Blog Review 975


It's hardly a surprise that unions attempt to use the law to make life easier for their members now, is it?

Is California broke because it doesn't raise enough in taxes? Or because it spends too much money?

Best comment so far on the upcoming elections.

At last! An economic explanation for why modern art sucks.

Although it has to be said, some economists can have some odd thoughts at times.

Zimbabwe's problems: no, not caused by colonialism, drought or anything else except appalling policy.

And finally, did we domesticate cats or did they domesticate us?

A good time to die


altThe US state of New Hampshire has as its motto, “Live Free or Die." The US taxpayer may soon adopt a similar “Live Tax-free or Die" mantra when a provision in US tax laws causes a massive jump in the federal estate tax rate.

During his first election campaign, George W. Bush railed against the so-called “death tax." Soon after taking office, Bush and a Republican-led Congress introduced sweeping tax reforms, including a programme that would gradually reduce, and ultimately eliminate, the estate tax.

The American estate tax system sets a flat rate at which estates in excess of a specified value will be taxed upon the death of the estate holder. That rate has decreased for each of the last nine years, and in the 2010, the estate tax will be eliminated altogether. The estate tax reprieve is only temporary, however. In 2011, the reduction expires, and the estate tax rate returns to the original fifty-five percent level.

Many cynical observers speculate that 2010 will bring there will be a spike in the deaths among wealthy estate holders who hope to avoid the estate tax. Perhaps not wanting to see a sudden depletion of the nation’s wealthiest citizens (and most capable campaign fund contributors), the US Senate recently voted to reduce the 2011 estate tax rate to thirty-five percent. Notwithstanding the Senate’s willingness to compromise, estate holders who die in 2010 will be able to pass on one-third more of their estate to their heirs than those who die in 2011.

Americans are renowned for their tax aversion, but in 2010, the world will find out just how far wealthy US taxpayers are willing to go to remain estate tax-free.

REG: Regulation and NEDs


Our Regulation Evaluation Group (REG) kicked off its new series of lunchtime roundtable discussions this week at the headquarters of the British Venture Capital Association in Central London. The speaker was Mark Austen, former head of PwC's global banking and finance practice, and he focused on the role of non-executive directors (NEDs) on company boards, particularly within the banking and finance sectors.

Much of the discussion, however, centred on the problems that NEDs – and other directors too – have in dealing with the Financial Services Authority (FSA). Directors claimed that even a small financial enterprise can face a levy of £750,000 or more for the FSA – that's on top of even costlier insurance requirements – and be required to fill in hundreds of forms each year. But little seems to happen to the data that is connected, and directors are given no indication of whether the FSA considers them acting sensibly or not. The regular meetings with FSA personnel seem to focus principally on how institutions treat their customers, rather than whether they might be taking too large risks and going bust. Which might explain something of our recent troubles.

In other words, we already have plenty of regulation – though most of it is misdirected. That's not preventing the EU from proposing even more extensive regulation, of course, to the point where even the company that makes Kettle Chips would have to be regulated by the FSA – which sounds pretty daft – and the UK economy will be saddled with yet another £1bn burden.

So we have more than enough regulation. What we don't have enough of is supervision of the sort that the Bank of England used to do reasonably well. The box-ticking FSA might have a role in the protection of retail financial-services customers; but the supervision of the banking sector, with a view to keeping them out of the systemic risk that precipitated the current crisis, needs to be done by a central bank.

Older gamers saved... from what exactly?


altP2P is reporting that the EU is funding the development of game tables that allow older people to play video games:

According to Amparo Ruiz, an occupational therapist in Galicia, Spain who helped supervise some of the trials, “The elderly people like it when they play and feel integrated into the new technologies. “It’s also very important that I can get information about their attention, memory and other functions while they are playing, and then choose games that emphasis the areas where they have problems.

Surely we are old enough to remember ATARI game tables that ended up in bars and nerdy pubs? They are probably pretty cheap to pick up these days. I know a few people who have then at home. Why bother with a new "system" when one already exists? Is there something that the EU finds offensive about Pac-Man, Defender and other ATARI classics?

Scott Paul joins the ASI


Scott is finishing a Juris Doctor degree at Brigham Young University’s School of Law. His research emphases include fiduciary duty law, religious freedom, and charitable giving instruments.

During law school, Scott served as president of the BYU student chapter of the J. Reuben Clark Law Society and on the board of the law school’s Government & Politics Legal Society. He also helped organize and run several international policy conferences hosted by the law school. Prior to law school, Scott received a BS in Psychology from BYU and then worked in Washington DC for the Nasdaq Stock Market.

Scott is an avid sports fan, a musician, and a budding social entrepreneur.

Blog Review 974


There's more than a whiff of, well, something decidedly wrong, when some 20 MPs all pay the same company 20 times the market rate for their website.

If the Chancellor cannot do his tax return and has to use accountants: well, why not use the accountants to do the budget as well? Couldn't be any worse, could it?

Hoover made the Depression by cutting spending, didn't he? But if Hoover increased spending then that argument rather fails, doesn't it?

A reminder of what this free market thing is all about: the consumer surplus!

On the globalisation of crime.

It's true, this is a very difficult argument to sustain.

And finally, an unfortunate juxtaposition.

The UK’s AAA Credit Rating – Downgrade to Come?


Over the last two weeks, Westminster attention has focused almost exclusively on the great expenses debate - where relatively small sums of money have been involved in buying quixotic items, such as duck houses.

