society\”) campaign?

Do not let Richard Murphy write your reports. Not if you want to be taken seriously that is.

The latest GFI report

Two things stand out from my entirely cursory skim of this new report (cursory because my word this really is getting boring having to point to the silliness of much of this research):

PRIVATELY HELD, NON-RESIDENT DEPOSITS IN SECRECY JURISDICTIONS

The first is this:

Furthermore, we find that such deposits have been growing at a compound rate of 9 percent annually over the last 13 years, far faster than the growth in world GDP at 3.9 percent per year.

You know, if you\’re going to use a nominal value then you\’d better compare that to other nominal values. The 9% includes inflation (and one would assume returns to investments as well) so we should compare it with whatever inflation and returns to investments are.

No, I don\’t know the numbers either but I could certainly imagine that 9% is the nominal return to investment meaning that there\’s been no growth at all in the sense of extra money going into such accounts. Just the same amount there always was growing over time.

This is even more amusing:

We find that such deposits are currently approaching US$10 trillion, with the United States, the United Kingdom, and the Cayman Islands each holding more than US$1.5 trillion.

In a global financial system people invest money in accounts in a) the global hegemon and b) the world\’s global financial centre.

Whocoulda\’nowed?

Final point. This report identifies $10 trillion and makes very clear that this is the total. Some portion of it (anything from very little to almost all) is entirely legit, taxes are paid on it, there\’s nothing at all to worry about.

Within a few weeks the next report from the same cabal will be using the same estimate of $10 trillion as the amount that is illegally being hidden from the taxman. We\’ll also get an estimate of a \”reasonable return\” which I\’ll, just for giggles, peg at 5% meaning that there\’s $500 billion a year in income being hidden from the taxman, that at headline rates (the assumption will be that this is all rich people who pay high tax rates doing it) there is therefore $250 billion a year being unjustly deprived to the Treasuries of the world and this shows that WE MUST DO SOMETHING NOW.

The caveats about not knowing jack shit about whether tax is being avoided at all will be forgotten or deliberately glossed over.

One further minor prediction. We\’ll see comparisons between $10 trillion in wealth and $60 trillion in global GDP. \”16% of global GDP is being hidden from the taxman\” sort of thing. When of course we should be comparing wealth with wealth…..\”5% of global wealth is held out of reach of thieving governments\” would be more accurate.

Prizes for the first person to spot my predictions becoming reality.