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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

All I want for Christmas is the abolition of corporation tax

Written by Tim Worstall | Wednesday 25 December 2013

I think it's about time we abolished corporation tax don't you? As this paper shows, the effects will be pretty good. The rise in other taxation as a result of increased growth won't quite cover the revenue loss but it'll be a near thing:

We simulate corporate tax reform in a single good, five-region (U.S., Europe, Japan, China, India) model, featuring skilled and unskilled labor, detailed region-specific demographics and fiscal policies. Eliminating the model’s U.S. corporate income tax produces rapid and dramatic increases in the model’s level of U.S. investment, output, and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating tax loop-holes.

There's a major difference between the US version and the UK. Here, those in receipt of dividends gain a tax credit for the corporation tax already paid. If we abolish the corporation tax of course we would abolish that credit and dividends would be taxed as normal income. So it's entirely possible in the UK system that the revenue effect would be positive.

As to why we want to abolish it it is disguised taxation. 90% of the country believes that it is actually the companies that pay it. The other 10% of us are aware that it is the shareholders and the workers (in the form of reduced wages) that do. So better to lay the taxes openly on those who really bear the burden than disguising the cost of government from people.

And finally, one reason that we collect this tax at the corporate level is because it is convenient to do so. But as you may have noticed with the furore over Google, Amazon and so on, it is no longer convenient. So, let's stop doing this inconvenient thing and tax directly.

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This strange allegation that Britain isn't eating

Written by Tim Worstall | Tuesday 24 December 2013

I'm afraid that this campaign and poster, "Britain Isn't Eating", confuses me greatly.

In a striking billboard advert that says ‘Britain Isn’t Eating’, the charity Church Action on Poverty uses the famous image from the Conservatives’ 1979 election poster, ‘Labour Isn’t Working’. The highly political charity poster features the same long line of people used to illustrate dole queues under Jim Callaghan’s ailing government, but this time places them outside a food bank.

OK, more people are using food banks than before. And what, pray, is wrong with that?

For the launch of the Britain Isn’t Eating campaign, Church Action on Poverty said on its website: ‘The explosion in food poverty and the use of food banks is a national disgrace. It undermines the UK’s commitment to ensuring all its citizens have access to food – one of the most basic human rights.’

Umm, but, aren't food banks providing food to people? Aren't people thereby being provided with one of the most basic human rights, access to food?

I'm perfectly willing to agree that in a country, by historical or global standards, as rich as the UK is today that we can make sure that all have access to a basic and nutritious diet. The thing is, I'm very confused by the people who are part of the system providing this, those food banks, insisting that their own existence proves that this isn't being done. For there's absolutely nothing at all that insists that such provision should be met by government. Or benefits, or pay, wages, jobs or anything else of that type. The insistence is that food should be available and that it is available through the charity of our fellow citizens is not some scandal that blots our society. Quite the contrary, it is a wonderful signifier that we do indeed still care for our fellow man.

Something that at this time of the year is a rather appropriate thing to be reminded of perhaps?

It claims ‘the single most common reason for people to need food aid is that their benefits have been changed, delayed or stopped’.

Government is incompetent and we the citizenry step into the breach. This is somehow a bad thing?

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Canada puts human rights before puritan prodnosery

Written by Tim Worstall | Monday 23 December 2013

Time was when human rights were rather a province of the left: you know, the liberals. As it is today they're still the province of those of us who are still liberals, those called the classical liberals, but the rest of the left seems to have moved on to other things. As in with the current attempts to restrict prostitution, even to criminalise either the buying or selling of sex between consenting adults. Canada has looked at this matter and has declared that actually, it's all a matter of those human rights, not the imposition of the usual puritan prodnosery:

Canada has removed all anti-prostitution laws after sex workers fought for safer working conditions following the serial killings of prostitutes by a pig farmer in British Columbia. The 9-0 Supreme Court ruling found that the laws violated the guarantee to life, liberty and security of the person but it will not take effect immediately because Parliament has a one-year reprieve to respond with new legislation. Prostitution isn't illegal in Canada, but many of the activities associated with prostitution are classified as criminal offenses.

That is indeed exactly how it should be of course. The acts themselves should be legal simply because they are indeed between consenting adults and they're not violating Mill's point about the swung fist and someone else's nose.

