The Pin Factory Blog

The above chart shows the level of the personal income allowance from 1979 to the present day. The blue line is the nominal level. It seems that chancellors have only ever increased or maintained the current level, and with good reason, given the unimaginable political backlash of decreasing it. But the red line is the real level of the personal allowance, when adjusted for inflation. This tells a different story. Although there has been a general trend for it to increase, there have been many occasions when it has actually decreased, harming the poorest, hard-working families the most. In this way, chancellors have been able to deliver real tax increases, purely through waiting for inflation to have its effects.

In order to stop the abuses of this Inflation Tax, the level of the personal allowance should be linked to inflation. That way, chancellors would only ever politically be able to increase or maintain the real personal allowance.

Secondly, the ASI has long advocated that the working poor be taken out of tax altogether. Thus, the green line shows the level of the national minimum wage since it was started in 1998, assuming a 42.7 hour week (the UK average), for 52 weeks. Even the recent acceleration of the real personal allowance therefore falls far short of taking minimum wage workers out of income tax altogether. To take the working poor out of tax, the personal allowance must not only be indexed to inflation, but raised above this level too.

On Tuesday, Madsen took part in an Intelligence Squared debate at the Royal Geographical Society on the motion that "Karl Marx was right: capitalism post-2008 is falling apart under the weight of it own contradictions." Speaking in favour of the motion were Tristram Hunt MP, Robin Blackburn and Frank Furedi, while against it were George Magnus, Madsen Pirie and Judith Shapiro. The vote taken before the start of the debate saw the audience roughly equally divided between those in favour, those against, and those undecided.  The vote after the debate saw a huge majority against the motion, with most of those undecided switching to vote against it. People will be able to watch the debate when it is posted on Intelligence Squared's YouTube channel.  Meanwhile the text of Madsen's speech can be read here:

Like many public figures who leave a legacy, either in their writings or their deeds, Karl Marx was sometimes right and sometimes wrong.  I concentrate on some of the things about which he was wrong.

He was wrong to predict that history would take us to the inevitable triumph of the proletariat and then stop.  History shows no signs of doing either.  Marx was also wrong to suggest that this would happen first in the most advanced economies as the final stage of capitalism.  In fact such revolutions as came took place in less developed economies such as Russia and China.  It has not happened in the advanced economies, and this could be because Marx was wrong about something else.

He predicted that capitalism would drive down wages to survival level before its final denouement.  In fact as economies became more advanced, both wages and living standards rose to levels not even dreamt of in Marx's day, and this seems to have lowered the pressure for revolutionary change.

Marx was also wrong about something more fundamental.  He was wrong about change.  I don't just mean that he was wrong about the changes that would come about; more fundamentally he was wrong about how change takes place.  He took the Hegelian model of change.

Continue reading.

London's pubs may soon be protected from demolition or conversion after Boris Johnson agreed to list them as 'community assets'. What this means is that any pub which is so listed becomes considerably more difficult to sell. A selling pub landlord will be required to:

• notify their local authority;
• wait for the local authority to notify any “interested parties;” and
• “if local groups are interested in buying the asset they (will) have 6 months to prepare a bid to buy it before the asset can be sold,”

…helped along by government-funded “pre-feasibility grants of up to £10,000 and feasibility grants of up to £100,000” drawn from a £30 million social slush fund.

The Daily Mail reports that “every week 25 pubs close,” with the attendant loss of thousands of jobs, “never to reopen, victims of... cheap supermarket booze, heavy duty on beer and the smoking ban.”

Supposedly, listing “helps to see off the property developers who are the main reason pubs go down.” But are they?

Industry publications further point out that taxation on alcohol is “eight times greater” than in France, which combined with increased input costs “of barley, malt, glass, aluminium and energy” squeezes margins such that “the major UK brewers have seen profits plummet by almost 80 per cent.” Changing tastes and squeezed budgets have contributed to beer sales falling to their lowest levels since the Great Depression.

Many pubs are now more valuable for the land on which they sit than the pints they pull, resulting in their being “demolished or converted to other uses such as residential and retail services which radically alter community spaces and change the tone of the high street.”

This is no bad thing. The father of Austrian economics, Carl Menger, wrote that “if, as a result of a change of tastes, the need for tobacco should disappear completely,” there would be no doubt that tobacco would lose its utility entirely and the services of tobacconists, importers, traders, pipe-makers, tobacco-farmers, and “the specialised labour services of so many people who are employed” in the trade would “cease to be goods.”

This should not mean permanent destitution for those involved. A free market can redeploy its resources towards more profitable purposes. “Many tools and machines used in the manufacture of tobacco products,” Menger wrote, can be “placed in causal connection with other human needs even after the disappearance of tobacco.”

