The Pin Factory Blog

A new report from Global Vision suggests that while Germany is in shape for economic recovery, Britain isn't – quite a turn-around from a decade ago. While Germany and most of Continental Europe have adopted at least a measure of economic common sense in the last ten years, Britain seems to be taxing and spending itself into oblivion.

OECD figures show that general government outlays accounted for 41.2 percent of the market-price measure of GDP in Britain in 1997 compared with 48.3 percent in Germany. Since then, the share of government outlays in UK GDP has risen by 3.4 percent to 44.6 percent, while Germany has cut it by 4.4 percent to 44.3 percent.

Economists David B Smith and Dr Eugen Mihaita of the University of Derby say that even the limited reforms of 2003, when Germany was facing crisis, have helped. But the real reason why Germany's prospects are rising and Britain's are falling is down to a decade of Gordon Brown. He inherited low taxes, low spending, a deregulated economy, and has spent the past decade letting them all slip away.

Who's part of 'Old Europe' now?

 While two families were queuing to go on the London Eye, their two five-year-old boys were getting acquainted.

"My name is Joshua. What's yours?" asked the first boy.

"Adam," replied the second.

"My daddy is a doctor. What does your daddy do for a living?" asked Joshua.

Adam proudly replied, "My daddy is a lawyer."

"Honest?" asked Joshua.

"No, just the regular kind," replied Adam.

12. "Brands are basically a con to make people pay higher prices for goods than they merit."

A famous brand usually commands a higher price than the unbranded competitor, but there's a reason for that. In the absence of personal knowledge of the seller, such as you might get in a local economy, the brand serves as the label of trust. Because people have had good quality and value from the brand, they can count on it. The producer values the reputation for excellence because it brings customers back for more, and brings in new ones.

The brand thus has commercial value. It is like a seal of quality, indicating to customers what they can expect and rely on. This is the basic reason why they are advertised and why, incidentally, they are counterfeited. A producer of dubious quality goods can try to palm them off by stealing the name and reputation of the famous brand.

There is more to brands. Their advertising often conveys images that people associate with the brand, so that consumers buy the association as well as the brand itself plus its reputation. In developing countries certain brands of Scotch whisky are regarded as 'aspirational,' advertised as linked with success. Consumers are buying more than the whisky; they are expressing an association with success and a determination to succeed themselves. These so-called 'intangibles' are not to be sneered at. They are among the most durable of consumer goods. The feeling of aspiration might be remembered long after the whisky, together with its attendant hangover, have been forgotten.

The teenager, trying to express an identity independent of parents, can choose brands associated with qualities that he or she feels illustrate the character that they are or want to be. Brands can thus serve to project an identity and to declare something about a person. People pay the premium because these things are worth paying for.

In these modern times we have access to designer clothes, stylish jewellery, make up and a host of other potions and lotions. We can even go under the knife to have bits of us either chopped off, sucked out or augmented. All of this is to make us feel better about ourselves, ultimately making us happier. The fact that we can do this shouldn't mean we all have to – we are all different, after all – and as we have so much to choose from we can select what we feel we need.

Whilst many are happy with what they have and the way that their bodies develop with the ravages of time, others seek to fight time and enlist the skilled help of others to stave off depressing feelings about themselves. Surgery which might once have had a purely medical purpose is now being used simply as a cosmetic enhancement to make people look (and in most cases feel) younger, prettier, or more feminine or masculine.

The fact that some women choose to undergo cosmetic surgery for themselves has of course riled the feminists (and others) who believe that it is an abuse and subjugation to a male dominated society. Far from it. It is nothing more than women choosing to empower themselves by altering their body into a shape that is more acceptable, not to wider society, but to themselves.

To those of a hardline feminist ideology women's bodies are not their own, they are all part of one global female collective, a rejection of the individual and a hatred of the truly empowered woman of the 21st century. That women have this power over their own bodies should be celebrated. This freedom shouldn't be criticized, it should be used as a weapon against those who oppress.

An excellent piece reminding us what the whole thing is really about:

They say “the Devil is in the details.” Sometimes, so is God.
Statists, Socialists, right-wing paternalists - all those who think of
humanity in terms of classes, races and masses - need constantly to be
confronted with such stories and images. They claim to love humanity;
everything they do is for “Society” or “the greater good.”  These are
the merest of abstractions. A good human loves and cares for other
humans around him; for actual, individual specimens with all their
faults and weaknesses, not classes or masses.

Next time you hear an appealing abstraction weighed against the
interests of an individual or a family, please picture a man making
barbed wire to imprison his uncle or my neat little secretary typing a
death list. They served abstractions too.

There are other reasons to support this liberal capitalism thing too. The more of it you have, the longer people live. 

Contrary to the rumours, the very fact that people can opt out of its rat race is one more reason to support it. 

Further, despite the experiments, looking at what people actually do shows that they do prefer the higher living standards, with the inequity. Migration does tend to be from poor countries to rich.

Iain Dale announces that he has Type II diabetes. Our wishes for his continued good health. Perhaps worth remembering that a century ago this diagnosis was close to a death sentence: now it's a chronic, manageable, disease. We continue to advance.

Well, we'll continue to advance if this attitude can be driven out of politics. They serve us, not the other way around. 

And finally, about as good a description of this year's Presidential election as you're going to get. 

On Wednesday, three youths were convicted of murder after kicking and beating a man to death outside his own home. His sin? Telling them off for vandalism.

