Why are people who oppose capitalism so obsessed with money?

Capitalists are frequently accused of being mercenary, in the sense that they are fixated on accumulating the greatest amount of wealth at the expense of other important issues. Their critics like to present themselves, in comparison, as focused on less tawdry, more important matters: happiness; social justice; public welfare.

Yet if once looks at the writings of anti-capitalists, they do seem to spend a lot of time talking about money.

Let us take one particular family of anti-capitalist: the egalitarian. Egalitarians believe that equality is an end in itself, or at the very least it is a means to a better end. We frequently hear the egalitarian mantra that “equal societies have more social cohesion, more solidarity, and less stress; they offer their citizens more public goods, more social support, and more social capital; and they satisfy humans’ evolved preference for fairness” (to which egalitarians add plenty of other nice things, as well – notably that “more equal societies are happier”). As a consequence, they advocate policies that seek to actively promote equality; to ‘narrow the gap between the richest and the poorest.’

Others might question the validity of the statements, and/or the wisdom of the policy ambition. Fewer ask the question “why the obsession with money?”

This question occurred to me this morning as I was thinking about the Wilt Chamberlain example (that’s what happens when you miss a night’s sleep!). The Wilt Chamberlain case is Robert Nozick’s classic demolition of “distributional justice” – the idea that certain distributions of wealth are fair, morally right or desirable (it does not matter whether that distribution is equality or if “shares vary in accordance with some dimension you treasure”). Put simply, he asks what happens to one’s notion of distributional justice if individuals choose to change the distribution? In this instance, what happens if large number of individuals choose to part with some of their share in return for the opportunity to watch Wilt Chamberlain wow them with some amazing feats of basketball?

Nozick’s point is twofold. Firstly, distributional justice is intrinsically unsustainable, because those pesky humans inherently inject a degree of entropy into the system: they will redistribute the money through free exchange, quickly wrecking any pattern of distributional justice. Nozick suggests that this new distribution must be equally just, because it is brought about by the voluntary action of individuals who began in a state of perfect distributional justice (after all “what was it for if not to do something with?”).

As a consequence, egalitarianism requires continual interventions “to stop people from transferring resources...” (or rather, to rectify the results of those transfers). Clearly, this undermines the incentives that money serves to transmit: Wilt might rather pursue his other hobby if not paid to shoot hoops. This is Nozick’s second point – probably the more important one for libertarians (and for liberals who also see themselves as egalitarians): egalitarianism is completely incompatible with freedom. The guardian of distributional justice must constantly intervene to thwart free exchange among individuals.

So far, so good, Robert. However (unless I’ve forgotten something since reading Anarchy, State and Utopia), Nozick overlooks another feature of the egalitarian mindset: the egalitarian is utterly fixated on money.

Let’s examine the Wilt Chamberlain a bit more. The fans clearly value the sight of Wilt dribbling more than they value the cost of the ticket; Wilt clearly values the resulting millions more than he values baiting the Black Panthers. What matters in society is one’s ability to satisfy one’s ends, not the amount of cash one has under the mattress. Therefore an equal society is surely one where everybody’s ends are equally satisfied. If Wilt and his fans are equally happy, society is equal even as Wilt amasses his millions. If Wilt and his fans are compelled to have the same amount of money, and as a result Wilt’s fans feel deprived of good basketball while Wilt gets to accompany the President to an important funeral, society is unequal even if Wilt and his fans have a similar bank balance.

Nozick isn’t completely oblivious to this: he asks “Why might somebody work overtime in a society in which needs are satisfied?” and answers “Perhaps because they care about things other than needs.” The libertarian, clearly, understands that there are things more important than money. The odd thing is that the egalitarians do not. For them, it is the distribution of wealth that is the essential criterion; it is the relative amount of money that people have that decides whether a society is just or not.

As such, it really is the egalitarians that are obsessed with money. For the rest of us, there are much more important things in life.

