November 20, 2014

“The Piketty Gang ride in, a hollerin’ an’ a whoopin’ and take all the money from Scrooge McDuck”

Filed under: Economics, Media — Tags: , , — Nicholas @ 12:30

At Forbes, Tim Worstall explains why — despite the headlines — Piketty didn’t actually change economics:

That optimal taxation theory really rests on two things that we’re pretty sure are true. The first being that Laffer Curve thing. No, this doesn’t mean that all tax cuts pay for themselves. Rather, that it’s possible for tax rates to be so high that they actually reduce the amount of tax revenue being collected. A nice example of this is the latest rise in New York’s cigarette tax: less money in total is now being raised even though the tax rate has risen. Given that our primary purpose in taxing is to get the money we need to run the government that we must have (as ever, my opinion being that we might want to have less government, and thus lower taxes, than we currently do but that’s another matter) having a tax over the revenue maximising rate just isn’t sensible.

The second pillar is that we know that different taxes destroy different amounts of economic activity for the same revenue collected. As above, we want to gain revenue but obviously we also want it at the least cost. That means getting as much of it as we can from the low deadweight costs taxes and as little of it as we can manage from the high cost ones. We also know how the spectrum looks. At the lowest deadweight costs we have repeated taxes on real property (say, a land value tax), then taxes upon consumption (VAT or sales taxes) then on incomes and highest of all, upon corporates and capital. There’s one off the spectrum, transactions taxes like the financial transactions tax, but that’s so silly that no one serious is suggesting it.

So, standard and general theory insists that we shouldn’t be taxing corporates and capital at all if we can manage it and also that we don’t want to have very high taxes rates on anything.

So, if for political (or even emotional) reasons you think that we really should be gouging the rich then you’re going to have to go find yourself some new economic theories. And that, I think, is really what is going on here with Piketty and the gang (slightly catchy that, isn’t it? The Piketty Gang ride in, a hollerin’ an’ a whoopin’ and take all the money from Scrooge McDuck?). They want to find a reason to tax wealth, something conventionally contraindicated, and they want to have very high income tax rates, something also contraindicated by conventional theory. So, rather than try to overturn that conventional theory they’re bypassing it. Ignoring it even and just bringing up the idea of inequality instead to see if that will convince people.

November 19, 2014

A worthwhile Zambian initiative

Filed under: Africa, Economics, Law — Tags: , — Nicholas @ 07:43

Tim Worstall unexpectedly finds himself on the same side of an economic and political question as a Green Party politician from Zambia:

This strikes me as being one of the very few good ideas that has been put forward at any recent election in any country that I’m aware of. A Zambian politician has decided that, given that the world seems to be moving toward legal medical marijuana at least, if not full legalisation, then that country should make use of its comparative and absolute advantage in growing the stuff and thus supply it to the rest of the world. […]

It’s slightly disconcerting to find myself agreeing with a politician, let alone one from the Green Party, but as I say this strikes me as an excellent policy.

Let’s start from the beginning: all of us liberals (whether economic or social liberals) agree that allowing people to legally toke is a thoroughly good idea. The drug itself is almost entirely harmless (obviously less so than tobacco for example, and those stories about it bringing on schizophrenia and the like are more to do with people becoming schizophrenic self-medicating than anything else) and being banged up in a jail cell, convicted of a felony, for having possession of a joint or two is going to do far more harm to your life chances than actually smoking them.

If we’re going to agree to that (and I agree people not liberals of any flavour may not) then similarly clearly we would like the best dope we can get at the lowest possible price. Given that this is true of every other product we consume it’s going to be true of this one too. And that means that if other places around the world can produce it better, or more cheaply, or some combination of the two, than we can then we should be trading with them.

November 18, 2014

Finland’s Great(est) Depression

Filed under: Economics, Europe — Tags: , , — Nicholas @ 00:03

Lars Christensen explains why — economically speaking — Finland is suffering through an economic phenomena even worse than the Great Depression:

In my post from Friday — Italy’s Greater Depression — Eerie memories of the 1930s — I inspired by the recent political unrest in Italy compared the development in real GDP in Italy during the recent crisis with the development in the 1920s and 1930s.

