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A 1p tax on Text messages.

This was an idea dreamt up by Bob Crowe, and this post started life as a comment on Hagley Road to Ladywood, where the usually sensible Claude indicated he thought it might be a good idea. But it isn’t, it’s such a profoundly stupid idea, that I descended into a sweary rant about the stupidity which lies at the heart of socialism, which got censored mainly because I called Claude a fucking silly idiot who’s embarrassed himself with a stupid post. For which I apologise. I wonder it the bastard offspring of that stillborn comment which I left there, will survive. If not, the gist of it is recorded here…

1) Text is, for most people not on the cheapest pay as you go tariffs, offered free. Therefore raising tax on this will be regressive, because the cheapest pay as you go tariffs are the preserve of the benefit-classes who will be forced to pay more. It will also affect the parents of teenage girls disproportionately.

2) Therefore this isn’t “free money” for the government because either it will

a) change behaviour as people text less or
b) spend less elsewhere which will have the knock on effect on

i) VAT and corporate profits and therefore
ii) income taxes on workers, who then spend less elsewhere.

True the effects listed under b) will not be measurable at the level of the individual company but will be noticeable across the entire economy, as a myriad of other taxes will go down a tiny bit as the effect of the text tax bites. It will not therefore overall raise anything like the billions that Bob Crowe thinks it will. Economics is not a simple matter of multiplying two numbers together, even though this may seem like white man’s magic to an illiterate fuckwit like the insanely militant leader of the RMT.

So the tax cut will affect the poorest worst (the kind of people who have cheap pay-as-you-go mobiles) and won’t overall raise anything like the amount you think it will, because of the knock on effects. Which is true of ANY tax which interferes in the cost of a service. In this case it raises the cost of a cheap, popular service way above the cost of delivering it and any externalities.

The point is that this idea demonstrates the profound and lumpen idiocy at the heart of socialism which sees success and thinks TAX THAT!

It doesn’t work, and the belief that there’s pots of free money to be looted by government demonstrates the stupidity in socialist willfully or even religiously refuse to accept concepts like tax incidence, the Laffer curve or incentives in the welfare state, to justify the policy he’d already decided upon which is to tax “Business” or “the Rich” of which they disapprove and spend the money on people or services of which they approve, like diversity outreach coordinators. The fact of business fleeing, or not investing. This is either welcomed or condoned by the socialist. The result is, at best the fiscal nightmare left by the Labour party and at worst soviet death camps as recalcitrant capitalists are re-educated into the socialist’s vicious creed.

The other point is the Government is already spending half of GDP and taxing 40%. THERE IS NO MORE MONEY FOR GOVERNMENT. NONE. NADA. ZILCH. ZIP. GONE. SPENT. Governments do better when they Leave people alone to spend the fruits of their labours as THEY wish. Stop taxing them.

Still not convinced? Socialism was tried in perfect experiments over the 20th Century and was demonstrated to be such a profoundly rubbish system that it took the most productive people in the world, Germans, and made them poor. Likewise that mercantile and inventive culture, China was destroyed by your vicious creed. Compare the PRC, a vast populous and potentially rich country to Hong Kong or Taiwan, both of which were not much richer than the mainland after WWII. In both cases which way were the refugees flowing? More examples: Spain and Cuba both had similar GDP per capita at the time of the socialist takeover of the former. Socialism not only makes people poor, it also makes people miserable. People vote with their feet in a way they didn’t flee the likes of Franco and Pinochet. THEY kept their murderousness to a small class of political oppoinents. Socialists turned their violence on the population with the result that the AVERAGE result of socialism in the 20th century was a 10% depopulation of the unfortunate country in question.

Socialism is merely communism without (as they might put it) the latter’s beautiful clarity of purpose. It’s just a matter of degree.

A 1p text-tax matters little to me, or anyone who isn’t a teenage girl. It’s not a big deal, but ultimately, Socialism doesn’t work because of a myriad of stupid ideas like this. Taken together, they add up to massive and catastrophic human misery.

The Bush-Era Tax Cuts Stay. Wrong Call.

When the Guardian reports on President Obama’s cave-in over the Bush-era tax cuts by saying…

Paul Krugman, the Nobel economics prize winner, called on Obama to stand firm against the Republicans’ “tax-cut blackmail” which will cost the US treasury $4 trillion in revenue over the next decade and prompt a “major fiscal crisis”.

they’re quoting an “economist” whose long-since abandoned serious research and become instead a parody of himself. The fact is, Krugman has worked out that there are an awful lot of people for whom no taxes are high enough (especially when applied to someone else, usually “the rich”) and neither can spending ever be high enough, and having a Nobel Laureate pander to their prejudices pays rather well. As he recently argued that the deficit was not big enough, to suggest that NOT RAISING TAXES which is what not allowing the Bush cuts to expire amounts to, is fiscally catastrophic when you’ve been arguing for a far higher level of Government spending funded by borrowing, Krugman is dishonest at best. The reality is more complex.

The jury is still out on whether “Fiscal stimulus”, using government spending to kick-start the economy by boosting demand, is possible at all outside the “automatic stabilisers” of welfare provision. But because most people are utterly ignorant of economics, they think state borrowing is a magic money-tree, which means you don’t have to tax in order to spend, this allows politicians who should know better to call state spending over and above that received in tax “investment” in the boom and “stimulus” in the bust. These are big, important-sounding words that make it seem that insane profligacy is backed by some proper economic thought.

