Tim Worstall

The standard trope is that through the colonial system the mores and behaviours of the public school system were imposed upon hundreds of millions of poor benighted darkies.

All those chinless wonders sent out to rule hundreds of thousands with little more than “play up and play the game” ringing in their ears and some half read Cato in their tin trunk.

It would seem that this isn’t quite how it worked.

In pre-colonial Benin, homosexuality was viewed as a boyhood phase that males passed through and eventually grew out of.

An instance of cultural reverse osmosis I think?

It’s a blinder, really.

We must have fiscal stimulus so therefore we need to have tax rises.

Sadly omitting the point that tax rises are, by definition, fiscally contractionary.

What is the incidence of ‘enormous’ advisory fees?

Indeed, what is the incidence of such fees?

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

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

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

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

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

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

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

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

Ritchie notes that mining royalties in Ghana aren’t very high.

Ritchie fails to note that the Government of Ghana is a major shareholder in the company which mines in Ghana.

Thus they get their money anyway….

Quick question…..

Are there two Sam Coates’ out there?

One at The Times and another a speech writer for Cameron? Or are they one and the same?

Note that Adam Smith pointed out more than 240 years ago that “Consumption is the sole end and purpose of all production” and that the measure of a country’s true wealth, is the total of its production and commerce. That is, a country’s wealth is what the people of that country can consume. The great 19th century French economic pamphleteer Frédéric Bastiat wrote, “Consumption is the end, the final cause, of all economic phenomena, and it is consequently in consumption that their ultimate and definitive justification is to be found.” Note also that exports are things that we produce and send to other (overseas) people. That is, they are goods and services that we produce but do not consume and thus they lower our welfare. Imports on the other hand, are goods and services that other counties produce and send to us to increase our consumption. This means imports increase our welfare. So imports are welfare increasing and exports are welfare decreasing. Therefore “imports are good; exports are bad”

But this does raise the question of why do we bother to export and not just import? The obvious answer is that exports are the way we pay for our imports. If we want people to send their goods and services to us we have to send our goods and services to them in exchange. Adam Smith also noted that in any free exchange, both sides must benefit. The buyer profits, just as the seller does, because the buyer values whatever he gives up less than the goods he obtains. That’s why we trade at all.

Shorter version: Imports are going shopping. Exports are just the shite that we do so we can go shopping.

The ONS shows that 91% of wealth belongs to the top half, most to the top tenth, while the bottom tenth owe more than they earn.

It’s not just that she’s confused wealth, which is a stock, with income, which is a flow.

It’s the ludicrous stupidity of saying that someone owes more than they earn. Yes, well? So does everyone with a mortgage. I’m not exactly poor, having a decent income plus a few hundred thousand’s worth of wealth (by no means a millionaire but 25 years of property ownership does help). But I certainly owe more than I earn for I’ve a mortgage (two in fact).

So what is she wibbling about?

So, err, you can look like this and still have sex?

With a fertile woman?

Truly the modern world is a wondrous place.

Am I the only one reminded of the old story here?

Greek premier George Papandreou has threatened to go to the IMF unless the EU comes up with concrete help on acceptable terms by the end of the week. This brinkmanship is causing heartburn in Brussels, Paris, and Madrid, but the creditor states of North Europe are almost jumping at the chance to call his bluff.

It’s just that I can’t work out who is Brer Rabbit here.

The Greeks insisting that absolutely they don’t want to go to the IMF? Or everyone else insisting that they shouldn’t?

The solution is about changing the shape of banking, not maintaining it and asking us to insure it.

The Bank of England should be lender of last resort to a bank’s retail deposit base – but only that. That business needs to be stand-alone, or ring-fenced internally in banks integrated with wholesale functions, and policed by the regulator.

The risks associated with other activities, and sources of funding, should be borne by creditors and shareholders and absolutely not, as is the case today, by taxpayers.

But this still doesn’t solve the problem. We know that banking systems without deposit insurance are subject to runs.

We also know that the modern banking system operates more on wholesale deposits than retail. Without some form of insurance available for those wholesale deposits then the system will be subject to runs.

So, we need to do one of three things. Either stop the use of wholesale funding altogether, insure such deposits or accept that there will be runs.

The effects of the first would be horrendous, a massive reduction in lending capability right across the economy. The second is, of course, subject to the usual moral hazard problems. The third, well, no one really seems to like the third as current complaints show.