The graph in that blog post showed two things. First, Italy’s real GDP lose in the recent crisis has been bigger than during 1930s and second that monetary easing (a 41% devaluation) brought Italy out of the crisis in 1936.

I have been asked if I could do a similar graph on Finland. I have done so — but I have also added the a third Finnish “Depression” and that is the crisis in the early 1990s related to the collapse of the Soviet Union and the Nordic banking crisis. The graph below shows the three periods.

Three Finnish depressions


The most interesting story in the graph undoubtedly is the difference in the monetary response during the 1930s and during the present crisis.

In October 1931 the Finnish government decided to follow the example of the other Nordic countries and the UK and give up (or officially suspend) the gold standard.

The economic impact was significant and is very clearly illustrate in the graph (look at the blue line from year 2-3).

We have nearly imitate take off. I am not claiming the devaluation was the only driver of this economic recovery, but it surely looks like monetary easing played a very significant part in the Finnish economic recovery from 1931-32.

November 15, 2014

QotD: Women, careers, and equality

Filed under: Business, Economics, Quotations — Tags: , , , — Nicholas @ 00:01

So what do you do about women who freely make choices that perpetuate structural inequalities? Do you stop them from making the choices? Neither Harvard, nor Kantor, seems to have a good answer. But that is the core dilemma. Maybe women drop out because they have a deeper biological connection to their kids. Maybe they do so because they’re raised to be nurturers, or maybe because they don’t feel the same personal anguish that a man does when he gives up on the dream of a top-flight career. Maybe if men felt they had the option to stay home, more would. And maybe women find the role of breadwinner more stressful than men do — all the women I know who are the primary earners are neurotic about it in a way that the men I know don’t seem to be. I’m not talking about the fear that your partner will resent your success; these are women married to admirably feminist men. I’m just talking about a near-constant fear that you will not be able to provide, and your family will end up horribly destitute. I’m not saying that men don’t experience that worry, but they don’t seem tormented by it the way the women I talk to are.

Or maybe it’s that women just don’t want it badly enough. In my experience, one of the reasons that women drop out of finance, and 80-hour-a-week fields more generally, is that they just don’t want it as badly as the men. In their 20s, they’re happy to work those kinds of hours, even at tasks they find boring. They do well at them, too. But a lot of these jobs aren’t actually that rewarding as work: The investment banking associates I observed seemed to spend most of their time on basically clerical tasks, tabulating data and proofreading PowerPoints. And eventually most of the women seem to say “You know, I just care more about relationships than I do about success.” There are always exceptions on both sides: women who will sacrifice anything for the career they feel called to and men who would rather be home. But on average, the women I talk to just aren’t nearly as willing to sacrifice close friendships, and family relationships, for the sake of their jobs.

We can say that they shouldn’t have to, of course, but the sad fact is that there are trade-offs in this world. In your 20s you can finesse them — work super hard and also have a roaring social life — because you have boundless energy and no one depending on you. This is the age at which young women write furious articles and Facebook posts denouncing anyone who suggests that women opt-out of high pressure jobs for any reason other than the rankest sexism.

As you age, your body refuses to cooperate with your plan to work from 7 a.m. to 11 p.m. and then hang out with friends. Your parents start to need you more, if only to lift heavy things. And of course, there are kids. You start having to make direct trade-offs, and then suddenly you look up and you haven’t seen your friends for two years and your mother is complaining that you never call. This is the age at which women write furious articles defending their decision to step back from a high-pressure job and/or demanding subsidized childcare, generous paid maternity leave and “family friendly policies,” a vague term that ultimately seems to mean that people who leave at five to pick up the kids should be entitled to the same opportunities and compensation as people who stay until 9 to finish the client presentation. These pleas usually end (or begin) by pointing to the family-friendly utopia of Northern Europe, except that women in Europe do less well at moving into high-test management positions. Whatever the government says, someone who takes several years off work is in fact less valuable to their company than someone who doesn’t.

Megan McArdle, “Harvard’s Gender Bender”, Bloomberg View, 2013-09-10

November 13, 2014

“Class matters far less than it used to in the 19th century. Citizenship matters far more.”