Such “stimulus” can take two forms tax-cuts and state spending on services. Whilst keynes argued for the state to use slack demand in the economy to build roads and public works (a position close to coalition policy…) in practice, the neo Keynsians argue that it’s the borrowing that puts money into the economy, by increasing demand. This frees them to spend on their priorities unconstrained by tax reciepts which are rarely roads and public works which actually benefit joe ordinary, and instead consist of make-work schemes for a client state. Because this spending is of marginal utility, people are not better off in the long-run.

The arguments in favour of tax-cuts as stimulus are slightly stronger: by leaving the money in peoples pockets, some is spent on things people find worthwhile (ie NOT TSA Crotch-Fondlers and Diversity Outreach Coordinators), generating VAT and sales taxes and cycling through businesses leading to an increase in corporation tax. Some of it is invested (actually invested in the hope of an above inflation return as opposed to “invested” in public services) in businesses leading to extra employment, raising income tax receipts, stamp duty and CGT receipts, should the investmet go well. Some will be invested in Government bonds, which has the effect of lowering the interest rate paid by the Government. Of course, whether this increase in other taxes as a result of the tax-cut is greater than the “cost to the exchequer” is moot. I suspect, in the long run generally a well-designed tax-cut (ie not the ones Obama has just extended) may pay for itself in extra growth generated as explained above, in the short, run they just increase the deficit, with exactly the same effects as extra spending.

The absolute size of “the state” is not important here (even if I generally favour a smaller one), nor does the form the stimulus takes, extra spending or tax-cuts matter a great deal. What IS important, however is what Krugman himself once derided as “the old-time religion of sound-money”. Something the Republican right has abandoned with unfunded tax-cuts, and the British Left has never thought about in the first place with its insanely profligate love of ever-higher state spending.

Politicians risk stagflationary catastrophe (if they’re lucky…) by running these huge deficits, and it matters not whether it’s spending or tax-cuts which did it. The effect of deficits is the same – inflation as money is printed, high interest rates as the bond markets lose confidence; high intereset rates potentially cause the economy to stagnate, leading to currency weakness, raising the price of imports and effectively making people poorer. Furthermore, people save to offset future tax-rises and use artificially low short-term interest rates to pay off debt, negating much of the effect of the “stimulus”. So there’s not much if any extra growth in the economy for a great deal more debt hanging around the tax-payer’s neck. The way Governments spend money in practice means the tax-payer hasn’t even got good infrastructure for all that debt, which MIGHT have led to higher growth because extra state spending is often, in effect, like paying men to dig holes and fill them in: work of no utility at best. Leftists like this because they like lots of lovely government spending, and because, in the UK at least the neo-keynsians and leftists are the same people, the “stimulus money” gets spent on diversity outreach coordinators and assorted prod-noses, who actually hold back economic growth in a sea of red tape. In the US the punk-keynsians are on the right so the stimulus money is spent on more prisons, TSA crotch gropers, expeditionary warfare and the “war on drugs”, crippling the country in pointless security theater. Does any grown-up think this spending increases utility in the economy?

Whether it’s tax-cuts or spending increases, deficit spending doesn’t work to stimulate the economy beyond the Automatic stabilizers, especially in the long-run. The message to politicians is simple: Don’t cut taxes if you’re not going to cut spending. Don’t raise spending if you’re not going to raise taxes. In economics, there is no such thing as a free-lunch. Whether you favour a big state or a small spending MUST be paid for. Small deficits in a recession are fine – no-one’s suggesting that the budget be in balance every year, but deficit must be matched by surplus in the good times. And that happened under those much derided and much under-rated politicians: John Major (and Gordon Brown, for a couple of years, until he abandoned TORY spending plans, which is why I don’t give him credit) and Bill Clinton (how clever of him to hide unpopular fiscal sanity by shagging a fat lass)

So last night, Obama took the easy option and gave into the Republicans over Bush’s tax-cuts, and already American debt is falling sharply on the news, heralding higher interest rates for all, which will negate much of the stimulus effect, as millions pay more on their mortgages. Obama wasted all his political capital on futile Health care reform, and had none left to fight the Republicans where it matters. He seems to neither know, nor care about the danger of a big deficit. Indeed, he’s unwilling to cut spending, and appears to welcome a deficit as “stimulus” so he’s as much of a stupid Punk Keynsian as Ed Balls. He wants to Spend, Spend, Spend on Government programs. But like all politicians, he won’t ask the voter to pay for it – he may be able to blame the Republicans for half of the problem, but that’s a political call; he’s demonstrated his priorities. If you beleive in “stimulus” why not cut taxes as you raise spending? Politically, it makes sense: The voter’s kids, the poor dupes who are going to pay for it all eventually, don’t have a say. Of course America is a big, rich economy so the wheel will come off a long time after he (and Bush, who it must be remembered caused the problem in the first place) have left office.

Obama, the politician who entered office on a wave of Optimism not seen since JFK has failed to stand up to a recalcitrant congress and within two years become, fiscally at least, a nightmare love-child of Bush Junior and Gordon Brown. It is debasement of the currency caused ultimately by unfunded “bread and circuses” for the mob which eventually did for the Roman Empire. Unless we return to “the old-time religion of sound money”, and stop taking listening to that dishonest purveyor of pretty lies, Paul Krugman, western civilisation is doomed.

