Left-wing Myths.

Of course people have left wing views when they’re ignorant of such concepts as Tax Incidence and have opinions formed around myths like “world inequality is rising”, which went unchallenged on “thought for the day” this morning. Of course, with the Chinese, Indian and much of African economies growing at 8-12% (thanks to the much maligned free-trade) the number of people living on less than $1 a day is falling faster than at any time in history.

Even within western countries, inequality isn’t rising that fast. The UK’s GINI numbers are skewed by the presence of the international super-rich in London, a feature which probably affects New York, Hong Kong, Los Angeles, Monaco, Paris and Cape-Town. Otherwise, the middle class is growing, and the working class is shrinking. Inequality is mainly between welfare-recipients and those who work. I argue that our poorly designed welfare state with its manifest disincentives to finding a job represents a trap.

Vodafone doesn’t pay tax? Vodayfone may have successfully won a case against HMRC, and had £4.8bn written off, but it otherwise paid the tax due. Does anyone argue that a company isn’t allowed to challenge the Revenue in the courts? Because the left is dangerously close to arguing for retrospective and confiscatory taxation. It’s there in the report and accounts – they paid 27% of £9.8bn operating free cash-flow in tax (compared to a headline corporation tax rate of 24%). It may have been aportioned in different years, resulting in a figure in the profit & loss account of 17% on £8.5bn of operating profit but the CASH is the actual amount paid to the revenue and the equivalents around the world in that year.

Lefties often reject widely accepted economic concepts like tax-incidence, the idea that the economic burden of a tax doesn’t always fall on those writing the cheque. If corporation tax was abolished, some of the extra money would go to shareholders who pay CGT and income tax on dividends (at a slightly lower rate), however much would go to customers in the form of lower prices (does anyone argue that the mobile phone market isn’t competitive?) with the money spent (and taxed elsewhere) or workers in the form of higher wages, resulting in a much higher rate of tax. The result of abolishing Corporation tax would probably be rather small overall, at least in the long-run.

The idea that Corporate Tax avoidance is THE problem is ridiculous. Avoidance involves using the legal means to keep your tax bill to the minimum. It’s up to the Revenue to challenge “abuse” in the courts. If the court agrees, you pay the difference. The problem the revenue faces is that the UK is now pretty much at the limit of what the people (and the companies they run) will take. People will not pay very high marginal rates. They will hide income offshore, they will move, they will take lower wages, bring forward capital expenditure. Many will think that the rewards of running a business are simply not worth it, and retire.

Left wing myths are so deeply embedded, it’s difficult to challenge all of them, all the time. But these myths result in a slowly strangled economy. Because the solutions that fall naturally from left-wing myths: more investigations, tighter regulations and stronger enforcement are so poisonous to economic endeavour. This is why Labour break everything every time they get power.

6 replies
  1. Tom Paine
    Tom Paine says:

    Quite. But Labour now has competitors in the economy-breaking game. In what material way do the 'Conservatives' or 'Liberal' Democrats differ? Under their Coalition government spending and the national debt both continue to rise. If you are driving off an economic cliff, does it matter if you do it at 100 or 90mph?

    I fear I may have to vote Labour next time, for the first time in my life, to accelerate economic collapse. Only when government cheques actually bounce will sanity return to a debt-crazed, economically-illiterate population.

  2. Malcolm Bracken
    Malcolm Bracken says:

    I'm sorry, Tom but deconstructionism, accelerating the collapse to hasten the revolution is selfish, stupid, vicious and idiotic.

    Revolutions eat their children. The Reason the UK is free (ish) is because we've never had one.

    We're not heading towards an economic collapse. The brakes have been applied in time. Now we have madmen in UKIP and others who think like stomping on the accelerator and grabbing the steering wheel gibbering about hastening the day of bloody reckoning.

    Take a step back, Tom.

    The UK's OK. No need for anything bonkers.

  3. Anonymous
    Anonymous says:

    the best way to break an economy is of course to de regulate the banking system , and then stand back and watch bank managers invest other peoples money without any regard for the long term stability of their model .

    if this doesn't do the trick , in the 2nd phase you have political denial and further de regulation to dispel the " myth " that the 1st phase caused the original crisis .

    the neo liberals move from belief in self regulation to belief in market based regulation .

    unconvinced investors of course leave there money in the safe harbour of government bonds , where dopey politicians use the money to shore up democratic support by maintaining high levels of social spending .

    this of course means low levels of investment , and a slow recovery .

    meanwhile , the brains of the outfit , go off at a political tangent to take care of the nhs and the state pension scheme .

    how long will the british public put up with all of this ?

    perhaps until there is a better alternative to ukip .

  4. Malcolm Bracken
    Malcolm Bracken says:

    Of course, anon, the failure of the banking system was one of a tightly regulated banking system, where even how quickly they answered the phone was subject to regulatory oversight.

    The idea this was a failure of "de-regulation" is absurd. It was a failure of regulation.

    This supports my theory that all anonymous commenters on blogs are thick.

  5. Anonymous
    Anonymous says:

    de regulation of course refers to politicians stopping regulators forecasting the likely outcome of significant changes to a banking model . for example , the fsa said that they had inherited a regulatory tradition of not 2nd guessing the decisions of private bankers . this tradition resulted in them not setting up a review team to look at the abn amro acquisition .
    when northern rock accelerated its process of selling mortgages after dec 2006 , its justification was an inflow of funds from previous u s subprime investors .
    the fsa and u k politicians did not intervene .
    why ? de regulation .
    so how do you get away with duping people with the phrase " tightly regulated banking system " ?
    because financial hawks had duped politicians into believing that a self regulated private banking system would be perfectly safe as it could use sophisticated models to reduce the risk of system failure to almost zero .
    regulators need only apply their own mathematical standards to bank models , such as thresholds for capital or liquidity .
    regulators were prevented from thinking independently of the private bankers .
    politicians kept their beady eyes on the thresholds to ensure they were weak enough to produce maximum real economy growth or maximum banking profitability .
    which political party was sold this idea of safe de regulated banking ?
    which party adopted a totalitarian view of a de regulated economic system ?
    elements of this party wouldn't necessarily have to be thick .
    they would simply need to be completely ignorant about banking .

    or neo liberals .

    individuals in a certain economic class , prepared to create a financial system which would maximize short / medium term profits , and then either accept a long term collapse , or socialize the losses .
    there is of course a party like this in the u k .
    it was just a nice bonus that an ignorant socialist party was in power when the collapse occurred .

    the amusing thing is , that you are fully aware of all of this .
    you economic blogs have been in full scale retreat ever since your twitter capitulation .

    " the governors eyebrow "

    despite this , you insist on trying to dupe the financially illiterate .
    or the " thick " who might just shore up the tory vote .
    this vote of course is built on the sand of the john major govt .
    it is transitory .
    now the financial reporting process has been accomplished , voters will look to show the tories the door as soon as possible .

    perhaps even for ever .

    the british have never liked bank bail outs , and as such will never accept neo liberalism .


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