As in many other occasions in life, where goes tobacco, so goes beer. Times, and tastes, have changed. [ ] Yesteryear's East End labourers are now hipsters and carb-conscious yuppies, and City types are more likely to hit the gym at lunchtime than ‘roll down the pub’.

The problem is exacerbated by the smoking ban, the high burden of business rates, VAT and excise taxes, and falling household incomes. Additionally, in the midst of a housing crisis, the human need for housing is considerably more pressing than the human need for drinking in connection with the land on which “our” pubs have been built. One should not therefore be surprised that pubs have become increasingly valuable as property, rather than business, assets.

This is not to say that the Austrian approach is entirely fatalistic on the issue. We can, and should, announce “last call” on government intervention in this sector of the economy – freeing pub business from regulation so it becomes more competitive and liberalising the housing market will reduce the cost to society of both entertainment and places to live, while not interfering one whit with the property rights of pub owners. Listing pubs as “community assets,” however, achieves virtually nothing.

As part of our continuing series, Madsen Pirie discusses some common ground between libertarians and the left.

4. The ASI backs the cause of personal liberties.  The Left should welcome the fact that the ASI is firmly libertarian in its outlook, taking the side of those who express a right of dissent, or who choose to follow alternative or minority lifestyles.

The ASI takes a libertarian approach, believing that people are the best judge of what suits their lives.  They know more about themselves and their circumstances, and should make the decisions about how they prefer to live.  We think people should be entitled to live their own lives, rather than being forced to conform to someone else's idea of how they should live.  Provided they do not harm others or seek arbitrary restraints on their liberties, people should live as they choose.

The ASI does not support imposed conformity.  It recognizes that people differ in their views of what constitutes a family, or marriage, and supports their right to live by different values.  It opposes using state power and state finance to back only certain types of relationship, believing that such choices should be outwith its jurisdiction.

The ASI backs free speech, including the expression of ideas that some might find offensive and insulting.  We might prefer to see people exercise courtesy and restraint, but these are not things that the law should impose.  A free press will at times overstep the boundaries of taste and decorum, but only a free press uncontrolled by politicians can expose their machinations and follies and therefore restrain their excesses.

Summary: Kuroda’s efforts may work through yen, not through monetary base

What the chart shows: The chart shows the Japanese monetary base and Japanese inflation, both set as an index with February 1993=100.

Why is the chart interesting: The new Governor of the Bank of Japan (BoJ), Mr Haruhiko Kuroda, has announced that the BoJ intends to double the monetary base – that is to say, notes and coins in circulation plus banks’ reserves with the central bank – over the next two years. The hope is that this injection of money will finally cause inflation to rise to the new 2% target. Mr Kuroda’s policy also includes a substantial weakening of the yen, which – through higher import prices – should help boost Japanese inflation. This part may work. However, as the chart shows, the relationship between the monetary base and inflation is tenuous at the very best. Mr Kuroda should aimed at boosting broad money – essentially, the bank deposits held by the non-bank private sector – the relationship of which with inflation is much more clear.

Charts and comments provided by Stein Brothers (UK) www.steinbrothers.co.uk

If anyone had inspected the economic statistics for the UK in 1979 with the name of the country concealed, looking at growth rate, annual rate of inflation, output per head, days lost through strikes, and so on, they would have supposed they were looking at a third world country.  Britain was "the sick man of Europe," left behind since World War II and destined, it seemed, to fall further behind.

Within a few short years Margaret Thatcher had transformed the nation and its prospects.  Britain went from having the highest record for days lost through strike action to the lowest, and from the lowest growth rate to one of the highest.  No less importantly people reacquired self-confidence in the future, together with the optimism that their children would inherit a better world than they had lived in.  They acquired in addition a stake in the nation, with huge numbers of ordinary people who had never before had the opportunity becoming home-owners and investors in Britain's future.

The change was psychological as well as economic, and it was achieved in the teeth of a prevailing pessimism in the political establishment.  The talk then was of "managed decline," and no one thought that Britain's descent could be reversed.  Margaret Thatcher showed that a combination of character and resourcefulness could succeed in turning around the nation where few had thought it possible.  She proved them wrong, and in doing so earned her place as one of the greatest prime ministers who has ever presided over the fortunes of this nation.  More than that, she was one of the few whose resolution and determination stood up to the international threat of Communist tyranny and saw it defeated ignominiously and erased from history.