Happiness Economics

The idea that General Well Being is something the Government should measure has brought the Devil out of Blogtirement for a cathartic rant against the

“crap that our massively fore-headed twat of a Prime Minister seems so keen on…”

But, I think differently. General well being is important. Happiness economics is not only interesting on a political level, It is interesting on a personal level too. It fascinated me long before I read Freakonomics, which applied statistical methods to situations which had not been so measured before. It started when I was commuting (yes commuting) from Northampton to London daily, a journey of over 2 hours, and I read an article which stated that a short commute was equivalent to someone on £30k doubling their income. Not particularly because a short commute is particularly happiness making, but a long-one eats into free time, reducing leisure and increasing stress. The example was chosen to illustrate that above a certain point, income decouples from happiness. Income is an extremely poor indicator of happiness, and seeking extra income is an extremely poor way of becoming happier. However, I knew I hated sitting on the train, so I considered the extra happiness which resulted in my moving to town. So I made a rule – if it takes more than 20 minutes on a bike to get to work, move house. I think I am happier for it. I am also convinced by studies which appear to show strong positive correlations between happiness and marriage; sport; physical fitness regular social interactions and so on. These are NOT the things that government can influence directly. Each individual chooses to commit to a sports team or wife, but they can encourage, provide facilities and incentives and, above all, get out the way.

And there is a lot the Government could do about happiness in those terms. Over to Dan Hannan, who thinks there’s something in this happiness economics, and suggests some things that the Government can do to improve happiness.

They can create a climate where we are unlikely to be victims of crime. They can prevent us from being invaded, or defeated in war. They can guarantee that property rights are secure, contracts fairly enforced, disputes impartially arbitrated, the law open to all seeking redress. They can ensure that children receive a decent education, whatever their parents’ means. They can do these things without confiscating any more of our assets through taxation than absolutely necessary.

The point is freedom, or more accurately the upper tiers on Maslow’s hierarchy of needs: self actualisation. You’re not going to be self-actualised if you’re hunkered down on a sink estate, terrified of the local hoodies. So the Tax-payer pays for a police service. What Government can do is ensure that instead of policing comfy, safe middle-class areas, or harassing motorists (which appears to be the police’s priority), they get in amongst it in the grotty estates, reassuring the law abiding that they’re not alone by patrolling. This is what the public WANT the police to do, but the police would rather stay in their cars (for operational, rather than fried dough confectionery reasons, naturally). Happiness is, in part, the feeling that you are in control of your environment, and directly elected police chiefs will help there. The regular referendums as Hannan suggests in the cantons of Switzerland may help too, but does living in the kind of stultifying social morass such a society often creates, which sees sending someone to tame another’s unruly lawn and sending the latter a bill reasonable? I think not.

There is a lot the Government can do to encourage happiness. Very few of them involve spending money. Very few of them involve removing options from people by banning stuff, or making drink & drugs (for example) more expensive or illegal. I doubt it’s got much to do with an absence of diversity outreach co-ordinators and other local government prod-noses either. The “cuts” are going to make diversity outreach co-ordinators miserable by making them unemployed, but no-one else is going to give a shit.

The fact is, whilst income isn’t correlated with happiness for most people in the UK, it is tightly correlated below about £14,000 per year, this is true world-wide. Leftists make much of the GINI coefficient: that income inequality is what matters. And to a point it does. So why are we taxing someone on £14,000 per year at all? Why are the working poor facing 90% marginal tax rates? The answer there is “leftist redistributive policies”. And the left have therefore set a trap for the poor: What matters is not “What am I earning now?” but “if I work hard, do I have the power to earn more?” If the Government takes 90% of everything extra you earn (and for much of the working poor, it does), the working poor are absolutely not in control of their life, there is no way for them to improve their lot – all extra work brings is less time to spend on worthwhile things like spending time with your children. This is MUCH more powerful in destroying wellbeing than seeing “someone has more than me, waaaaa!” The lack of control caused by being poor which actively creates misery, not the straight envy of the rich, as leftists fondly wish. The state is, in the manner it conducts redistribution, keeping a boot on the face of the working poor as they struggle up towards happiness.

Of course, the working poor are a bit happier happier than the most miserable people in British society: the long-term unemployed, who are also screwed by leftist policies. In many cases priced out of the labour market by high employment taxes, and at the margin, by the minimum wage; it just costs too much to employ someone without skills. Without a job, you can’t get skills. Reducing taxes like NI on jobs would improve matters. Leftists, though make much of the importance of job security in happiness, arguing for ever greater “rights” (in reality, risks and obligations on someone else) for the employed. Job security does indeed create happiness. The far greater misery, though is unemployment, and by every job saved costs jobs not created elsewhere, because of the increased risk (and therefore cost) of employing a new worker, so fewer, more expensive workers are hired. Freer labour markets lead to higher employment, at the cost of reduced job security. There might be 10% unemployment in the USA now during this recession, but there were decades of 10% unemployment in Germany, France and Spain, where the labour market was divided between safe job insiders and people who would NEVER get a job in their lives.

And let’s talk about taxes. If “happiness economics” suggests that raising your income is a poor way to improve happiness, does that not argue for higher taxes? No. Because an average worker might not “spend” the tax cut on stuff, but instead on the need to take overtime. He might, as a result of a tax cut, get home earlier to have a meal with his children, instead of slaving for the Government till 8pm. The Freedom lower taxes brings might be spent on a new car, but it is just as likely to be spent on something worthwhile which isn’t measured.