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An EU financial transaction tax would be folly

You’d think that after a decade of creating one of the world’s biggest financial powder keg in living memory, the leaders of the EU would have a little humility about their plans to tax financial markets. Alas, not. Today’s outline of the financial transaction tax proposal by Jose Manuel Barroso confirms that they plan to throw more gunpowder onto the keg. We published a very good paper on the idea of the Tobin tax recently. A financial transaction tax, like a Tobin tax, would not raise any significant revenue and, crucially, would probably make markets more volatile.

First, a clarification: despite many reports to the contrary, this is not a Tobin tax in the true sense. A Tobin tax is a small tax on spot trades of foreign exchange – intended by James Tobin to reduce volatility in currency markets. But it is similar: the financial transaction tax would apply to stock, bond and derivatives exchanges. The impact will be less profound than a true Tobin tax would be, but most of the same principles apply.

Will it raise money? Probably not: the projections for revenues are based on market volume (ie, the total number of exchanges made) which would probably fall considerably. When Brazil tried a financial transaction tax (now abandoned) it didn’t raise much. Tobin himself rejected the idea that a Tobin tax would raise any money and explicitly distanced himself from groups that did.

I am constantly baffled by the failure of politicians to understand that trading funds can and will move country if the financial incentives are there. How many times have Europe’s leaders lamented cheaper competition from the Far East driving jobs out of the EU? Yet when those jobs are (far more lucrative) financial ones, they seem to think that no similar principle applies. It’s crazy for the EU to claim that it can raise €57 bn per annum without impacting the sector. (Mind you, the British government might be tempted to favour a Eurozone-only tax, as it would probably drive quite a few funds to the City of London.)

More importantly, transaction taxes actually increase the volatility they’re designed to reduce. Tim Harford once gave a good analogy for this. Imagine if you were charged for using an ATM – rather than taking out £20 or £50 whenever you needed it, you might save up your withdrawals until you absolutely needed to, and then take quite a lot of money in one big go. Irregular, large withdrawals would increase the fluctuations in your cash reserves (and the ATM’s) and increase volatility.

Markets exist to factor information into prices. Taxes on exchanges act as a blindfold on them, reducing the number of exchanges that can take place at the margin. If a trade is taxed, it makes some trades with a low expected yield unviable. Traders wait to make their trades – that means fewer and bigger trades. The impact of this tax won’t be as bad as a Tobin tax would be, but it’s a bad step nonetheless. But I’m sure the leaders proposing it know that. Their agenda is a political one: to buy enough time and political capital by appearing “tough” on markets for them to pass more EU bank bailouts.

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When ideas have sex

Matt Ridley on the rise and rise of humanity.

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The moral case against the 50p tax has to be made

The great tax debate has been thrust back to the top of the political agenda, and about time too. The economic argument against Britain’s 50p top rate of income tax is convincing. As 20 leading economists told the Financial Times earlier this month, there is no evidence that the increased top rate has managed to raise any new revenue for the exchequer.

Crucially, its detrimental effect on the UK’s competitiveness impacts most upon middle and lower-income earners. The FT’s letter made this abundantly clear: ‘the economic damage it causes means it is against the interests even of ordinary workers who don’t pay it’.

The numbers, quite simply, do not add up. Yet as strong as this case may be, there is an even more persuasive justification for abolishing the 50p top rate – one that has largely been ignored so far. Regardless of economics, it is the utterly compelling moral argument that should win the day.

According to KPMG (£), one of the ‘big four’ professional services firms, the average top rate of tax across the European Union is 37.5%, while the richest Americans pay 35% of their income in tax. By contrast, those earning over £150,000 in the UK can expect to pay a marginal tax rate of 52% (50% on their income and an extra 2% in national insurance).

This disparity is grossly unfair. What right does the state have to take over half of an individual’s earned income away from them? None. Is there any evidence that our governments should be trusted to spend a greater proportion of our money? History suggests otherwise.