When her funeral is held in St Paul's with full military honours, there will be many who look back in gratitude at the transformation she achieved against the odds and in the face of opposition from those whose political lives had been lived in the belief that free markets and free choices were simply irrelevant in the modern world.  They never forgave her for proving them wrong, but most others will honour her memory and her achievements with affection and gratitude.  She did well and we thank her.

Business Secretary Vince Cable is reportedly looking to see if there is sufficient evidence to justify an action to ban the HBOS 3 named in the Banking Commission's report from serving as company directors again.  He is reportedly "outraged" by the situation.

A Department for Business, Innovation and Skills spokesman said: "The business secretary has instructed officials at the Insolvency Service to look into the Financial Conduct Authority report when it is published to see whether there are matters that could lead to further action."

In general it is seen as a good thing that those who break the rules should suffer some consequences.  Laws and rules usually set out what will be considered a transgression, and they normally set out the range of punishments that will follow.  It has to be a breach of the rules, however.  Simple incompetence or inability is not, in itself, a punishable offence.  Failing to show due diligence can be, however, where the rules specify that it is required.  If the HBOS 3 broke the rules, of course they must be called to account.

The same could apply to the guilty politicians who presided over it, encouraging and enabling behaviour that led to the crisis, and recklessly flooding the market with money and credit.  They did this because they were addicted to spending and stood to gain personally from the electoral support that it helped to produce.  They tried to manipulate the economy by 'smoothing the Business Cycle' to avoid the electoral unpopularity that an economic downturn would have engendered.  Gordon Brown and Ed Balls and others stood to make personal gain of popularity and office from their actions, and certainly failed to show due diligence for the welfare of the nation and of its citizens. 

An investigation could establish whether they broke rules in doing so, and whether there is enough evidence to have further action taken against them.  Did they, for example, engage in systematic deceit?  Did they knowingly lie about the true state of the nation's finances?  The most likely outcome is that the finding would be one of simple incompetence on an overwhelming scale, a finding that would not justify debarring them from office, but whose publication might make if difficult for any of them to do so again.  It is worth an investigation, though, if only to put on record what they did.

There's an interesting piece over at Bloomberg talking about those longer working hours that turned up with the Industrial Revolution. You know, the ones where the peasantry had to be whipped off the fields and into the factories so that the filthy capitalists could exploit them:

First, working-class writers put a very different spin on the increase in working hours that accompanied industrialization. The autobiographies make clear that in pre- industrial Britain, there simply wasn’t enough work to go around. As a result, few people were fully employed throughout the year. This gave them leisure time, but it also left most families eking out an uncomfortable living on the margins. The lack of consistent employment also forced workers to stay in positions that were unsuitable or grossly exploitative.

That the people suffering under such exploitation thought it was a good thing does rather change what should be our view of said exploitation. And it's also not clear precisely who had the power here:

Higher levels of employment also helped change the balance of power between master and laborer. So long as jobs remained scarce, workers, by necessity, obeyed their employers. The price of dissent or disobedience was unemployment. With more jobs, such subservience became less and less necessary. In the booming new industrial towns, workers could, and did, walk out on employers over relatively minor matters, confident that finding more work wouldn’t be difficult.

Or, as I might put it, the only thing worse than being exploited by a capitalist factory owner is not being exploited by a capitalist factory owner.

I will admit thought that I'm always very wary of people giving us pre-industrial working hours. There's a terrible tendency to only include paid working hours as working hours. And of course in a rural, largely subsistence, economy paid working hours are indeed few and far between. But that doesn't mean that each day isn't full of unrelenting labour: there's still the potato patch to dig, the firewood to be collected, the pigs to run for acorns, the cow to milk and muck out and so on. Indeed, when we get back to feudal times working hours seem to be measured as only the work that was done for the feudal lord. Which is obviously nonsense: that's the work that was done to pay the rent and pay the rent only. Think it through: one source tells us that villeins had 70 days a year holiday. Seriously? An animal keeping peasant has 70 days off a year? What the heck happens to all the animals?

But back to the effect of the industrial revolution: did it actually improve the lives of those sucked into the factories or not? Was Marx correct on the immiseration or not?

One very useful number that I've seen recently (offline, so no link) is the difference between farmhand wages in the North and the South. In the 1830s, 1840s, Somerset and Dorset were almost untouched by the new industries: farmhand wages were of the order of 8 shillings a week. Up north the entire countryside was littered with cotton mills and whippet flange factories. Farmhand wages were 16 to 18 shillings a week. The farmers had to pay double the wages to stop their labour going off to exploit the capitalists in the factories.