So, you argue for ever higher taxes to finance education or health services, which raise a poor person’s consumption and reduce inequality. And they do, but they do not increase the self-actualisation element of happiness. They could be: A voucher is something to spend on education, this engages the parent and incentivizes the school to improve. It enables parents to select a school reflecting their beliefs (yes, unfortunately even lunatic ones – an important freedom is the freedom to be a twat. Look at it like this: Every creepy and damaged little homunculus who goes to a creationist school is one which is not competing with your spawn for jobs in bioscience), which is a form of happiness-making power over one’s environment. An LEA-provided, one size fits all school place does provide the consumption element of inequality-reduction, but it doesn’t involve anyone else in the decision making, negating much of the happiness-improvement which could be achieved by such state spending.

Health spending is a subject for another post. It is reasonable that taxes be seen as a form of insurance where the premiums are on ability to pay, rather than need. Most poeple see this as reasonable and are happy to see this funded out of general taxation. But the state-monolithic nature of the NHS is not necessarily the best way to DELIVER healthcare free at the point of delivery. The NHS is not the same as ‘healthcare’. Tax-payer funded, but privately provided services will probably be more efficient. What they will certainly be is more responsive to patient needs. Waiting for delayed and cancelled appointments, long, pointless waits for consultant’s appointments and generally being treated like an embuggerance by the NHS when you turn up to get fixed are features of the NHS’s take-it-or-leave-it structure. The state does not have to DELIVER healthcare, even if it funds it. A more responsive, less dehumanising system would make people feel more valued, and therefore happier with the services, which for most things, except cancer, seem to be pretty good.

So higher taxes could be used to fund heath and education (and funded better), but so much of Government spend is financing an actively misery-making welfare state, and so much is wasted on pointless freedom and self-actualisation-denying Government initiatives that to use “health ‘n education” as an argument for higher taxes is intellectually dishonest. To use redistributive GINI coefficient arguments is lumpen stupidity garnished with envy and spite. Rich people don’t make poor people miserable directly; rather poor people are miserable because they don’t have the choices rich people do. If your solution to that problem is to remove the choices from rich people, you’re a spiteful cunt, or a socialist, which is the same thing. HIGH TAXES MAKE PEOPLE MISERABLE, whether they’re poor or rich. But especially if they’re poor, so stop taxing them! By all means fund health and education properly out of taxation, this seems to be an entirely reasonable use of Taxpayers money, but this does categorically NOT require the Government to take 50% of the national, or any individual’s, pie. That is too much.

The fact is that the best thing Dave can do to make the country happier is tax business less, scrap NI, removing the tax on jobs and raise employment; raise the personal tax allowance to take the working poor out of tax; and make the police subject to local democratic control by means of elected sheriffs who respond to resident’s needs, and local schools responsive to the people (as opposed to local authority bureaucrats) by introducing a voucher system; decentralise (and probably break up) the NHS, cut useless and expensive state spending on diversity outreach co-ordinators, and thereby eventually lower taxes, when Labour’s catastrophic deficit has finally been got rid of. Most of which the Coalition is quietly getting on with. Whilst fanatics on the left are trashing the place & bleating about cuts, and those on the right see betrayal everywhere, the coalition appears to this observer to be imperfectly, hesitantly, introducing some reasonable, liberal polices some of which are actually going to make the country happier. Which when you compare it to the vile panopticon the last lot were creating, is a big improvment.

It would be nice for Dave if he got some credit for it. Which is why he’s measuring happiness.

Gordon Brown: The UK’s Saviour?

Is there anyone who still thinks it would be a good idea to abandon Sterling and join the Euro? Of course we euro skeptics are enjoying saying “I told you so” to all those who thought disparate economies would all suddenly become Germany simply by adopting the D-Mark. For that is what the Euro is – the D-Mark, and if your economy is running up too fast with unsustainable asset bubbles and construction booms (Spain, Portugal and especially Ireland) then you cannot use monetary levers to calm your boom, unless Germany is too, which means the bust, when it comes is especially painful. Ireland is a case in point. Having lost control of the monetary levers, they lost control of their economy.

Ireland ran a surplus in 1999, 2000, 2001, 2002, 2003, 2006, and deficits in 2003, 2005, 2007 so from 2002 to 2007, during the boom, the Irish budget can be said to be broadly balanced, erring on the side of a surplus. Whereas Britain’s deficit was a direct result of idiot policies by a spectacularly venal and incompetent government, Ireland’s was due to a collapse in tax revenues as the boom came to an end and was replaced by an epic crunch. Tax revenues fell from €47 bn in 2007 by 30% to €33 bn in 2009. Expenditure of €41bn in 2007 rose by a modest 9% to €44bn in 2009. Financial services and construction, mainstays of Ireland’s (and Britain’s) boom were especially hard hit.

Spend, spend spend.

Compare this with the UK where tax revenues from 2007/8 to 09/10 fell by 9% whereas expenditure rose by 16%. Remember Britain was running a Maastricht-defying deficit of 4% of GDP in 2007, prior to the ‘credit crunch’. Despite this the response to the crisis was keep spending. Our deficit is as a result of spending. The Irish, a collapse in revenues.

The Irish Government were persuing a reasonable, low-tax, high growth strategy with a balanced budget. Reganomics, this was not. Of course they were unable to do anything about thier boom, nor were they able to devalue their way out of the bust: the Euro remained stubbornly high hurting the Irish badly during the bust. The bust was as bad as it was because for a decade, the Irish economy was subject to inappropriately low interest rates: The bigger the party, the worse the hangover. What happened to Ireland was EXACTLY what the Euroskeptics said would happen to the UK were we in the Eurozone, and for the same reason: Our economy is not aligned to that of Germany.