If the act itself is legal then so too should all ancillary activities, subject only to the laws that apply to all activities. We might well demand that streetwalking cease, on the same grounds that we might demand that any other public nuisance ceases. But only on exactly those same grounds. We might demand that those earning money pay their income taxes but again, only on the same grounds that anyone else earning does (and I know that HMRC has teams that do exactly that).

It is a human rights issue: we cannot allow people to limit the way in which others decide to live their lives just because the first group do not like that way of other people living their lives.

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On the glorious plans of policy wonks

Written by Tim Worstall | Sunday 22 December 2013

The roll out of ObamaCare (aka, ACA) has been gloriously incompetent. Websites that don't work, near zero testing of said websites after spending $600 million on just one of them and so on. I'm even told that they haven't even started writing the payments system yet. But there's yet one more story that has me shrieking with laughter:

While the Affordable Care Act requires health insurers in the territories to accept all shoppers no matter how sick, it does not mandate that all territorial residents buy plans nor does it provide subsidies to make coverage more affordable--as it does in the 50 states and the District of Columbia.

To explain a little here. The ACA says that anyone can buy an insurance policy, even to cover a disease that everyone knows they already have. It also says that the insurer can't vary the price of that policy based upon what is known: they can only charge something around and about what everyone else is paying. This, on its own, would kill any insurance market stone dead because the very sick would be charged the same amount as everyone else, meaning that only the very sick would insure themselves as the price would be so vast. So, to solve this there is the mandate: you must buy insurance or pay a fine. This is meant to make sure that younger and healthier people buy insurance and so all policies are cheaper.

Hmm, OK, it's a bit Heath Robinson but that's the way they designed it. Except, unbelievably, the policy wonks who toiled away on this vast bill made a very simple error. That mandate rule applies only to the 50 States and DC. And not to the other, non-state, territories of the US. Various Pacific islands, Puerto Rico and so on. Where, inevitably, the insurance systems are going rapidly bust.

This is the thing about Adam Smith's man of plan. The world is more complex than a plan allows it to be: which is how we get all those very bright people in Washington DC devising a plan that has such a glorious and gaping hole in it.

Oopsie. Next time someone proposes that the government step in to fix something, remember how badly they got this wrong.

Quite. As with the military maxim that plans never survive first contact with the enemy. So it is that complex plans about governance never survive first contact with reality.

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The disaster that is Britain's solar power "success"

Written by Tim Worstall | Saturday 21 December 2013

We're being told about the wonderful success of Britain's solar power revolution:

Half a million UK homes will have solar panels installed on their roofs by the end of this year, official figures show – while the industry claims that figure could double within two years. Government data show that 495,459 solar panels had been installed, the vast majority on homes, by Sunday, since a programme of subsidies began in 2010. At the current rate of installation, of more than 2,800 panels a week, the half a million milestone will be passed by the end of the year, equating to about two per cent of UK households. The Solar Trade Association says it wants to reach one million installations in 2015.

This is, of course, entirely a disaster. For that half million installed, that million that will be, are entirely uneconomic and must be subsidised through those feed in tariffs. And the thing is it's all so unnecessary.

For as the industry itself, all those assembled greenies, tells us, solar PV will be grid compatible by 2016, 2017 at the latest. That is, it will be just as cheap to get our power from solar then as it will be from coal or natural gas. At which point, of course, we'll all start using the technology and no subsidies needed. So we've actually a disaster on our hands as we've been paying massive susidies, will continue to pay massive subsidies for the next 25 years, for the privilege of having brought adoption forward by perhaps two years.

This is insane.

And no, it's not good enough to say that it is the subsidies themselves that have brought the price down. For the UK subidies have had very little effect indeed on hte global price of solar cells. This has been driven both by technological breakthroughs (getting the price of silicon ingot down from $450 a kg to $20 or so now, slicing them thinner and so on) and the vast subsidies in Germany and China. And both of those are public goods: we all, globally, get to enjoy those effects without our having to subsidise people in the UK.

We should have saved our money and switched later.

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Should fans be concerned by Bitcoin's fall in value?

Written by Charlotte Bowyer | Friday 20 December 2013

The last few months has seen a breathtaking rise in the price of Bitcoin. Starting around $15 at the beginning of the year, Bitcoin's price went from round $200 to a peak of over $1,200 just during November. Then from early December BTC's price began to falter, with a sudden drop and a low of $550 on the 18th: less than half its price just weeks before.