The case for cutting tax is not just a pragmatic economic argument. It raises other fundamental questions about the morality of how we run our society, and of the role that government should play in the lives of individuals. This year's Tax Freedom Day shows that Britons have to work a staggering 149 days in a year just to pay their taxes. Tim Farron could not have been more wrong at the Liberal Democrat party conference last week. For a western liberal democracy founded on defending the freedom of the individual, this is morally abhorrent.

So far the focus of discussions by politicians and pundits alike has been on economics and whether tax cuts make financial sense. Now it is time for that focus to shift onto the morality of tax; this is the argument that will end the great debate once and for all.

Alexander Wickham is a freelance journalist and Politics finalist at the University of Bath. He writes for the Huffington Post and the student magazine Political Promise.  

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What growth agenda?

With all the marching and political grandstanding against "cuts" that we've seen so far this year, it's easy to forget that the UK's deficit is still as big as Greece's, and government spending accounts for 50.1% of all GDP. As a superb piece by Julian Harris in Monday's City AM showed, there hasn't been anything in the way of cuts yet:

This year, the first six months saw another £7.5bn nominal rise in total public sector spending (which excludes the effects of financial sector interventions). When inflation is taken into account, this does amount to a decline – of 0.43 per cent, compared to 2010.

Yes, total public sector spending, even in real terms, was just 0.43 per cent lower than last year – and still 3.9 per cent higher, in real terms, than in Labour’s final full year in power (2009).

By the end of the current fiscal year, the government’s officially recognised debt – which does not even include many eye-watering, massive liabilities – will top one trillion pounds. It has already reached the equivalent of 61.4 per cent of British GDP. Little wonder that last month’s level of public sector net borrowing – £15.9bn – was an all-time record high for August, despite the government clawing in £2.24bn more in tax than during the same month last year.

Net borrowing has reached £51.5bn in the financial year to date, only slightly down from borrowing of £55.3bn at the same point in last year’s cycle. The billions aren’t going quite as far as they used to, thanks to inflation, but this still looks more like topiary than axe-swinging. The government remains on track to pile more than another £120bn onto the public debt by the end of the year, with some economists doubting if the annual deficit will be cut at all.

The whole piece is essential reading. The bottom line is that the government is still spending like there's no tomorrow, and Britain's growth rates are abysmal.

As I wrote yesterday, the problem isn't austerity, but a failure to make it easier to do business in Britain. George Osborne may have put forward a reasonably convincing plan to cut the deficit (though it seems unlikely that he will eliminate it by 2015), but he and Vince Cable have failed utterly to promote wealth creation in Britain. The Coalition has done pretty well at accountancy, but terribly at economics.

What's to be done? Supply-side reforms like Madsen's would be a good start – let all firms register their employees as self-employed to cut through volumes of regulation and avoid some national insurance. Significant tax simplification should be on the agenda: abolish all tax breaks for everything, and use the money saved to reduce the overall tax burden – particularly for income and corporation taxes. Favouring one sector over another, or one type of firm over another, is ineffective tinkering and hostage to the realities of political lobbying. It distorts the economy and wastes money.

There are other things that can be done – it's not rocket science, but the economy can't be expected to grow with the state as big as it is. Tax cuts and deregulation are needed, and until a pro-market growth agenda that delivers reforms like those is put forward, the government cannot expect a decent recovery. There ain't no such thing as a free lunch.

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Ireland has 99 problems, but austerity ain't one

Tyler Cowen reports in on how austerity is affecting Ireland:

Ireland now has had two quarters of considerably stronger than expected growth, it’s now both gnp and gdp [1.1% in Q1 and 1.6% in Q2], and domestic demand (!) is up, and borrowing rates are down, though employment remains miserable. Even I am surprised by the positive signs here (I never bought the doctrine of expansionary fiscal austerity, though I saw austerity as necessary for Ireland)

He follows up with a damning series of quotations from Paul Krugman, who repeatedly predicted that austerity would make Ireland's troubles even worse, but who now claims that he predicted Ireland's recovery all along. Cowen concludes:

You still don’t have to believe that immediate fiscal contractions are expansionary; in general they’re not, but you can still have been wrong about Ireland. The simplest lesson to at least try on is that internal devaluation sometimes does better on the AD side than we are inclined to think, or that real factors mattered more than expected, or a bit of both. Or try Karl Smith’s ideas. It’s not all about the downward spiral, although this was one scenario laid out in Keynes. We should and will await more data, not to mention data revisions, but in the meantime it is correct to be surprised by the much-better-than-expected Irish growth performance, and at a difficult global time at that; you can’t claim the American and European growth locomotives pulled them out of the slump. This expert on the Irish economy offers a sector-by-sector breakdown of the new numbers and he too admits he was surprised.

The basic point here is that Ireland has done surprisingly well out of austerity – far better than anybody hoped. But the Irish economy is still on life-support and its debt-to-GDP ratio is expected to reach 115% next year. Constantin Gurgdiev, an Irish-based economist who has been one of the few clear thinkers throughout Ireland's crisis, estimates that total public and private debt levels in Ireland are 494% of GNP. As the recession continues, mass mortgage defaults – possibly bailed out by taxpayers – grow ever more likely. And it's hard to know if Ireland can avoid default after Greece finally does so.

But, for the UK, the crucial point is that austerity has not produced the results for Ireland that most Keynesians predicted. One ray of light for Ireland was Twitter's decision to locate its international HQ in Dublin, despite intense lobbying from the Coalition government to locate in London. British growth is sluggish, but so is that of "stimulated" America. It looks like the key to growth is not government spending, but ease of doing business. It's a pity the Chancellor and the rest of the Coalition only know half that story.

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Liberty League Conference 2011

The young libertarian network, the Liberty League, will be holding its inaugural conference on Saturday October 22nd at the National Liberal Club in Whitehall, London. This is likely to be the UK libertarian event of the year, with brilliant speakers like James Tooley, author of 'The Beautiful Tree', the free school pioneer Toby Young, Spectator columnist Theodore Dalrymple, and of course the ASI's very own Sam Bowman and Eamonn Butler along with many others.

It will be great chance to meet and discuss ideas with like-minded pro-liberty activists and thinkers. The sessions will include a debate on the Chicago versus Austrian economic schools, a discussion of Libertarianism and Islam, and an exploration of how the state harms the poor. As if that weren't enough, the ticket price of just £30 for students and £65 for non-students includes a set dinner at the end.

Spaces are extremely limited and have been going fast, so make sure to apply soon. The full details are here.

Anton Howes is Director of the Liberty League.

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Companies don't pay corporation tax. Never, not a single penny

One of the more annoying things we hear from the left side of the political aisle is that "companies must pay more tax". Given that companies do not pay tax, ever, cannot pay tax, ever, this is of course the call of the ignorant. But explaining how it is that companies, while they definitely hand over the cheque, do not actually carry the burden of a tax is difficult and can be complex.

So now that I've found this excellent and simple explanation of how this all works out I'll point you to it. Here.

Do note a couple of other things that come with this argument. For example, the Financial Transactions, or Robin Hood, Tax that is so popular among the economic mouth breathers suffers from exactly the same problem. Yes, sure, it would be lovely to "make the banks pay" but it just won't be them that does, they're companies, they cannot. It will be us the consumers who pay the tax.

One little point about that paper though: I'm afraid that in proposing their alternative tax system they've forgotten something that we here in Europe learned a long time ago. They want to impose a sales tax of 17.5% (of goods value, or 15% of tax and goods value). I'm afraid that doesn't really work because, shocking as I know everyone will find this news, not everyone is entirely and openly 100% honest.

Which means that there's a limit to how high you can make a consumption tax if that tax is levied just at the final point of retail sale. And 17.5 % is, I would suggest, very much above that limit. In order to be able to have such a high rate you need to make it a VAT: so that it accumulates at each stage along the production and distribution chain, lowering the temptation not to collect it at that final point.