As it happened, we had an idiot chancellor, who spent a decade firehosing money unsustainably at the public sector, running insane deficits at the top of a boom; but because we are a large country able to borrow in our own currency, and with one of the few flawless track records in repaying debt left in the world, the Government got away with it. Imagine if we were borrowing in Euros. Imagine if we couldn’t devalue our currency in responce to a catastrophic financial crisis.

Leftists will look at that data and conclude, self-servingly, that it was the “stimulus” (by which ‘punk keynsians‘ mean ‘a big deficit’) which kept Britain’s economy, broadly afloat. The fact is that confidence in the UK government’s ability to maintain its AAA rating hung by a thread in 2009, and this was maintained largely due to the expectation of a Conservative victory in the May 2010 election. UK bondspreads were correlated to polling numbers. Had the Labour party won, the markets may have lost confidence in the Government’s plans to bring the public finances under control; there would have been a run on the pound, interest rates would have risen sharply and people would be feeling more like Ireland now, and less like a country pulling steadily out of recession, as Britain is. Where the multiplier effect of government spending works is in a gold-standard country with a small state. In Gordon Brown’s UK the state was already consuming half of GDP, and was already crowding out private sector employment. Ricardian equivalence and the lack of availabitily of credit saw to it that consumers (70% of UK GDP) snapped their wallets shut and deleveraged at an astonishing rate during the crisis. There was therefore no overall stimulus from Government spending, not in the UK, where the effect was more likely to be negative, as people hunkerd down and waited for the inevitable tax-rises. Extra state spending PREVENTED an equal and possibly greater amount of private expenditure.

The “stimulus” didn’t save us; the pound’s moderate decline in 2007-09, the continued confidence ability of the British Government to borrow and repay in its own currency saved the UK from a catastrophic financial crisis. We euroskeptics were right, and you federasts were wrong. Keeping the UK out of the Euro will remain the only positive contribution the Rt. Hon. Dr. James Gordon Brown (Ph.D from Edinbrugh on James Manxton & the History of the Labour party) made to his country in a carreer of self-serving ambition, bullying, hypocrisy, willful ignorance, arrogance and socialist lunacy. The real reason for Brown’s opposition to the Euro is probably control freakery: he just did not want to giva anyone else a say. History may just be kind to him for his right decision for the wrong reasons, but it will have to have forgotten his insane (and almost certainly corrupt) fiscal recklessness by the time it does.

China’s bubble

I’ll remind Sunny Hundal of this when China has its democratic (if they’re lucky) revolution. China is not “Leaping ahead of us”, it is catching up, because the choke-hold of communism has been released a bit and the natural entreprenerialism of the Chinese is being allowed to flourish. Slightly less savage repression has led to rapid growth, not because savage repression is a good thing, but because savage repression is merely a bit better than the savage repression AND insane economic policies which went before.

Name something the Chinese has invented*? No? All China is doing to “leap ahead” is putting together things designed elsewhere, from the iPad to rubber dog shit. They are able to do this because the Chinese government is keeping the currency low. This means the chinese worker is denied the fruit of his wages in the form of any imported goods. The Chinese political class Sunny Hundal admires is using currency manipulation to keep an artificially low currency, which keeps Chinese workers relatively poor. This is done to further the mercantilist designs of the Chinese political class. Mercantilism is a failed economic creed (unless you listen to Paul Krugman, who’s descending into Keynsian self-parody).

There is not the tradition of the freedom of thought which brings inventions, progress, problem solving. You have the gradiose schemes of the tyrant, and none of the advances of the free society. So they can build a pretty stadium, and get thousands dancing in time during the opening show. But it is the Indians who are taking the higher value jobs from westeners. BECAUSE they’re free. India has seven times the number of Nobel Laureates of China. India is producing original science. Chinese in the diaspora are also producing original science. In terms of the thought that is going to solve mankind’s problems, China’s a back-water, and will remain so until the Chinese government tears down that fire-wall.

I’ll believe the Chinese are leaping ahead of us when I am using consumer electronics designed in china by a chinese-owned company. When Chinese scientists with Nobel prizes outnumber the number of Asian-American scientists with Nobel Prizes. When the outcome of a Chinese election is unknown in advance.

For the vast majority of people living there China is, and remains a slave-labour camp. For some it presents opportunities to become camp guards, but “ahead of us”. Only the kind of fool who would have admired Stalin 50 years ago could have been capable of saying that China is ahead of us now. Sunny Hundal is just such a fool.

*a bit more recently than “paper” or “Gunpowder”.

“Casino” Banking

There’s an idea, not a new one by any means, doing the rounds that investment banking and retail banking should not done by the same firm because the risky “Casino” bank could pull under a “safe ‘n boring” retail bank, and this is the main objection to Bob Diamond’s promotion from running BarCap to running Barclays PLC. Never mind that Bob Diamond’s business kept Barclays out of the grubby maw of Government – he’s the “Unnacceptable face of the Bonus culture”.

