An interesting view of what bankers actually do

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It's a commonplace in the public square these days that bankers are the evil ones, designing odd products like a CDS or CDO, to trap the unwary investor into parting with all their worldly wealth. and then there's the occasional expression of a more obviously sensible view, as in this one about Islamic banking:

Many of the instruments Irfan discusses were sold by major banks that saw them as just another opportunity. This is not surprising: Governments and wealthy individuals wanted financing that complied with their religious requirements, and banks gave it to them. Irfan, by contrast, longs for an Islamic finance industry that caters to “small and medium-sized enterprises, retail customers, the man in the street” and offers something “beneficial to everyone, irrespective of creed.”

The actual book is about Islamic financing, a subject we find quite fascinating. For of course the basis of said Islamic financing is an outright denial of something that we hold to be an obvious truth: there's a time value to money. That there is is what leads to there being an interest rate and also to all those other techniques like discounting to get to net present values and so on. We take these to be simply obvious truths about the universe that we humans inhabit and one can, as experiments have, derive the existence of that time value by studying small children. A baby doesn't get the idea of delayed gratification for greater gratification, a three year old will usually grasp the idea of two sweeties tomorrow instead of one now and a 6 year old might go for two in a week for one now. This is an interest rate and it does seem to be innate in human beings.

So, obviously, it could be seen as a little odd that we not only enjoy but thoroughly approve of these various Islamic alternatives. For they all (things like Sukuk bonds and so on) depend upon the absolute rejection of interest, that very thing that we insist is part of the fabric of our reality. The reason we so like Islamic finance is because all of he successful forms of it are actually constructs that, in the face of the religious insistence that there should be no interest, actually operate in a manner to ensure that there is a time value to money and that there is an interest rate, interest which has to be paid.

Which brings us back to what we liked about that description of banking: they bankers are simply providing what their customers want. Seems a more honest trade than many to us, enabling someone to meet their religious obligations while still saving for their old age and the like.

Economic Nonsense: 31. The modern economy is so complex that only government can manage it

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Actually, the opposite is true. The modern economy is so complex that even government cannot manage it. Who can manage it, then? The answer is no-one. No single authority or group of people can handle the volume of information, the speed of its responses and the complexity of its relationships. This is not to say that the modern economy is out of control, but only to say that the self-regulating mechanisms within it can respond more rapidly and more surely than any body outside of it. A market economy is a self-regulating system. It responds to new information and signals people to change behaviour accordingly. Much as a thermostat detects temperature changes and adjusts the heat supply, so the market detects imbalances, shortages and surpluses and leads people to alter their behaviour in ways that redress them.

Some people wrongly suppose that if the economy is not centrally controlled in some way, then chaos will result. Not so. The order of the market arises spontaneously from the millions of interactions constantly taking place. It holds more information than any group of planners could hope to access, and it is faster to react to changes than any controlling authority could manage to achieve. It is also more intelligent, representing as it does the minds of the many rather than the limited brain power of a few people grouped around a table trying to direct it.

The economy directed by the actions of many allows different individuals to purse their separate goals, where the centrally directed economy is geared to achieving the aims of its planners instead. The market economy thus allows people to give effect to their own values and priorities, to be autonomous actors rather than the agents of someone else's will. It allows for a society that is more free as well as more efficient.

When the process is the punishment

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It's about time that we Brits adopted an entirely sensible piece of American law. In their Constitution they not only insist upon a fair trial they also insist upon a speedy one. The actual enactment of that promise is left to State law, but at least some of them insist that a trial must start within 30 days of charges being laid. The defendant may apply to extend that period but the prosecution may not:

While their colleagues covered events like the London 2012 Olympics, the Queen’s Diamond Jubilee, Andy Murray’s Wimbledon win and the birth of Prince George, the four Sun men stayed at home, on bail, suspended from their jobs, trying to maintain their mental and physical health.

Murderers, rapists and terrorists can expect to wait no more than a year to be tried once they have been arrested, but the four journalists were left in purgatory for three times as long.

Leave aside whatever one might think of this particular case, the law surrounding it or the verdict. And concentrate just on the idea that these men had some 10% of their working lives taken from them before being found not guilty. There won't be any compensation for this either. And that's turning the process of prosecution into something much more akin to the punishment itself, rather than what it's supposed to be, the finding and nailing of those guilty enough to be punished.

What should create fear in the rest of us is that given the volume of laws that weight upon us we're all in theory capable of being prosecuted for something or other. And our vindication by a good and sensible jury will be as nothing if the punishment is the process of getting the case in front of a jury in the first place.

So, yes, we should institute that American idea. Justice delayed is justice denied and so we should have a (short) time limit in which the prosecution must put up or shut up.

It's always the same with these bureaucratic cash targets

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The thing that is the same being that hitting the bureaucratic cash target becomes the priority, not actually spending the money in a reasonable or value adding manner:

More than two thirds of Britain’s aid budget is being given to organisations such as the EU and the World Bank to help meet official targets, despite billions of it going unspent for years, an investigation has concluded.