Commentary has been just as volatile, with some seeing BTC's rising price as its explosion onto the scene and proof of its revolutionary potential. Others have scoffed, calling the whole thing a bubble inflated by overoptimistic geeks and people looking for a quick profit. Now that BTC's price has come tumbling, should proponents of the crypto-currency be humbled and/or worried? 

Recent rises and falls in Bitcoin's price have reflected developments in China.  In November Bitcoin exchange BTC China secured $5m investment from Lightspeed Venture Partners, and surpassed Mt Gox as the largest exchange in terms of trading volume. However, on the 5th December the People's Bank of China announced that it does not consider Bitcoin a currency, barring banks & other financial institutions from dealing with it. Around this time Bitcoin's price took a sharp downwards turn. Then, on Monday, the central bank banned 3rd-party payment companies from working with Bitcoin exchanges. This left Chinese exchanges unable to take deposits, and the price cfurther tumbled.

This is potentially bad news for entrepreneurs who want to see Bitcoin widely adopted, as well as for more ideological fans who consider Bitcoin's strength its decentralised and stateless nature. Governments will never be able to stamp out Bitcoin completely, but making it as difficult as possible to use will hamper the objectives of both groups. The Mercatus Centre's Bitcoin Primer explicitly urges policy makers to consider the technology morally neutral, warning against restricting its development and its use by non-criminal users. Whilst China cracks down on BTC its uptake in developing countries -particularly amongst the unbanked-is strong, and Denmark has just announced that it will not regulate Bitcoin or its exchange. China may well realise that it is missing a trick and relax its hostility.
Nevertheless, innovation around this problem will occur if it continues. Bitcoin is a global start-up project, with swathes of  passionate and seriously techie fans.

Some take Bitcoin's crash as proof that that it is an unstable and unsustainable folly- nothing more than a risky virtual commodity bet.
Certainly, Bitcoin's volatility is an established fact, with its last big crash in April wiping out 80% of Bitcoin's value over 6 days. Nevertheless, BTC has always recovered and increased in value. Indeed, since the 18th Bitcoin's price has been creeping up yet again.
Calling bubbles is a funny thing, because both falls in price and continued rises offer 'proof' of the hypothesis. It is perhaps more accurate to say that Bitcoin is undergoing a long period of 'price discovery'. A lot of purchases have been speculative or made out of curiosity, but as more users and ways to spend the currency emerge, so will a clearer and more stable idea of its price. Bitcoin's shifting price isn't even that much of an issue for those using it for purchases: vendors adjust their Bitcoin prices regularly to reflect the changing exchange rate. It is short-term investors and those calling Bitcoin the 'new gold' who should perhaps be more wary.

Others say that Bitcoin's falling price reflects underlying concerns with the currency - such as issues with security and fraud, and exchanges' ability to cope with demand. Some suggest these issues mean that Bitcoin will never be much more than a digital curiosity. But at the early stages of the computer and the internet few thought they would be so transformative, or could imagine how they would evolve. Bitcoin is certainty not ready for mainstream adoption or about to cause a central banking crisis, but that is zero reason to write it off.  So much of how Bitcoin can and should operate is yet to be discovered, let alone decided. Despite all the recent attention it is still in its infancy, and growing pains and price shifts are an inevitable path of its development.

Even if Bitcoin's price were to come crashing devastatingly down, the world's first digital, decentralised ledger-based currency has created a new paradigm: a new way of thinking about money, transactions, anonymity and even our relationship with the state. Even some of Bitcoin's biggest fans say it could one of the alternative, retweaked and 'improved' cyrpto-currencies which will really take off. 
On which note- why care about the price of Bitcoin when you can be an early adopting millionaire of everyone's favourite meme-cum-cryptocurrency, the shibe-tastic, very money Dogecoin! (wow)

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Why India desperately needs the supermarkets

Written by Tim Worstall | Friday 20 December 2013

The Economist carries a story showing why India desperately needs the supermarkets. The example is all about a staple of Indian cooking, the red onion:

The journey of an onion from Mr Devkar’s field to the end customer in Mumbai takes only a few days but is enough to make you weep. There are some underlying reasons why prices have risen—higher rural wages have pushed up farmers’ costs. But the system is horribly fiddly. Farms are tiny with no economies of scale. The supply chain involves up to five middlemen. The onion is loaded, sorted or repacked at least four times. Wastage rates, either from damage or weight loss as onions dry out, are a third or more. Because India has no modern food-processing industry, low-quality onions that could be turned into paste or sauces are thrown away. Retail prices are about double what farmers receive, although the lack of any standard grading of size or quality makes comparisons hard. The system is volatile as well as inefficient. Traders who buy onions from farmers may hoard them, but for the supply chain as a whole far too little inventory is stored. As a result small variations in demand and supply are amplified and cause violent swings in price. In the first week of December 2013 prices fell again. It is easy to see how heavy investment by supermarket chains and big food-producers—whether Indian or foreign—could make a difference. They would cut out layers from the supply chain, build modern storage facilities and probably prod farmers to consolidate their plots.