It may seem obvious that investment banking is risky, but the evidence does not back this analysis up at all. Nowhere did investment banking losses pull a retail bank down, or requrire one to take government bail-out money: let’s look at the UK banking sector:

Lloyds TSB: Safe, solvent, straighthforward Retail bank, until it was persuaded to buy HBoS by Economic Jonah, Gordon Brown.
HBoS (Halifax, Bank of Scotland): mainly retail, Large Mortgage Business, which went belly-up and took Lloyds TSB with it too.
Royal Bank of Scotland, very small investment bank, Largest UK retail operation, big Corporate loan book, whose purchase of ING ABN Amro strained its balance sheet to breaking point. It’s failure was hubris, not Investment banking.
HSBC: Universal Bank, large global retail and investment banking operations, now trading at the same shareprice it was before the crisis, and is still paying dividends.
Barclays: Large UK retail bank, overseas operations, buccaneering and ambitious investment bank, who were raised funds from private investors and just managed to keep out of Government hands.
Standard Chartered: International corporate and retail bank, mainly Asia and Africa – no problem at all.
Northern Rock: Ex Building society turned Mortgage and Retail, bailed out by a Labour government because they couldn’t bear to see anyone make money and wanted to save jobs in key marginals.
Bradford & Bingley: See Northern Rock. Eventually bought by Spanish banking group, Santander.

Let’s look at the evidence: Of the two “universal banks” listed in the UK, neither had to touch the UK taxpayer for money. HSBC was able to cope with the crash on it’s own resources and Barclays was able to use its contacts from the investment bank to touch sovereign wealth investors, who have now been paid back. The banks which had got into trouble were either Mortgage banks without a large retail business from which the Mortgages were funded: Northern Rock and Bradford and Bingley, or they were banks who sailed close to the minimum Capital adequacy ratio like Royal Bank of Scotland. Or, like HBoS, Both.

In the USA, the all but Lehman Brothers and Merril Lynch of the Large investment banks survived. Small savings and loans have gone bust all over the place, and only one Universal banks, Citi got into real difficulty, and it was its massive retail operation which pulled it under. The evidence that the “casino” banking is a bigger risk than lending to Joe Sixpack to buy his grotty suburban semi, is just not there, and anyone who uses the phrase “casino” banking can therefore be ignored on any economic subject, unless you take the view that in the economic casino, investment banks are ‘the House’, which is very good, safe and profitable business indeed. But I don’t think this is what ex-Labour MP Vince Cable means by “Casino Banking”.

The fact of the matter is that Governments in the UK, USA and elsewhere have been stoking the money supply for 30 years. They have been encouraging banks to lend “innovatively” to enable “ordinary people” to “get on the housing ladder”, which in practice meant encouraging, or compelling, banks to lend large sums at great multiples of earnings with small deposits to people who were expecting house-price inflation to do the work of paying off the loan. There is a banking phrase to describe these people: “poor credit risks”. Some banks in the UK became dependent on wholesale markets to fund their loan books, and when this dried up, the banks collapsed.

It’s interesting that much maligned buy-to-let investors allowed Paragon, an entirely wholesale financed mortgage business to survive because they lent to good credit risks with big deposits. The old rules of banking still hold. If you’ve a low income, you can’t have a loan, sorry. It’s not the bank’s job to fund a life-style.

The banks that collapsed because the merry-go-round of phantom money could not go on for ever because house-prices couldn’t go up for ever. Eventually the money to fund the bubble was pulled away, and those with unsustainable business models fell over. The proximate cause of this failure was the failure of the wholesale market, but the ultimate cause was a belief, encouraged by politicians for two generations, on both sides of the Atlantic, that the house-market would be a better source of wealth than anything else.

House prices are further away from sustainable multiples of earnings than at any time in history. The Baby-Boomers who own them are going to sell as they’re herded into care homes or move down into bungalows, and their children will fund their retirement buy buying those overpriced assets which will return precicesly nothing over the next decade or more, if we’re lucky. Anyone who thinks they’re going to make money on mortgaged property is a loon.

Which leads us to Banks. They too are not going to make money from lending to people to buy houses that are going to fall in value, so we’d all better get used to bigger deposits and higher rates. Or we can encourage another bubble by forcing the banks to lend to poor credit risks again. Anyone think that’s a good idea? There is no difference, fundamentally, between lending to a person to buy a house and lending to a company to fund its operations. If the bank thinks the company or person is going to struggle to repay, the bank takes action so that it recovers as much of possible of its money. Which is why the left’s whinge about Connaught going bust is just. It makes no difference that it’s “State owned” RBS that did it, Connaught was loss-making with dishonest management, and went bust. It happens, and given that it’s in property services, the market will not improve enough to change things. The truth is that banks were too willing to lend to speculative companies in the good times, and they’re probably a little too risk averse now. No-one said the market’s perfect (just better than economic planning).

So, companies will be denied debt finance. So what options does a good, viable company have when denied bank finance? The other sort of finance: Equity, either private or public, and here investment banks come into their own. If they’re unwilling to lend to you, maybe they will, for a fee find someone who will invest who has a greater risk appetite. That too is a banking service, and there is no reason why Banks shouldn’t do both. And why should retail deposits be invested ONLY in mortgage loan books? Couldn’t banks invest in equity and company debt through an investment banking arm? I thought lefties were against debt and funny money, and liked “investment” in businesses?

The unholy alliance between the left and the ignorant daily-mail right can bleat all it likes about “casino” banking. The truth is that the investment banks did a lot better than both Governments and retail banking during the crisis because of the idiocy of Governments and the Public in buying assets they couldnt’ afford and spending more than they earned. Investment banks like BarCap and Goldman Sachs didn’t do this, and were able to pick up quality assets in the firesale caused by the inevitable crash. And surely spreading risks in different business areas is a good thing?

Punishing the winner looks a lot to me like sour grapes.