Filed under: Britain, Economics, History — Tags: , — Nicholas @ 00:02

Tim Harford — white, male Oxford grad and child of Oxbridge-educated parents — checks his privilege:

All these accidents of birth are important. But there’s a more important one: citizenship. Gillian, Simon and I are all British citizens. Financially speaking, this is a greater privilege than all the others combined.

Imagine lining up everyone in the world from the poorest to the richest, each standing beside a pile of money that represents his or her annual income. The world is a very unequal place: those in the top 1 per cent have vastly more than those in the bottom 1 per cent – you need about $35,000 after taxes to make that cut-off and be one of the 70 million richest people in the world. If that seems low, it’s $140,000 after taxes for a family of four – and it is also about 100 times more than the world’s poorest people have.

What determines who is at the richer end of that curve is, mostly, living in a rich country. Branko Milanovic, a visiting presidential professor at City University New York and author of The Haves and the Have-Nots, calculates that about 80 per cent of global inequality is the result of inequality between rich nations and poor nations. Only 20 per cent is the result of inequality between rich and poor within nations. […]

That might seem obvious but it’s often ignored in the conversations we have about inequality. And things used to be very different. In 1820, the UK had about three times the per capita income of countries such as China and India, and perhaps four times that of the poorest countries. The gap between rich countries and the rest has since grown. Today the US has about five times the per capita income of China, 10 times that of India and 50 times that of the poorest countries. (These gaps could be made to look even bigger by not adjusting for lower prices in China and India.) Being a citizen of the US, the EU or Japan is an extraordinary economic privilege, one of a dramatically different scale than in the 19th century.

QotD: Unintended consequences

Filed under: Business, Economics, Europe, Government, Quotations — Tags: , , — Nicholas @ 00:01

After World War II, many left-wing European governments wanted to do something about unemployment. As I discuss extensively in my book, unemployment is about the worst thing that can happen to you in a modern democracy, short of death or dismemberment. So they passed laws making it very, very difficult to fire workers. In Italy, for example, a judge could reverse a layoff decision, not because you’d fired the worker unjustly, but because the judge didn’t think you needed to cut staff. Hurrah! Finally, workers were protected from the dark specter of unemployment!

Well, not quite. Workers were thrilled; employers were terrified. Now hiring a worker meant you were stuck with them unless they committed some absolutely flagrant offense — like, say, emptying the till and running out the door.

That’s a hell of a commitment to make to someone you barely know. So employers didn’t want to hire scary strangers; they wanted to hire close friends and family. Or, better yet, no one at all. Youth unemployment in many of these nations was staggering. The insiders had a great deal, but people without jobs found themselves consigned to a series of temporary, not-very-well-paid contracts. Or the dole.

The lesson is that when you make it harder to exit, you also make people reluctant to enter.

Megan McArdle, “Can Limiting Divorce Make Marriage Stronger?”, Bloomberg View, 2014-04-16

November 12, 2014

QotD: Europe’s banking trap

Filed under: Economics, Europe, Quotations — Tags: , , , , — Nicholas @ 00:01

Banking is a service, […] and a service has a cost associated with it. Modern banking has all kinds of fees and charges associated with it. But depositors are often charged for keeping too low a balance in their savings or checking accounts, not too large a balance. What’s going on here?

Central banks have created this monster via the regimen of ZIRP (Zero Interest Rate Policy). This is a way of implementing Keynesian stimulus, but central banks have run up against the liquidity-trap wall: interest rates cannot fall below zero. Monetary policy stops working at the zero-interest boundary.

For central banks, the problem is that in a slow-growth economy (or actually a recessive one) a paradox arises where rational behavior on the part of savers leads to bad results: consumers save their money out of concern for the future, but the economy — starved of the cash that fuels it — slows still further. This is the argument behind Keynesian stimulus; inject more (newly-printed) money into the economy until people stop being scared and start spending freely again (with their own money and borrowed money). The danger of inflation looms, however, so central banks try to implement various regimes to keep it under control (with varying degrees of success).

This theory founders on the shoals of reality, alas. It’s rational for people to save money, particularly during bad times, because people believe their currency stock to be an appreciating (or at least a constant-value) asset. But when a sovereign inflates (devalues) its currency to solve a short term economic problem, they run the risk of damaging confidence in the currency itself. Inflation may inject some nitrous oxide into the engine of the economy for a short time, but the outcome may be a blown engine (i.e., a ruined currency, as it was during the Weimar era).