But just because there are no particularly attractive options in our possible solutions set does not mean that there are others more appealing. As far as I can tell those are our options (there are many other more minor ones but at the heart of the matter those are the three) and we’ve got to pick one of them.

On a banking levy:

The intellectual case for such a tax is pretty much unarguable, or would be if we could be certain it was going to be paid solely out of excess profits. Unfortunately we cannot. Like most forms of business taxation, the banks will find ways of passing it on in higher charges or wider spreads. Therefore the levy becomes another stealth tax on the general population.

Yes, it might well be passed on, just as with any other form of business taxation always is (even if it were solely to come from excess profits this is passed on to shareholders, is it not?). But we shouldn’t be ascribing agency to this passing on of the burden of taxation.

It really isn’t bankers (or anyone else) saying “who can we stick with this tax”. It is simply that the tax itself changes behaviour, that change in behaviour shifts the burden.

There are plenty of precedents for ongoing industry levies – petroleum revenue tax being the most obvious example.

Yes, but that particular one is a very bad example. That’s a land rent more than anything else. A charge upon resources that are within the borders of the Kingdom purely by happenstance. As such, a very good tax, one of the least distorting possible. Banks aren’t really exploiting such a “free” resource so a tax can’t quite be justified on the same grounds.

Both the main political parties seem to favour an Obama-style levy which seeks to tax bank balance sheets according to the amount of wholesale funding being used, but the detail and implementation is very much a work in progress.

According to the Bank of England’s last Financial Stability Report, UK lending is funded to the tune of about £800bn by wholesale money. A tax levied at the US rate of 0.125pc could therefore be expected to raise about £1bn. Any such tax would also perform the secondary purpose of incentivising the banks to move to “stickier” forms of retail funding.

I have to say that it worries me that I’m in agreement with the two major political parties. Their agreeing on anything is usually a sign that they are wrong. But I have to say that I still do see this as the best solution.

It’s hard to see how special taxes contribute to this endeavour. Indeed, to impose such a levy implicitly recognises that banks are special and that every now and again they are going to have to be bailed out.

Well, yes, I think they probably are special and that they probably will require periodic bailing out. Precisely and exactly because banks borrow short and lend long and are thus always subject to the possibility of a liquidity crisis through a run. It’s inherent in having any institution that occupies the place of a bank.

I’m sure there are ways of making such less likely, but entirely unconvinced that the liklihood can ever be erased.

This report leads to this paper.

I’m really rather hoping that the actual paper doesn’t say anything quite as stupid as is being reported:

Their new research argues that estimates of conventional reserves should be downgraded from 1,150bn to 1,350bn barrels to between 850bn and 900bn barrels and claims that demand may outstrip supply as early as 2014.

Demand outstripping supply? What?

“We’re not operating under that basis. This is objective analysis. We’re not sitting on any oil fields. It’s critically important that reserves have been overstated, and if you take this into account, we’re talking supply not meeting demand in 2014-2015.”

In a market there is no such thing as demand outstripping supply. There is only a mismatch between supply and demand “at a price”. So I do hope that the report itself doesn’t contain such silliness.

The abstract isn’t all that much better:

While there is certainly vast amounts of fossil fuel resources left in the ground, the volume of oil that can be commercially exploited at prices the global economy has become accustomed to is limited and will soon decline. The result is that oil may soon shift from a demand-led market to a supply constrained market.

So, anyone got access to that actual paper so that I can have a shufti?

Update: Wow, that was quick. Good, I now have the article, thank you much to JJ.

The MD of the IMF says that a transactions tax won’t really work. For it’s all too easy to create derivatives to get to the same risk profile and end product, derivatives that won’t be subject to the tax.

Ritchie says:

Second, derivative dealing not subject to financial transaction taxes by banks can easily be subject to those taxes – simply do it on gross turnover.

Blimey, he’s forgotten one of the basic things about the tax that he himself is proposing.

The “gross turnover” of a derivatives contract is the premium paid or received on said derivative. That’s what turns up in the bank’s books, at least, what we normally think of as turnover in an accounting sense.

But the transactions tax that Ritchie is pushing isn’t levied on this definition of turnover. It needs to be levied on the full nominal sum of the derivative.