It seems that Clegg ran on this today at PMQs, and wants to seperate Retail and Investment banking. Let’s hope grown-ups point out evidence shall we? Too big to fail is too big, it doesn’t matter what businesses they’re in.

Paul Krugman. Wrong. Again.

As if Krugman couldn’t be any more of a self-serving arsehole in providing Nobel Laureate cover for people who think that extra state spending somehow stimulates and economy, people who call themselves ‘Keynsians’ but who would never advocate running a surplus during the good times as Keynes thought necessary for a stimulus to work during recession; now he’s giving ammunition to the people who are advocating the policy that caused the Great Depression: Protectionist trade war.

China is following a policy that is, in effect, one of imposing high tariffs and providing large export subsidies — because that’s what an undervalued currency does.

Of course what this also does is deny Chinese labourers the benefits of their labour. They are kept poor, so that Americans can have cheap TVs.

That should be a violation of trade rules; it might in fact be a violation, but the language of the law is vague on the subject. But leave aside the fine print of the law for a moment: what China is doing amounts to a seriously predatory trade policy, the kind of thing that is supposed to be prevented by the threat of sanctions.

That’s only a problem if you think a trade deficit is a major problem.

Yet the Chinese have taken our measure, and decided that we won’t act. Until or unless that changes, we’re just whistling in the wind.

Again, the losers of this policy are the Chinese people, not Americans.

I say confront the issue head on — and if it leads to trade conflict, bear in mind that in a depressed world economy, surplus countries have a lot to lose from such a conflict, while deficit countries may well end up gaining.

It wasn’t the Wall St. crash of 1929 which caused the depression, it was protectionism. It wasn’t stimulus that pulled the world out of it, countries which kept budget deficits under control fared better than the USA during the 30’s. Krugman has that special form of leftist idiocy which imagines that the economy is able to be controlled and steered by the state. Idiocy here being defined as doing the same thing over and over again, and expecting a different result. Deficit spending stimulating the economy may be OK in theory, but in practice it just hasn’t worked. Ever.

A trade deficit is not in and of itself a bad thing, because the buyer benefits from imports. Sure there might be a few people who used to hammer TVs together who are out of a job because they’re more expensive than a Chinese worker, but the US economy until it started running stupid deficits (yes under republicans I know) used to be pretty good at generating jobs elsewhere. A trade deficit might upset some dick-waving Government officials who measure themselves by statistics, but the American people as a whole are better off for the Chinese “unfair trade practices”.

There’s a chap, Paul, called Adam Smith, you might have heard of him? Didn’t he point out that the buyer AND seller benefit from trade? Americans getting goods cheap, not only keeps things cheap, and therefore Americans richer, it also depresses inflation, meaning interest rates can be kept lower. Hoarding gold – what mediaeval kings thought riches were – leads to inflation. I believe it was called the “mercantilist fallacy” or something.

Or to put it differently, right now we’re in a world in which mercantilism works.

Oh. I see. So the insights of Adam Smith are worth spit are they, Paul? Now that’s hubris, Nobel Prize for economics or not.

In the long run we’ll emerge from this kind of world; but in the long run …

It will be the long run if anyone listens to Paul Krugman, Nobel Laureate, rent-a-gob for the profligate big state, tractor production statistics-spouting left.

Oil Companies, Profits and BBC Bias

As some of you may know, I’ve been popping up on various radio programs talking about Oil Companines. Yesterday, a researcher BBC 3 Counties Radio called me up and asked me in the light of the recent profits from Shell, and the underlying profit of BP, why weren’t we seeing lower prices at the pumps from “the falling cost of oil”.


My reply was that the oil price hadn’t fallen, it had risen from $72 to $82 in the last 6 weeks or so. Secondly, this is priced in dollars. Some of this recent rise has been offset by a rise in Sterling from $1.42 to $1.52, which is why pump prices had remained broadly stable. Oil had, in fact been rising steadily since 2009. The last time petrol was below £1 per litre, Sterling was buying $1.65 and the oil price was $52. Indeed, the rise in Sterling since the budget probably represents a tax-cut sufficient to offset the future rise in VAT. Indeed that alone demonstrates the foolishness of “Keynsian” stimulus as followed by President Obama, and why Coalition style cuts would lead to a richer country.

Furthermore, I said, trying to blame the oil companies for the price of petrol was like blaming farmers for the price of bread. The cheapest petrol around will be sold more or less at cost. The profit being made in the shop, which is why, if you do see ‘pay at pump’ machines, they’re always disabled. Of the £1.129 per litre of the cheapest petrol 57.19p is fuel duty, 10.01p is VAT on that duty, 6.8p is the VAT on the fuel, and just 38.8p or 34% is the cost of the fuel.


That 38.8p pays for the exploration, drilling, extraction, transport, refining, delivery and storage of that fuel. There may be a penny or so profit for BP or shell, but probably not at the cheapest petrol stations. The lion’s share of the £70 from a typical tank of petrol goes to the Government, which means that more is probably spent on out-of-work benefits by the Government from your tank of petrol than goes to BP or Shell, indeed more is probably spent on national defence out of your tank of petrol than goes to their profit.

“Ohh, I hadn’t realised that”. They had clearly wanted an analyst to confirm their prejudice against business and the profit motive. The same questions are asked every time these public companies release numbers. The same answers are given: that excess profit will be competed away, and that margins are very, very low.That there is no conspiracy against the public.

