The Pin Factory Blog

I had a Frenchman comment on something I'd written elsewhere. The argument was that a company must contribute to taxes where it trades otherwise it will not be contributing to where it trades. An idea which many agree with: but let us use that French invention, strict logic, to examine it.

The National Health Service does not provide tax revenue for the United Kingdom. Indeed, it's a famous consumer of such. We cannot argue that the employees pay tax: for that is the employees, not the organisation itself. Thus, if tax paid is the measure of the contribution an organisation makes to socierty then the NHS is valueless. Given that it produces no tax revenue then it does not contribute, does it?

The same would obviously be true of education, the military and so on. Also, it would be true of companies that make a loss: as Starbucks really was. All of which is quite obviously ridiculous. I might wish that tthe NHS was organised in a different manner than the way it is: but I would not argue that treating tens of millions of people a year adds no value to the nation. That not everyone who escapes the state schooling system can read does not mean that none do and so value is added. And the military has value in all those French invasions that do not occur each year as a result of the existence of the military.

And so it is with private sector companies. The value that they add to our country is the value they add to the consumer experience. Starbucks enables us to have expensive and bad coffee. Google enables us to search, for free, the information of the world. I'm sure that Facebook does something or other: something that some of my fellows value for whatever reason it is.

The value that a provider of something provides to the society in which they provide it is the consumer surplus among those consumers of that good or service. How much tax they pay or dodge on having done so is an irrelevance. For if it were relevant then supplies of goods and services which did not, by design, pay tax would be valueless, would they not?

This Frenchy stuff of Caretesian logic is fun, innit?

Martin Durkin's documentary is to be shown on Channel 4 at 7.00pm on Saturday April 13th.  Amid all the anti-Thatcher myths put out by the chatterati, this movie offers a refreshing assessment of how she changed the lives of ordinary people for the better.

"Martin Durkin's controversial thesis is that Margaret Thatcher was a working class revolutionary.  She believed that capitalism was in the interests of ordinary people, not the toffs. Many ordinary people agreed.  And that is why the left hated her so much - Margaret Thatcher stole the working class."

The documentary features interviews with many of those who knew and worked with Lady Thatcher, including brief contributions from Dr Madsen Pirie, the ASI's President.

Owen Jones tells us that everything, but everything, wrong with our modern world is the late Margaret Thatcher's fault. Apparently this can all be changed by our following the agitprop of a 28 year old unreconstructed Bennite. Call me old fashioned here but I think I prefer to get my prejudices from someone who has actually had time to acquire their own but maybe that's just me being in contact with my inner conservative.

It would also help if Jones were able to be factually correct. I do realise that all the events he is whining about took place before he was even a gleam in his mother's eye but we do have these interesting things called history books that can be referred to:

This current crisis has roots in the Thatcherite free market experiment, which wiped out much of the country’s industrial base in favour of a deregulated financial sector.

I know that this is the sort of tosh that Jones has been fed for many a year but it just isn't true. As Philip Booth points out:

Let’s be absolutely clear: in general, the 1980s was not a period of financial deregulation. Insider trading was made illegal in 1980. The life insurance industry, which had been almost free of regulation for over 100 years from 1870, was re-regulated from 1980 to 1982. Bank deposit insurance was introduced in 1979. The sale of investment and insurance products came under statutory regulation from 1986. Further, the first ever regulation of UK bank capital took place under Basel I, agreed while Thatcher was Prime Minister.

That just isn't a "deregulated financial sector".

As to manufacturing, as I have been pointing out for some time now it simply wasn't wiped out. There was a recession, yes, there most certainly was. And manufacturing output is more sensitive to such things than services output (a note to those who claim that more manufacturing would make the economy less volatile). But manufacturing output was higher when Maggie left office than it was when she entered. As it was for Major: higher when he left than when he arrived. Indeed, for both of them, manufacturing output was, on the day they left office, higher than it had ever been in this country. And yes, of course, that is indeed inflation adjusted.

That just isn't what happens in a country with a wiped out industrial base. So it would appear that Jones needs some education in just basic history.

But I will not stop there. No, I will reveal the full and true extent of the entire Thatcherite, neoliberal and globalising conspiracy. I recall the meeting well actually. Madsen and Eamonn of course, the consiglieri of the movement. Mrs T, as we were graciously allowed to call her. I was the mascot, being barely out of short pants myself at the time. The Queen appeared in her true lizardly format and David Icke served the drinks (ginger beer for me, said mascot). Now that powert had been gained the basic plan could be implemented: let's get this capitalism, these free markets, red in tooth and claw roaring around the globe. Which is what led to, as Richard Murphy notes, the most important policy change:

In one of her first moves on coming to office she delivered capital market liberalisation. What that meant was that money was allowed to roam free around the world.

Yes, exactly: the end of the Bretton Woods idea and the arrival of globalisation. Where the owners of capital could indeed roam the world, free from the trammels of bureaucracy, and exploit underpaid labour wherever they could find it. The end result of which is the world we have today. The one where the Millennium Development Goals of the UN have been met years early. Where we're just seen the greatest reduction in poverty in the history of our species. Where billions have moved from the possibility of the occasional bowl of lentils to those very Granthamite petit bourgeois pleasures of three square meals a day.

Or, as Branco Milanovic puts it, and he is the World Bank's guy on this sort of stuff, global inequality is falling and the people who have really benefitted from globalisation are:

As the figure below shows, most significant increases in per capita income are indeed found among the very top of the global income distribution and among the emerging global middle class, which includes more than a third of the world's population.

That figure being this one:

Yes, indeed, that top 1% has benefitted (and that's the global top 1%, you, me and Jones, those earning over around $50,000 a year). and yes, the 70th to 90th percentiles haven't seen mucdh benefit from it all. Nor have the bottom 10% who haven't actually taken part in globalisation. But look at the increases in income for everyone else! For the 10-70th percentiles!

I do recall what the great question of the 80s on the international stage was. How the hell do we make the poor rich? And the answer was that we had already started that long and difficult process simply by kicking off this neoliberal globalisation thing. The effects on poverty, from Xavier Sala i Martin:

It worked too.

Now of course I am in part joking. David Icke wasn't there. But I will agree with Jones on one thing. We do indeed live in a world that Margaret Hilda Thatcher helped to create. One that's immeasurably better than the one that existed when she came onto the political stage. She fired the starting gun on the whole great neoliberal experiment of globalisation. The result of which is poverty is halved.

Well, don't you think that's a better world? And all simply because the Lady let capital roam free to exploit where it could.

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.