I'm still not entirely sure that the industrial revolution did lead to longer working hours. Longer paid working hours, most certainly yes, but really not sure about the combination of paid and subsistence hours. On the other hand I am absolutely certain that the factories improved the living conditions of those who worked in them. And I don't think us moderns quite understand the misery of a subsistence peasant lifestyle: if we did we'd understand a great deal better why people flocked to those factories and mines as they did.

Of course, if any of our Marxist inclined confreres were minded to actually find out about why people did so all they've got to do is buy a ticket to China and go ask the people in the factories there. "So, why did you live a life of rural idiocy and destitution to earn five times the wages making iPads?" would seem to be a useful start to such an interrogation.

Madsen tells us why we should be supporting raising the personal allowance. Essentially, it's obvious, moral and fair: not something you can say about most issues related to taxation. But there's another reason that we should do this: one that should make the left love us even more for pointing out. It's all contained here in this little chart:

Agreed, that doesn't tell anyone very much as it's not labelled. But what it is is the personal allowance for income tax expressed as a percentage of average wages. Sadly, we had to rely upon government figures to create this so it's obviously not quite right. Pre-1966 it's mean wages, after median and 1967 doesn't appear to exist anywhere in the records. We didn't run it all the way back to the beginning of income tax either. The £60 a year tax free limit in 1799 would be around £68,000 or so now meaning that only the top 1% would have to pay income tax. Even I think that government can beneficially spend slightly more money than that would raise.

The point of this exercise though is to show that the ASI's insistence that the personal allowance should rise strongly is not some modern abberation. We are in fact, possibly for the only time ever, being profoundly conservative. What has happened since WWII is that successive Chancellors (of both parties please note) have used fiscal drag to pull ever more people into the income tax net. Wages tend to, over time even if not each year, rise faster than inflation. So, if you only raise allowances in line with general inflation not nominal wage rises more people will end up paying income tax. Of course, you can increase this effect by not raising the personal allowance at all as G. Brown did at least once.

The current work of the Coalition (as Madsen points out, prompted by the Lib Dems) to significantly raise the personal allowance is a good start. But a good start is not enough: what we really want to get back to is those halcyon days celebrated by Ken Loach's "The Spirit of 45". You know, that time so praised by Polly when we all came together to create the New Jeruslalem. That time when you only entered the income tax system when you were earning more than 50% of average wages.

Given that average wages are currently in the mid £20 thousands per year this would mean that the personal allowance should be some £12,500 a year or so. Which is, amazingly, the number that we already shout that it should be.

The point of this little piece being that this is not a radical departure from prevailing norms at all. It's actually a return to the socialist taxation policies of Major Attlee: and obviously there's not a leftist in the country who would think returning to the policies of those days would be a bad idea.

Yes, I know, there will be a certain cognitive dissonance at the idea that the ASI (and possibly even worse, one T. Worstall) is recommending the post-war policies of the Labour Party. But yes, let us be properly socialist about taxation in one respect: let's stop taxing the poor so damn much.

My thanks to the commenter who calls himself Surreptitious Evil as it was he that did all the hard work of digging out the figures and setting up Excel.

Every child learns at some stage that a good way to divert blame is to point the finger at someone else.  Now the politicians on the Parliamentary Commission on Banking Standards have discovered the trick.  They hope that as the lynch mob pursues the HBOS trio of Sir James Crosby, Lord Stevenson and Andy Hornby, the role played by politicians in the financial crisis will be quietly overlooked. 

If so, they reckoned without Fraser Nelson.  The Spectator Editor, writing in today's Telegraph, exposes the accomplices who should share their guilt.  Politicians were "infatuated with bankers," he writes, largely because financial services provided two-fifths of all corporation tax collected for a government that over-dosed on spending. 

"Financial greed is always dangerous, but when paired with political vanity it becomes lethal. By working hand-in-glove with the financial sector, Labour ran a form of crony capitalism – and allowed the banks to have loans of up to 35 times their assets. Brown’s government was so dazzled by the tax haul, so swept up in the party spirit, that it left the teenagers with the car keys and a case of tequila. The crash was inevitable."

Correct, as we have said before on this site.  By all means point to the greedy bankers taking reckless risks, but don't overlook the people behind them, the politicians and central bankers who facilitated this and egged them on for political gain.  Fraser's piece should be required reading for those involved in public finance, not least because the lessons have not been learned.

"Government still thinks it can rig the banking system. It still places its faith in dangerously underpriced debt. It still thinks that the remedy for our hangover is some salt, some lemon and another round of tequila. Even bankers are looking on aghast. The financiers, after all, did not cause this downturn. They added to the drama, but the basic problem was (and remains) one of overspending."

Before people can work on a remedy, they should first work on their understanding of the wrong.