This is bias. It is not a party political bias, but a cultural and econmic one, which betrays a leaning to discredited economic theories which are supported by the party membership of the Labour party: that ‘profit’ is distorting. That ‘profit’ discracts from the business of delivering service to customers, and that the Shareholder interest should be secondary to that of the customer. That ‘profit’ represents the difference between what you do, and what you should, pay.

Of course this is not the case. Look at the queues outside the cheapest petrol station in your local area: people will save a pound or two per tank and be prepared to wait for 10 minutes to do so. It pays the company to offer petrol at cost, and scalp whatever profit it can from the overpriced sweets and chocolate (and on valentine’s day, mother’s day and your wife’s birthday, flowers) you buy in the shop. There is no conspiracy against the public, there is brutal competition for business, and in the petrol business, that means cutting costs and delivering your petrol cheaper than Q8, Texaco, Esso, or the supermarket.

But the BBC didn’t want to hear that. So they ‘ran out of time’ for my slot. Oh well.

How to lie with a Graph

One of the irritations of the Andrew Sullivan’s Daily Dish, aside from the new post every 10 minutes clogging up the Reader, is the fact that comments are not allowed. In this instance “chart of the day” demonstrates how to lie with a graph, and I would love to make this comment over there.


This would look VERY different on a logarithmic scale as it shows incomes of an order of magnitude’s difference. It starts at the bottom of a boom i n1979 and it stops at the top of a boom in 2007. I wonder what happened between then and now?

Finally of course, who cares how many millions have the top 1%? They’ve always been mega wealthy. The top 1% is, by its nature self-selecting. The people who were in the top 1% in 1979 may have done extremely badly, and are now only in the top 20% and new players have joined the ultra rich. This is distorted by selection bias not prevalent in larger cohorts.

Comparing a top 1% with the middle 60% is not therefore comparing like with like. A graph showing each of the deciles’ incomes over that period would be informative. What would that show? The answer is that you cannot see on this graph, because the scale is of insufficient resolution to answer it, but it appears that the bottom 80% are all going roughly the right way at roughly the same rate. But as charts as dishonest as this one are all you ever see from leftie blogs, then I suspect the 10 lines representing 10 income deciles do not show the picture the inequality-obsessed left want you to see.

In Praise of the Chinese in Africa


Africa’s hope?

Western aid budgets are generally tied to commitments from third-world governments to behave as far as environmental destruction or human rights are concerned, and to spend at least some of the moolah on their people rather than their wives’s shoe collection or at the Mogadishu Mercedes Benz dealership. The Chinese are criticised for plundering the natural resources of Africa without requiring such sops to the conscience of the affluent, but at least their engagement in Africa can be called “investment” and is refreshingly free of leftist cant.

I’ve argued before that the CAP is responsible for more human suffering than the Second World War, and whilst Europeans and Americans are feather-bedding their farmers, they are preventing Africans getting their cash-crops to rich-world Markets. This means that roads and infrastructure to get cash crops out aren’t built and when the crop fails, there are no roads to distribute the food aid, and everyone dies because they are still subsistence agriculturalists or pastorialists rather than steadily specialising and developing in a productive economy. Famines are rarely about failures of crops, they are usually about failures of distribution. They are also about incentives, as Communist ideologically inspired famines of the 20th century showed.

Chinese engineers are overseeing the building of a Road network and railways that are designed to get raw materials to the market. Plundering Africa of its mineral wealth if you like. But nothing’s going to stop those roads distributing aid in time of famine or allowing farmers to distribute surplus in times of plenty. Likewise mobile phone networks are cheap to build and allow communication by farmers about prices for goods in various nearby towns. These networks will follow the mining engineers’ roads too. This allows, paradoxically, farmers to benefit from higher average prices, and consumers from lower average prices. The difference being lower wastage. Roads also allow medicines, and and effective cold-chain to deliver vaccines to the poor (A rare genuine good done by NGOs and development aid) more effectively.

Much Western development aid does not seem to realise that economic activity is like water, it flows down the path of least resistance. You cannot just give clean water if there is no economy to sustain its infrastructure in the long-term. You just create dependency. A road is only going to be maintained if there is an economic rationale like a mine or cash crop to sustain it.

If western governments spent less time worrying about their aid budgets as a percentage of GDP to appease ignorant hand-wringers in Guardian editorials, and allowed the third world to sell food to us instead, there would be an economy in the poor parts of Africa to develop with in the first place. Without the primary industries giving the rationale for basic infrastructure, there will be no economy, and people in parts of Africa will remain miserable supplicants of western charity. If William Kamkwamba and his family were able to sell stuff in a productive economy, they wouldn’t need to scrape together the resources for a solitary windmill and Poppy Spalding wouldn’t be able to bleat about “the world’s poor” after her gap year of misery tourism. If Africa was allowed to trade on equal terms with the west rather than suffer from dumping of Agricultural produce destroying local markets, and were instead allowed to sell maize to us, then NGO wallahs wouldn’t be cruising around in Air-Conditioned Toyotas distributing largesse like a feudal baron’s consiglieri. But I think the NGO wallahs like being the big man, because (with one or two exceptions) they don’t seem to argue for free trade.

So. China raping the continent for its mineral wealth is likely to do more good for the people of Africa than the entirety of western Aid budgets (which in the case of the British Coalition exists behind a budget ring-fence for reasons of political expediency rather than the greater good). It is ironic that Communist China realises that Trade not Aid is the way to develop Africa and raise its people out of poverty. Whilst America and the European Union subsidise agriculture to the tune of twice African GDP, the twin holocausts famine and Malaria in Africa will continue.