The impoprtance of this story is not limited to India either. Here in the UK we hjave the usual suspects shouting about supermarkets and how they destroy the high street. But that's not actually the importance of the system at all. Whether the goods are sold from two 500 sq yeard shops or one 1,000 doesn't particularly matter. It's the entire logistics chain behind the system that does.

We also get told stories about the pernicious effects of how much food we waste as consumers: sometimes we're told that this is because the supermarkets make it too cheap for us to buy. But the other side of the absence of them and their logistics chains is that wastage described above. Indeed, other reports have put the amount of food that rots in inefficient supply systems in poor countries at 50% or more of all food grown.

We have and India needs the supermarkets not because of the shops but because of all the things they do to get the food into the shops.

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There's a very strange American idea about dividends

Written by Anonymous | Thursday 19 December 2013

I'm always confused by a slightly strange American idea about dividends. That if they are paid they are somehow wasted. This from Matt Yglesias is only one expression of the idea, there are many others:

Dividends, by contrast, have a weak and indirect impact on the economy and don’t really serve anyone’s long-term interests. We’re left hoping that rich shareholders will spontaneously develop enough appetite for extra yachts to push the economy forward. It’s a broken economic model that only deepens the disconnect between the stock market recovery and the ongoing labor market slump.

This is entirely wrong, of course. Dividends are the returning to shareholders of some portion of the company's profits. OK, that much is fine: but what happens then?

Well, two things need to be kept in mind. The first is that pretty much all innovation and again, pretty much all of jobs growth comes from new firms. Extant firms tend to reduce their number of employees over time as they become more efficient at whatever it is that they do. So, we'd really rather like some method of getting money out of extant companies and into new ones.

The second is that most stocks and shares are held either by wealthy people or by the various pension and insurance funds. And what is it that we know about those two groups? Any dividend income that they receive is likely to be reinvested. And that will of course be into different companies than the ones they received the dividends from and some portion of it will indeed flow to new companies.

Hurrah! we now have our method of directing the profits from extant companies into the financing of new ones which is the very thing that we desire in order for there to be further innovation and growth in the economy.

Dividends are not some short term failing of the financial marketplace, they're the very basis of its long term success.

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Video: Ayn Rand Lecture 2013 by Lars Seier Christensen

Written by Blog Editor | Wednesday 18 December 2013

Lars Seier Christensen is CEO and Founder of Saxo Bank. You can read a full transcript of this speech here

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An excellent point about free trade

Written by Tim Worstall | Wednesday 18 December 2013

From Don Boudreaux's quotation of the day series:

After 1860 only a few import duties remained, and those were exclusively for revenue on such non-British commodities as brandy, wine, tobacco, coffee, tea, and pepper. In fact, although most tariffs were eliminated altogether and the rates of duty on all others were reduced, the increase in total trade was such that customs revenue in 1860 was actually greater than that of 1842.

Another spotting of the Laffer Curve in the wild there of course.

But it's worth noting that tariff changes weren't the only thing going on at this time. There was also a quite radical change in shipping technology: we were at the beginning of the steam age here. As another example, after the US Civil War there tariffs pretty much doubled: but the prices of imported goods fell. For we need to remind ourselves that the full cost of trade protection is the artificial barriers of the tariffs, the non-tariff barriers from bureaucracy (famously, Mitterand only allowed VCR imports through one French port with only three customs inspectors) and the transport costs. For the US the fall in late Victorian shipping costs was greater than that rise in tarrifs.

And we can also use this to explain a part of our modern world. Yes, it's great that tariffs have come down in this post-war period. But this is also the time of the shipping container: 30 tonnes of pretty much anything can be moved pretty much anywhere for under $5,000 these days. International trade would have increased massively even if tariffs had stayed at their old rate.

And this leads us to a point that those who promote infant industry protection need to face: the tariff levels you would need to be able to successfully protect local industry would be so high as to probably not be politically possible.

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