MPs found that £6.3 billion of Britain’s aid budget is being handed to major agencies to help hit the Government’s target of spending 0.7 per cent of the nation’s income on overseas aid.

Their report found that a growing proportion of the money is set aside for future spending, which means it goes unspent for an average of two years.

The amount committed to major organisations that has yet to be spent has increased from £1.5 billion in March 2010 to £3.7 billion in March 2014.

It was never sensible to adopt the target in the first place. And as we're now borrowing that money to immediately hand it off into the bank account of the international bureaucracy we really shouldn't be trying to achieve it now.

Raising the NI threshold would have cross-party support

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In Wednesday’s Budget we saw the personal allowance threshold rise again; starting April 2016, earnings up to £10,800 will be tax-exempt. The coalition knows that raising the personal allowance is a politically popular idea (not to mention good public policy). It’s great to see them inch slightly closer to taking minimum wage earners out of income tax all together.

But given how in-tune they are with the tax relief this policy provides to low earners, it’s hard to make sense of their decision to ignore the National Insurance threshold, which currently sits well below the personal allowance threshold at £7,956/year. 

Especially when it would be politically popular to address it.

A pre-Budget poll from YouGov asked Conservative, Labour, Lib Dem and UKIP respondents which policies they would support or oppose if the Chancellor were to announce them on Wednesday. The policy that received the most support (83%) was raising the personal allowance threshold to £11,000, followed by “raising the National Insurance threshold, so it is no longer paid by the lowest earners”, which received 71% support.

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It gets even more interesting if you break it down by party. On NI, both Conservatives and Lib Dems supported the policy with a 75% majority, followed closely by Labour at 72%. UKIP brought the average down slightly, but with a significant majority still favouring the policy at 68%.

Getting the poor out of tax has strong cross-party support and the Chancellor should, in theory, be able to implement changes to the NI threshold without extreme push back from any opposition parties. Yes, the coalition should be credited for their reforms to the personal allowance, but now is hardly the time to go soft on a bad tax that continues to hit the poor hard.

Non-payment of BBC licence fee accounts for 10% of prosecutions

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The BBC is responsible for more than one in 10 criminal prosecutions. Culture Secretary Sajid Javid reports that 10% of magistrate court cases are for non-payment of the BBC licence fee. Non-payment is a criminal offence, punishable by a fine of up to £1,000. Every week about 3,000 people are fined for non-payment, and about one person a week is jailed for non-payment of the fine. Women make up about 70% of those prosecuted and convicted, and half of those jailed for not paying the fine. When people fail to pay other utilities, such as energy companies, they are guilty of a civil offence, not a criminal one, and they cannot be prosecuted and fined for falling behind with their payments. Civil action can be taken for recovery, but without fines and jail terms.

Several newspapers have had reporters visit magistrate's court to describe what goes on. They all tell harrowing stories of frightened, distressed people, mostly women, facing fines they cannot pay under threat of imprisonment if they do not. Many are single mothers, many on benefits. They have not paid the licence fee because they cannot afford to. The sum of £145.50 per year is huge for a young mother struggling to feed and clothe children. Many weep in court, unable to pay the fine for the same reason they couldn't afford the licence fee; they don't have the money.

Everyone with a TV, except the over 75s, has to pay, whether or not they watch BBC programmes. If people fail to pay for other services, such as a Sky subscription, for example, the service is withdrawn without them being taken to court and fined.

In 21st century Britain we should not be dragging helpless women through courts and fining them, or making their lives more wretched than they already are by putting them in jail for non-payment of those fines. It should be a civil, not a criminal offence, and should be dealt with by withdrawal of the service rather than by prosecution. The technology to do this is relatively simple.

The development of tiny transistor radios killed the radio licence in 1971. Now laptops, tablets and smartphones make the BBC licence fee increasingly difficult to sustain. Many watch TV on portable devices instead of TV sets. They watch programmes on Catch Up and iPlayer. Many do not watch BBC programmes at all. Clearly an alternative way of financing the BBC has to be found. That will take time, but before then non-payment of its licence should be a civil, not a criminal action, and we should stop letting the BBC hound helpless people through the courts.

We can identify George Monbiot's problem

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It's not just that he's often factually incorrect, nor that he races off after the wrong rabbit all too often. It's that he's in the wrong society:

It just doesn’t compute. Almost every day the news is filled with stories that look to me like corruption. Yet on Transparency International’s corruption index Britain is ranked 14th out of 177 nations, suggesting that it’s one of the best-run nations on Earth. Either all but 13 countries are spectacularly corrupt or there’s something wrong with the index.

Yes, it’s the index. The definitions of corruption on which it draws are narrow and selective. Common practices in the rich nations that could reasonably be labelled corrupt are excluded; common practices in the poor nations are emphasised.