When people lose trust in a fiat currency, it’s nearly impossible to restore confidence in it. Trust is all a fiat currency has — without trust, fiat currency is just worthless paper. This is really the core of the sound-money argument: deflation is bad because it can stall an economy and make debt servicing murderously difficult, but inflation is worse because it wrecks the currency itself. Hard-money currency regimes may be somewhat prone to deflationary cycles, but at least they never go to zero value; they always retain some value. Fiat currencies can go to zero.

Monty, “DOOM: The Wrath of Draghi”, Ace of Spades H.Q., 2014-11-06.

November 5, 2014

It’s not a paradox after all – Easterlin refuted

Filed under: Economics — Tags: , — Nicholas @ 00:02

Tim Worstall explains that the so-called Easterlin Paradox — that economic growth did not make people happy — is clearly not supported by the evidence:

As background here: the basic paradox that Easterlin pointed to is that, past a certain level (roughly when we’ve become rich enough to solve the supply of basic creature comforts like food, shelter, clothing etc, something like a GDP per capita of $15,000 say), a country getting richer doesn’t seem to make the population any happier. While we’ve now got rather better data than he could work with, and thus we know that people do keep getting happier but at a much lower rate, that basic idea has proven very popular. Of course it has: for it’s allowed all sorts of people to argue that we don’t have to chase that Great God, GDP, and we can thus do things that make people happier and not richer. It’s a lovely argument to use when someone objects that taxing the heck out of the rich will reduce growth for example. For one can just riposte that more growth wouldn’t make people happier while taxing the heck out of the rich would. It’s used as the opening argument in The Spirit Level in this manner: as higher GDP doesn’t make people happier we can therefore concentrate upon inequality instead. And there’s many other such uses around and about.

I’ve never thought that was quite right and I said so. My argument being that it’s not the level of economic wealth that makes people happy or unhappy (above that basics level that is). Rather, it’s the direction of change of it. If a country is gradually getting richer then people will be happier than if the economy is stagnant or shrinking. And the association of greater happiness with the richer countries is not really because they are richer, but because in becoming rich those countries have obviously had decades, if not centuries, of gradually rising incomes: that very thing that makes people happy.

November 3, 2014


Filed under: Economics, Media — Tags: , , — Nicholas @ 07:18

In The Federalist, Robert Tracinski responds to last month’s Reason.tv list of the top five anti-libertarian TV shows with a stirring defence of Star Trek:

… there are occasional statements by our lead characters, particularly in Star Trek: The Next Generation, about how the economy has evolved beyond money. As I have pointed out elsewhere, this is an unfortunate bit of pseudo-science: “A complex, technologically advanced economy that runs without money, prices, and markets is like a starship powered by a perpetual motion machine.” There’s a more detailed takedown at Hot Air which asks: “Who Mines the Dilithium?

Some of this was toned down as The Next Generation got its dramatic feet under it and the writers gradually disentangled themselves from the mandates of Gene Rodenberry’s liberal utopianism. When you have to take an idea and project it into concrete terms, you quickly discover what really makes sense and what just doesn’t work. For example, having an empath as a part of the command team seems like a great idea — until you discover that she is only really capable of delivering the most banal insights. So that element of the story is downgraded. The same happened as Star Trek continued, particularly with the Ferengi, a race of galactic traders who start out as a crude anti-capitalist caricature (which borrowed uncomfortably from Nazi caricatures of Jewish bankers). Over the course of the franchise, particularly in Deep Space Nine, they were humanized (so to speak) and transformed more into lovable rogues, while Quark’s bar provided Deep Space Nine with its thriving commercial hub.


It’s important to draw a distinction between what a work of art tells you and what it shows you. In the world of Star Trek, there are a few, infrequent references in which we are told that the economy works (somehow) without prices. But the socialism all happens quietly off screen, and it’s not what the show is actually about. The show is about the culture and approach to life of those on board the Enterprise (or the other vessels in later spin-off series). And the culture of the Federation bears none of the hallmarks of a socialist society.