More importantly, though, financial markets were spooked last week by confirmation from Standard & Poors, a leading credit rating agency, that it had moved the UK’s AAA credit rating to ‘outlook negative’ – the first time that the UK’s top-tier rating has been questioned since 1978.

Given the prodigious debt figures outlined in last April’s Budget, this response is hardly surprising. Indeed, the Budget numbers are truly alarming.

Net public sector borrowing this year is forecast to soar to £175 billion, whilst public sector net debt is projected to reach a staggering £1,370 billion by 2013/14, compared with £527 billion in 2007/08.

To fund this burgeoning deficit, the Government plans to issue £220 billion of gilts during this financial year.

Whilst last Thursday’s gilts auction was successful in selling £5 billion of short-term debt, it is long odds-on that some gilt auctions over the next 18 months will fail - especially if the UK’s prized AAA credit rating is removed.

In short, UK spending and borrowing is veering out of control; hence, the deep concerns of credit rating agencies inter alia.

What is needed, above all, is a sustained effort to cut back public expenditure, where so much money is wasted. Imposing substantial across-the-board cuts - in real terms - would be a good starting point.

Otherwise, the UK’s ability to fund its massive deficits will be seriously compromised.

The alternative, of course, is to call in the IMF, which also stated last week that the UK needed to cut its debt more quickly than proposed in April’s Budget.

Local government takes lessons in deficit financing from the Great Depression


There really ought to be a word for an unhappy coincidence. I am currently reading Taxpayers In Revolt: Tax Resistance During the Great Depression by David T. Beito. In it, he describes a pernicious practice that local governments used during the 1920s and 1930s to circumvent plebiscites capping government debt and limiting state and municipal taxes.

According to Beito:

By the end of the 1920s, local governments hit on the "tax-anticipation warrant" ... to evade the debt limit. For many vote-conscious politicians in the 1920s, the tax-anticipation warrant proved an irresistible temptation...

[P]oliticians had every reason to gamble that continued prosperity would ensure the safe retirement of the warrants or at least put off the final day of reckoning. In short, the tax-anticipation warrant seemed a foolproof method of financing the expansion of local government and at the same time circumventing tax resistance.

I read those words, written 20 years ago about an era 80 years ago, last night. This morning, in the Financial Times, I read these words, written presumably last night about right now:

Four of Britain's biggest city councils have called on the government to introduce a revolutionary scheme that would let them raise billions of pounds for regeneration schemes on the back of future tax revenue. This type of scheme was pioneered in the US where it is known as "tax increment financing"... The move by Newcastle, Liverpool, Manchester and Birmingham [would allow] local authorities ... to issue bonds that could be paid back using the increased tax base that - it is assumed - would be the direct result of improved infrastructure....

Tempting though it would be to remind these spendthrift municicrats that they have no way of knowing whether their cherished scheme has justified, let alone will justify, the investment, there remains the basic problem affecting all deficit financing: the ability of today’s service recipients to pass the cost of schemes they support onto tomorrow’s taxpayers.

This creates enormous moral hazard, especially as more mobile taxpayers can support municipal bonds that will be paid for by those who buy their houses, while they can sell up and move to lower-leveraged areas.

Being a firm believer in localism myself, I don’t believe that government should be allowed to prevent local authorities borrowing if they wish. Local voters should punish fiscally-lax councillors. But there needs to be protection for the homebuyer, caveat emptor notwithstanding. At the very least, vendors should be obliged to inform buyers of any outstanding liabilities that might impinge upon them through local taxation as a result of past profligacy. Thus property prices would be discounted to reflect wasteful “public" borrowing, and home-owning voters would be a bit more reticent about voting for deficit spending.

Hitting your wallets


Policy Exchange have released a report entitled Hitting the Bottle that calls for the hiking up the price of most alcoholic drinks. The analysis behind this report is largely flawed as it is built upon the misplaced assumption that strong alcohol is the primary cause of alcohol abuse.

In reality, even if there is a correlation between the cost of alcohol and the amount that is drunk (although this is far from clear), there is certainly no proven correlation between the strength of alcohol and the harm resulting in drinking it. The most popular alcohols are medium to low strength lagers, not the more challenging and stronger ales and Belgian beers that this paper is suggesting need targeting. For example, Leffe Blonde will be in the highest rate of top-up tax set out by the authors; yet this is a premium beer usually drunk in moderation. People frontload on plentiful cheap and weak larger, not Duvel.

The authors of this report must be teetotallers; a partaker of alcohol would not offer as appeasement the fact that under their system low alcohol wines of less than 8.5% abv would be cheaper. Nobody I know has ever even heard of wine below 8.5% abv. Whereas the idea that “Government education campaigns on alcohol should promote ‘dry days’, including a focus on weekend abstinence" would be in equal parts mocked and ineffective.

There is only one recommendation in the report worth considering. This is that:

The costs of being admitted to hospital to sleep off alcoholic excess should not be covered by the NHS, but should be borne by the relevant individuals themselves. Patients admitted to hospital for less than 24 hours with acute alcohol intoxication should be charged the NHS tariff cost for their admission of £532.

Clearly this would lessen the running costs of the NHS, so our taxes would have to be cut in line with the amount passed on to the individuals (although oddly enough, the authors fail to mention this in their report).

In truth, cutting alcohol excess is not something that any government, with the best will in the world, is able to do through the manipulation of prices. All politicians can really do, is to take away the collectivization of responsibility and leave individuals to pay for the errors of their drinking habits. For the rest, I suggest they refer to Mill's Harm Principle.