This is not so. We, collectively, here at the ASI have considerable experience of both life and business in other parts of the world. Including places where the first question about doing anything is "So, who do we bribe?". At least one of us has offered, as professional advice, the point that "If you don't know who to bribe in that country don't bother trying to do business in that country".

The truth is that the index is correct, not just that the terms and definitions being used favour us. Britain really is a remarkably uncorrupt country by the standards of the rest of the world. And that is where we think that Monbiot's basic problem comes in.

George desires to be a warrior for social justice. Heck, he is a warrior for social justice. He just happens to suffer from the problem of coming from a country that actually already possesses a modicum of social justice. There's therefore little in the way of social warrioring for him to do.

We do not claim, heavens above we don't, that Britain is perfect nor that there's not dodgy dealings in corners of it. but imagine how frustrating it must be to devote one's life to the theory that the entire structure must be overturned on the basis of that social justice and yet come from one of the few places that has actually managed to achieve a general level of that justice?

Economic Nonsense: 30. In economic downturns government can boost growth by increased spending

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The problem with this is that in economic downturns the government often does not have the money to do this. In a downturn tax receipts tend to go down because there is less economic activity. With less being earned, less tax is paid. If government wants to expand its spending it will need to raise more in taxes or borrow more, neither of which are good at stimulating recovery and growth. If, during times of economic growth, government builds up a reserve surplus, then it might have the resources to do things such as infrastructure projects when a downturn comes. Unfortunately governments rarely do this. When money comes in, the pressures are on them to spend it, and if they spend it during the good times, it is not there any more when the bad times come.

Tax taken and spent by government is money that cannot be spent by the private sector. The goods and services that people might have bought, or the investments made possible by their savings do not take place if the government has taken the money to spend on its own projects.

Some commentators say that in a downturn businesses and private citizens are simply not doing the investing, and therefore government has to step in and do some of its own. There might be very good reasons why people are not investing in a downturn, and they are even less likely to invest if government has raised their taxes or by borrowing money to pay for its projects has raised the cost of borrowing.

There are things that government can do to make investment more attractive and encourage more businesses to start up or to expand. It can lower Corporation Tax; it can tweak Capital Gains Tax; it can give small and new businesses a holiday from National Insurance contributions. All of these are on the supply side, where the effort is needed, rather than on the demand side subject to all of the above caveats.

Even if the minimum wage doesn't hit jobs it hurts the poor

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There is a big debate over whether minimum wage increases cause unemployment. A majority of papers say it does, and a bigger majority of the best papers, but there is also lots of evidence that it doesn't always. And we must bear in mind that bodies like the Low Pay Commission are well aware that big hikes are dangerous so they intentionally advise for smaller ones, with the disemployment effect firmly in mind. The debate rages mainly because the minimum wage is such a live political issue. Its proponents see it as an anti-poverty mechanism without the potential stigma of benefits. Its opponents think it risks jobs; better to be employed with a low wage than not employed at all.

But what if that's a false dichotomy. Let's assume it doesn't hurt jobs—let's assume that all of the minimum wage is instead passed along to consumers. Does the benefit from higher wages outweigh the cost from higher prices? A new paper (pdf, up-to-date gated) says 'no':

Low-wage families are typically not low-income families. The increased earnings received by the poorest families is only marginally higher than by the wealthiest. One in four families in the top fifth of the income distribution has a low-wage worker, which is the same share as in the bottom fifth. Virtually as much money goes to the highest-income families as to the lowest.

While advocates compare the wage levels to the poverty threshold for a family to make the case for raising the minimum wage, less than $1 in $5 of the additional earnings goes to families with children that rely on low-wage earnings as their primary source of income. Moreover, as a pretax increase, 22% of the incremental earnings are taxed away as Social Security contributions and state and federal income taxes. The message of these findings is clear: raising wages wastefully targets the poor contrary to conventional wisdom.

Turning to who pays the costs of an increase in the federal minimum wage through higher prices, the analysis reveals that the richest fifth of families do pay a much larger share (three times more) than those in the poorest fifth. This outcome reflects the fact that the wealthier families simply consume much more. 34 However, when viewed as a percentage of expenditures, the picture looks far less appealing. Expressed as a percentage of families’ total nondurable consumption, the extra costs from higher prices are slightly above 0.5% for families at large.

The picture worsen further when one considers costs as a percentage of the types of consumption normally included in the calculation of state sales taxes, which excludes a number of necessities such as food and health care. Here, the implied costs approximately double as a percentage of expenditure. More important, the minimum-wage costs as a share of “taxable” annual expenditures monotonically falls with families’ income. In other words, the costs imposed by the minimum wage are paid in a way that is more regressive than a sales tax.

That is: most of those on the minimum wage are not earners for poor families; the goods produced by minimum wage workers make up a large fraction of poor households' budgets; raising the minimum wage, even if it doesn't cut jobs, hurts the poor more than it helps them.