When people are provided with a guaranteed living, whether they work or not, they don’t generally devote themselves to self-improvement, the betterment of mankind, the writing of deathless poetry, or the peaceful exploration of the galaxy. Instead, they tend to stop working, striving, or putting forth any effort at all, not even the effort of changing out of their pajamas in the morning. To the extent they do work, since effort has been disconnected from reward, they tend to avoid as much effort as possible. In the Soviet Union, there was an old joke: “We pretend to work, and they pretend to pay us.” And when rewards and advancement are no longer connected to a person’s productivity, they tend to be distributed according to an alternative currency of political pull. So all organizations end up being run by preening politicians, scheming bureaucrats, and drone-like functionaries who are skilled at pushing paper and going through the motions of production rather than actually producing anything.

What we are shown on Star Trek is the opposite. As Virginia Postrel has pointed out, based on a survey of her readers, the actual appeal of Star Trek is that it presents a kind of ideal capitalist workplace.

    In Star Trek, the work is meaningful; the colleagues are smart, hard-working, competent and respectful; the leaders are capable and fair; and everyone has an important contribution to make…. Deep friendships develop from teamwork and high-stakes problem-solving. It’s the workplace as we wish it were.

November 2, 2014

It’s safe to just ignore the World Economic Forum’s report on pay gaps

Filed under: Economics, Media — Tags: , , , , — Nicholas @ 08:37

In Forbes, Tim Worstall looks at how the World Economic Forum came up with their scary conclusions that the pay gap between men and women won’t disappear until 2095:

And that’s it: no, really, that is what they’re basing, in its entirety, their estimations of the gender pay gap upon. They asked a few people whether they thought that men and women got roughly the same pay for roughly the same sort of job or not and that’s it. This isn’t cutting edge data science to put it very kindly indeed.

For when we go off and look at the messy details of the gender pay gap we find that we’ve not really got one, not in the industrialised countries. Once we correct for the obvious things like hours at work, years in the workforce, educational background and so on we find that the mythical gender pay gap (that “women earn 77 cents to every $ men do”) simply disappears. There might be a small residual, a few percent, left in there but not enough that we can really notice. And quite apart from anything else it’s actually illegal to pay men and women different amounts for doing the same job (if on the basis that the different pay is purely as a result of their being men or women that is).

So, no, we shouldn’t be taking this report or finding seriously. And there’s more than just the fact that they’re using a survey to measure that gap. For of course the printing of this report will lead to, as the other incorrect claims about the gender pay gap do, a certain circularity of reasoning.

Ask someone: “Are men and women paid equally?” And they’ll start thinking about whoever it was that said that 77 cents line, recall that last year the WEF said that gender pay inequality was very bad indeed. So, now we come to asking them the same question for the next WEF survey and their answer will be influenced by the cacophony of voices that have been telling them how bad the gender pay disparity is. Including, obviously, last year’s WEF report that said so. It’s entirely circular and self-reinforcing.

Really, we shouldn’t be taking this stuff seriously.

October 30, 2014

“Free Trade” deals usually have little to do with actual free trade

Filed under: Americas, Economics, USA — Tags: , , , , , — Nicholas @ 00:02

It’s not exactly a revelation that what politicians call “free trade” agreements are usually tightly constrained, regulated, and micro-managed trade: almost the exact inverse of what a genuine free trade deal would look like. This is primarily because politicians and diplomats have hijacked the original term to describe modern mercantilism. In The Diplomat, Ji Xianbai looks at how so-called free trade negotiations are little more than diplomatic beat-downs of the weaker parties by the stronger:

The classic mercantilism, the one associated with the idea that the precious metals obtained through a favorable balance of foreign trade were essential to a powerful nation, may be historically obsolete. The core of the mercantilist view, namely that self-interested states maximize economic development by optimizing political control to strengthen national power, is very much alive and well. Indeed, the vitality of mercantilism as a state of mind may have infiltrated every corner of the international political economy. If one considers the essence of mercantilism through Robert Gilpin’s definition – the attempt of governments to manipulate economic arrangements in order to maximize their own interests – multiple examples immediately come to mind: Japan’s “economic totalitarianism” system in which the entire society was united in deterring foreign competition in the postwar period, China’s ascendance since 1980s through an export-led development mode underpinned by a deliberately undervalued currency, and Germany’s unprecedented trade surplus accrued from the stringent austerity imposed on its economy to sustain competitiveness in the aftermath of the euro crisis.