Imagine: you do an options deal on $1 million worth of wheat. The tax, as described, needs to be on that $1 million value. Turnover however, as entered into the books of the broker, bank, whatever, isn’t $1 million. It’s about $5,000 (just as an example), the amount that’s actually paid over to purchase the option.*

So, if Ritchie is going to tax gross turnover then a) the tax won’t raise anywhere near the amount he currently assumes and b) he’s actively promoting, through his tax policies, the use of derivatives. For we’d all far rather pay tax on $5,000 rather than tax on $1 million and it’s easy enough to create derivatives that give us the exposure to $1 million while only paying $5,000. Which is Strauss Kahn’s point.

Is there anybody who tries to turn up to an intellectual fight quite so badly armed as Our Ritchie?

*I can imagine, just about, a definition of gross turnover which means that $ 1 million. But I can also think of any number of ways of disguising that as well, so the point still stands.

Sex and bowls and rock and roll.

But it soon became clear that James had a strong ideological agenda that was at odds with the deeply held beliefs of most Englishmen of all political persuasions.  James’s rough actions belied his smooth words about tolerance.  He embarked on an aggressive campaign to remake England along continental lines, a campaign that attacked deeply held convictions in England about the relation between government and the governed.  Rather than being an empathetic man in touch with the sentiments of the country, as most had believed, he proved to be a haughty, headstrong, and stubborn one intent on bending the country to his will, and damn quickly.

The end result was that we kicked him out in 1688.

So what are we going to do about the people trying the same thing now?

But an interesting attempt to give a sense of scale:

AXA also calculated that a woman in her mid-20s working in the private sector would have to contribute almost a quarter of her annual salary every year to get a pension comparable with a public counterpart.

Given that pensions are simply delayed compnesation that means that public sector wages are, by this measure alone, 25% higher than private sector.

OK, to be more precise, 25% minus whatever pension contribution that public sector workers have to make themselves. Different schemes have different amounts but for some reason 6% sticks in the mind. So 19% then.

VOLCANO IN FINLAND SPARKS THREAT

Volcano? Finland?

RESCUE agencies were on high alert last night after a volcanic eruption in Iceland threatened to trigger a larger explosion at a second volcano.

Err, no, Iceland and Finland are not the same place. Round and about 1,500 miles apart actually. Like, you know, London to Morrocco, London to Istanbul type distances.

For there lived an extraordinary contraption, a testament to the Prince’s insatiable lust and to his immense corpulence.

Known romantically as a ‘siege d’amour’, or love-seat, this chair allowed the distinctly unathletic Bertie to have his way with two women simultaneously, all with the minimum of effort.

Rightie ho. And there’s a photo of it.

All of which explains why the corpulent Prince found lovemaking rather more energetic
than he might wish — and why he resorted to using the siege d’amour to fulfil his lust.

The way in which Bertie used the chair has been lost in the mists of time. Now owned by the Soubrier furniture-making family, who originally custom-built the chair for Bertie, it has never been on public display.

So, the competition is, to try and work out how it was in fact used. I am obviously far too innocent as I can’t work it out at all.

So, Obamacare has passed.

This now makes health tourism to the US a viable proposition.

We know very well that the treatment there is, certainly for certain cancers etc, vastly better than it is anywhere else. But until now of course you didn’t go over there for such treatment because you had to pay for it directly.

Now?

So, there’s community rating, meaning that premiums are set as the average across the group, not for you personally. There’s no ban for pre-exisiting illnesses and finally, there’s guaranteed issue.

So, you’re plodding along in the ordinary manner and you get one of those diseases which the government health care systems of other countries deal with well and stay home and get treated. Or die, whichever.

Or perhaps you get one of those diseaes which, say, the NHS doesn’t treat. Either not well or on cost grounds (say, Herceptin). It now pays to immigrate to the US (and for anyone with a degree it’s really not that difficult to set it up so that you can) pay $10,000 or so a year in premiums and consume all the health care you want. And thus possibly live as opposed to certainly die at home.

I wonder if the incentive for people to do this has been built into hte cost projections used to pass the law? I doubt it somehow….

“Who’d have thought we’d have a black son before we ever met a real live Democrat?”

From The Hurt Locker.

Update: I am reminded that this line is actually from The Blind Side, not The Hurt Locker. Ah well….