But, the reason I draw your attention to the paper is that the first couple of pages give a very clear and excellent description of how and why it is that it isn't the company that pays corporation tax. It's largely (and even more so in a smaller more open economy like the UK) the workers that do.

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On the buses

The UK bus sector has prospered in recent years, despite all the prophecies of gloom when Lady Thatcher’s Conservative Government decided that competition was the best answer to reversing decades of under-investment, lousy service and poor time-tabling.

First up was the 1980 Transport Act which introduced competition on long-distance coach routes. Subsequently, sector leader, National Express, saw demand rise sharply.  And, despite serious setbacks on the railways, National Express’ bus operations have continued to thrive, with much expanded services. Apart from travelling on much more comfortable buses, passengers are also being offered highly competitive fares. For example, single fares of c£13 are currently available on the six-hour plus London to Newcastle route.

Given that these fares are just 3x the cost of a one-station hop on the London Underground, they offer remarkably value – as National Express sharpens its pencil in the face of competition. On the shorter routes, the stimulus was provided by the 1985 Transport Act, which introduced bus competition locally - the franchise arrangements for London, though, are very different.

In recent months, both sector leader, First Group, and the ever-controversial Stagecoach have reported robust revenues and divisional operating profit increases of an impressive c20%. Whilst all bus operators have to cope with rising fuel prices, heavy investment is underway. First Group plans to invest £160 million over the next two years in modernising its fleet – with 955 new buses.

Looking forward, the UK bus sector stands to gain from the rising costs of motoring. When introduced in the 1980s, the aggressive bus competition initiatives were roundly condemned, especially with regard to the viability of many poorly patronised rural routes: some now receive substantial subsidy. A few bus businesses remain Local Authority-owned and they are ripe to be sold off.

Overall, though, the story of UK buses since the 1980s has been impressive. Embracing the competitive market has been fully vindicated.

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A political battle that we must win

Cuadrilla Resources has reported their huge gas find near Blackpool. And it is huge, just enormous:

And it's a whopper: 200 trillion cubic feet. Recoverable reserves will be less, perhaps considerably so: but to put it in perspective, the Groningen field, at 100 TCF, completely transformed the Dutch economy** in the '60's and 70's and will last to 2080. The largest North Sea gas field discovery to date - the Troll field in Norwegian waters - was about 50 TCF recoverable, and has been supplying France, Belgium and Germany since the mid '90s, with many more productive years to come.

The reason this is important? It completely changes the economics of renewables and climate change. Yes, gas is a fossil fuel, yes, there are emissions, but they're a lot lower than coal. We've already got most of the country piped for gas delivery and this new cheap and above all local source can just be pumped into that system.

It simply makes windmills an irrelevance: quite apart from the massive difficulty we'd have with the variability of wind power if we did build out the proposed system. Which is why, of course, Greens like Caroline Lucas are squawking:

Instead of caving in to fierce industry lobbying, the government should follow the example of France and others by agreeing a moratorium on new shale gas exploration, at least until the environmental and health effects are fully understood.

Why should we stop looking around for shale gas just because we're uncertain about the effect of exploiting it? Sounds very odd: until you consider that Blackpool isn't the only place in the UK with shale gas underneath it. Find a few more fields, see that we've got a century of more of energy under our feet and, well, standing between 60 million Brits and cheap and clean heat and power is unlikely to do a political career much good. Thus the call to ban the exploration, so that we never do manage to find out how much we've got.

And that's the political battle we've got to gird ourselves up to win: we really mustn't let the greens (and Greens) impose an exploration ban. This is going to be difficult though: Chris Huhne has been heard spouting off about people lighting their tap water in the film Gasland. Except of course that has been happening for decades longer than frakking has been done, it's an entirely natural (even if worrying) occurence.

We simply mustn't let them ban exploration or cheap energy in favour of their damn windmills.

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