Compared to those national triumphs of classic mercantilism, there is a less visible showroom, but one in which mercantilism presents itself over and over again in the form of legal mercantilism. This would be free trade agreements (FTAs), negotiations of which are usually kept in the dark. In bilateral FTA negotiations, legal mercantilist governments endeavor to impose their own (or desirable) trade rules and economic policies on other sovereign countries, usually with the aid of a combination of economic immensity, political hegemony, and asymmetric trade dependence, to create a sort of “international best practice,” favorable trade rules, and legal gains that can be leveraged and multilateralized at a regional and/or global level. The “competitive liberalization” strategy aptly pursued by the U.S. since 2002 is one such legal mercantilist policy, which aims to create another “gold standard” in international trade standard setting to project U.S.-friendly economic policies all over the world. In short, the U.S. expects the trade policies of other nations to follow those of the U.S., in the same way that their currencies used to peg to the U.S. dollar.

The U.S.–Peru FTA (PTPA) marks the very first success of Washington’s attempts to subordinate other countries’ sovereignty to its own national interest by squeezing non-trade-related provisions into a bilateral trade liberalization agreement and overriding foreign national laws. To provide a level playing field for American companies, the PTPA lays out detailed measures that Peru is obliged to take to govern its forest sector. The Forest Annex of the PTPA requires Peru to set up an independent forestry oversight body and even enact new Forestry and Wildlife Laws to legalize key provisions of PTPA. The U.S.–Colombia FTA (CTPA)’s labor provisions represent an “even more blatant assault on another country’s sovereignty.” Meanwhile, Colombia was forced to agree to establish a dedicated labor ministry; endorse legislations outlawing interference in the exercise of labor rights; double the size of its labor inspectorate; and set up a phone hotline and an internet-based system to deal with labor complaints. Examples of similar provisions abound: Don’t forget that the U.S.-Panama FTA has “helped” revamp Panama’s tax policy on behalf of Panamanians.

QotD: Conservative versus Liberal views on jobs

Filed under: Economics, Media, Quotations, USA — Tags: , — Nicholas @ 00:01

For the conservative, people are an asset — in the coldest economic terms, a potentially productive unit of labor. For the progressive, people are a liability — a mouth to be fed, a problem in need of a solution. Understanding that difference of perspective renders understandable the sometimes wildly different views that conservatives and progressives have about things like employment policy. For the conservative, the value of a job is what the worker produces; for the progressive, the value of a job is what the worker is paid. Politicians on both sides frequently talk about jobs as though they were economic products rather than contributors to economic output, as though they were ends rather than means. The phrase “there aren’t enough jobs” is almost completely meaningless, but it is a common refrain.

Kevin D. Williamson, “Welcome to the Paradise of the Real: How to refute progressive fantasies — or, a red-pill economics”, National Review, 2014-04-24

October 28, 2014

Self-driving trucks may be more significant (in the short term) than self-driving cars

Filed under: Business, Economics, Technology — Tags: , — Nicholas @ 07:25

At Samizdata, Brian Micklethwait looks at the likely short-term impact of driverless vehicles:

Robot passenger cars will eventually bring huge benefits. They will be epoch making, when the robot car epoch does finally arrive. I truly believe this. But in the shorter run, the problems of robot cars strike me as bigger than all the car and hi-tech companies are implying, and the benefits less immediate. Robot cars will presumably be good at finding their own parking spaces, and at making themselves useful to others if you aren’t using yours. Robot cars will presumably be less prone to error than humans, except when that turns out not to be the case. But what of those potholes?

In the meantime, making lorry (as we Brits call “trucks”) transport only somewhat more efficient will yield huge, very quantifiable, and fairly immediate benefits. Even if all they do to start with is robotise lorries on motorways, that would surely make a huge difference.

The motorway is the natural habitat of the big lorry, and is a place of far greater predictability than roads in general and hence more congenial for robots, especially robots in their early stages. Motorways are already highly controlled places, and are surely the right part of the road system to start introducing robots, not country lanes or city streets filled with complicated and unpredictable hazards.

Human lorry-drivers get tired, but robots don’t. A robot lorry could cross a continent with all the dogged, error-free serenity of a jumbo jet on autopilot crossing the same continent in the air.