Peter Fahy, Cheshire's Chief Constable, blamed Britain's drink culture and called for a 'crackdown' on cheap alcohol. Apparently, supermarkets and off-licences are to blame for selling booze too cheaply. He even claimed that some of the youths involved in the attack were "reasonably decent people who drink too much and do something stupid and attack someone".

Rubbish. These youths did not kick a man "like a football" as his daughter watched because they were drunk. They did it because they are ignorant, savage, brutal people without a shred of respect for anyone else.

Blaming supermarket prices is absurd. The vast majority of people enjoy inexpensive alcohol responsibly. Most of us drink more than we should from time to time, but it doesn't end in violence. In any case, alcohol is already more expensive and more strictly controlled in Britain than in many other European countries.

'Drink culture' is a handy excuse for the social ills that plague many communities in Britain, but it is not the real reason. It is the welfare state that has promoted family breakdown and eroded personal responsibility. It is politically-correct, target-driven policing that has abandoned our streets to violence and thuggery. And it is the rotten state school system that has left so many young people without any aspiration beyond the bottom of a beer bottle.

Ultimately though, it is the abandonment of parental responsibility that is most appalling and pernicious. And without real change, that threatens to become a vicious intergenerational circle – which will not easily be broken in the years to come.

Little Johnny was sitting on a park bench munching on one chocolate bar after another. After the sixth one an elderly man sitting on the bench across from him  said, "Son, you know eating all those sweets isn't good for you. It will give you acne, rot your teeth and make you fat."
Little Johnny replied, "My grandfather lived to be 107 years old."
The man asked, "And did your grandfather eat six chocolate bars at a time?"
"No," replied Little Johnny, "but he knew how to mind his own business!"

11. "The stock market is just a casino."

People back stocks and shares like they bet on roulette numbers and sometimes they win, sometimes they lose. This is why some call it a casino, but the reality is different. Firstly, the outcome of a roulette wheel is random. The outcome of the stock market is not. It is influenced by many factors, including the state of world politics, investor psychology, actions of banks and governments, accidents of nature, human actions, and global economic trends, to name but a few. Skilled investors might read trends and work out which ones count, and calculate which stocks are likely to rise, which to fall. This is not true in a casino.

There is a more serious difference. The stock market helps to finance business and industry. When a firm issues stock, people buy it in the hope of gaining dividends from its profits, and of seeing the value of their investment increase as the company prospers. The shareholders are co-owners of the company, and their fate is bound in with its own. If it makes money, so do they. When people buy stock from others and drive up the price, they do so because they think it is or will be worth more than the share price suggests. When a firm's shares rise in this way, the nominal value of the company increases accordingly, and it becomes easier, and usually cheaper, for it to obtain finance for development and expansion.

The stock market resembles a town market, in that people are clamouring to buy and sell, and prices reflect the fact that some shares are popular and some less so. It thus sends signals about where investment is needed and where it can be most profitably applied. It tells people from moment to moment the state of the economy, and where they might usefully participate in it.

One of the hugely annoying things about the "debate" over the Laffer Curve is that there are still those who deny the very existence of the concept. Something which is absurd, for at the extremes it's a simple mathematical truism. At times (say, a 100% tax rate) reducing taxes will increase revenues collected. The strongest Laffer Curve argument, that reducing tax rates always increases total revenues collected (reducing a tax rate from 50% to zero say) is as similarly incorrect as the denial that reductions ever do.

The true argument is always about at which tax rate do we increase revenues, at which reduce? This argument being complicated by the fact that we have several different effects going on, depending on which tax we're talking about (effects on capital and labour taxation will be different, given different mobilities) and so on. Perhaps the most important point to make though is that cuts (or rises) in tax rates will not work in a linear manner. Amounts raised will vary dynamically.

But what is surprising in this latest working paper from the IMF is quite how low a tax rate can go and still show Laffer effects: not just a dynamic response to the lower rate, but more revenue collected both in total and as a percentage of GDP:

To illustrate the potential effects of tax rate cuts on tax revenues consider the example of Russia. Russia introduced a flat 13 percent personal income tax rate, replacing the three tiered, 12, 20 and 30 percent previous rates (as detailed in Ivanova, Keen and Klemm, 2005). The tax exempt income was also increased, further decreasing the tax burden. Considering social tax reforms enacted at the same time, tax rates were cut substantially for most taxpayers. However, personal income tax (PIT) revenues have increased significantly: 46 percent in nominal and 26 percent real terms during the next year. Even more interesting PIT revenues have increased from 2.4 percent to 2.9 percent of GDP—a more than 20 percent increase relative to GDP. PIT revenues continued to increase to 3.3 percent during the next year, representing a further 14 percent gain relative to GDP.

Yes, there really is a Laffer Curve, and its effects can be seen at much lower tax rates than those we currently tend to think they can be. It might also be worth noting that, as with the ASI's own proposals for a flat tax, the heavily increased personal allowance raised (yes, raised, not lowered) the progressivity of the tax system as a whole.

More revenue, greater progressivity and lower tax rates. Well, why does anyone oppose such a system? 

"What hope have seven quangocrats got of restraining Leviathan?"

– The Times' Camilla Cavendish on the news that the Better Regulation Commission is to be replaced by the Risk and Regulatory Advisory Council (only one member of which has a private-sector background). The whole article is well worth reading.