At first, humans would need to sit in the lorries to check on their progress all the time, but pretty soon the human could be taking a nap and it wouldn’t matter. Not long after that, once everything has been shown to work, humans would not be needed to sit in lorries on motorways at all. Soon, all that the humans would need to do is collect the lorries (perhaps just the load bit) from their local off-motorway lorry parks, to which the robot lorries had driven themselves. Upon that solid technological foundation, lorries further into the future could then start travelling much faster. (I seem to recall a plan to concrete over railways and turn them into roads. Maybe that notion will be revived.) They could also make their way into the road system generally. The economic impact will surely be colossal, and more immediate than is the case for robot cars.

Facebook‘s UK tax picture

Filed under: Britain, Business, Economics — Tags: , , , , — Nicholas @ 07:17

Tim Worstall explains why it’s not a scandal that Facebook doesn’t pay more taxes in the UK:

In fact, it’s actually rather a good idea that Facebook isn’t paying UK corporation tax. For the standard economic finding (also known as optimal taxation theory) is that we shouldn’t be taxing corporations at all. Thus, as a matter of public policy we should be abolishing this tax: and also perhaps applauding those companies that take it upon themselves to do what the politicians seem not to have the courage to do, make sure that corporations aren’t paying tax.

That isn’t how most of the press sees it, of course


That’s an extremely bad piece of reporting actually, for of course Facebook UK did not have advertising revenue of £371 million last year: Facebook Ireland had advertising revenue of that amount from customers in the UK that year. And that’s something rather different: that revenue will be taxed under whatever system Ireland has in place to tax it. And this is the way that the European Union system of corporate taxation is supposed to work. Any company, based in any one of the 28 member countries, can sell entirely without hindrance into all other 27 countries. And the profits from their doing so will be taxed wherever the brass plate announcing the HQ of that company is within the EU. This really is how it was deliberately designed, how it was deliberately set up: it is public policy that it should be this way.

We could also note a few more things here. The UK company itself made a loss and that loss was because they made substantial grants of restricted stock units to the employees. And under the UK system those RSU grants are taxed as income, in full, at the moment of their being granted. Which will mean, given those average wages, at 45% or so. And we should all be able to realise that a 45% tax rate is rather higher than the 24% corporation tax rate. The total tax rate on the series of transactions is thus very much higher than if Facebook has kept its employees as paupers and just kept the profits for themselves. Further, those complaining about the tax bill tend to be those from the left side of the political aisle: which is also where we find those who insist that workers should be earning the full amount of their value to the company which is what seems to be happening here.

Civil service pensions

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 07:12

In City Magazine, Steven Malanga looks at Canada’s civil service pension problems, which may not be quite as bad as some US state problems, but are still going to be a source of conflict going forward:

Governments throughout the country are grappling with as much as $300 billion in unfunded government-worker retirement debt. In a country of just 38.5 million people, that’s a pension problem roughly equivalent to the one that California faces. And it’s widely shared.

Municipalities throughout Quebec, for instance, owe some $4 billion in retirement promises that have yet to be funded, prompting the province’s new Liberal government to demand this summer that workers pay more to bolster the system. A new report on the finances of Ontario’s government-owned utilities revealed their pensions to be unsustainable without deep subsidies from Canadian electricity customers. For every dollar that workers contribute toward their retirement, government-owned utilities now spend on average about four dollars, raised through electric bills—though the cost is even higher at some operations. The news is even bleaker at the federal level, where Canada faces more than $200 billion in total retirement debt for public workers, when the cost of future health-care promises made to public-sector workers is combined with pension commitments. One big problem is pension debt at Canada Post, whose budget is so strained that the federal government gave the mail service a four-year reprieve on making payments into its pension system, even though it’s already severely underfunded.

At the heart of Canada’s pension woes are some of the same forces that have helped rack up several trillion dollars in state and local pension liabilities in the United States. For years, Canadian governments have provided generous pensions at low costs to employees. Workers could earn full benefits while retiring in their mid-fifties, even as they lived longer. Politicians relied on optimistic assumptions about stock-market returns to justify those benefits. Governments were quick to grant additional benefits to politically powerful employee groups, but they underfunded pensions when budgets got tight.

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