National insurance really is insurance, not just another tax

The zeigeit is gearing up for an increase in the taxation of the self-employed and it's worth noting the mistake at the heart of the basic claim. Which is that those who are employed through personal service companies pay less tax. This is both true and not true and the form of the truth makes a difference to what is being suggested:

More than 100,000 self-employed workers who are paid through companies could be hit by a new tax crackdown by the Government.

The Treasury has launched a consultation which aims to target people who are paid through a personal service company (PSC) instead of being on their employer’s payroll.

“This is unfair: two people doing the same job, in the same way, can end up paying very different levels of tax, depending on how they are engaged," its consultation document said.

The usual claim is that people only pay the corporation tax on the incomes they draw from such companies, not income tax which would generally be a greater amount. That is not actually how it works. Taxes on dividend incomes and those on employment ones are roughly the same, by design, once we piece all the bits of the system together. For high dividend incomes then pay more income tax again, over and above that corporation tax already paid. The total bite out of the income is, as we say, roughly the same.

Sure, maybe there's some bits to do at the margin but it's not a major difference.

Where there is a significant difference is with national insurance. Dividend income doesn't pay either - employers' or employees' - and that will be a saving. Given that there's a cap then a minimal rate above it of 2% on the employee's side, it's the employers' of 13.8% which is "dodged."

It's also true that when counting the revenue NI really is just another tax. The national insurance fund has been a fiction for generations now, the money just all goes into the general revenue pot. 

However, from the point of view of the individual it isn't just another tax. For, with the payment of NI comes certain forms of social insurance. If you don't pay it you don't get certain things. We also have different classes of NI, each of which give access to different parts of the social insurance system. You'll not get unemployment pay if you're paying a light stamp for example. 

Reform of the system might well be due - we've argued for many a year to simply abolish NI altogether and just have the one taxation system upon incomes. But it is still necessary to point out that much of this about personal service companies isn't really about tax dodging, it's about not purchasing state proffered services. Which does rather change the conversation, doesn't it? 

We already use paid for plasma - why not pay ourselves for it?

As we've noted more than once around here the only country that doesn't have people dying while waiting for a kidney is the only country that pays live donors for a kidney - Iran. But, as we're also continually told, we should never sully matters concerning body parts with mere money.

Thus gamete donors are not compensated and we import sperm from Denmark, people do die waiting for a kidney or liver and blood, well, blood's interesting. For the system of voluntary donation does largely cover British needs. But plasma doesn't

The global demand for plasma is growing, and cannot be met through altruistic donations alone. Global plasma exports were worth $126bn in 2016—more than exports of aeroplanes.

…Only countries that pay for plasma are self-sufficient in it. 

The UK is one of those places which imports plasma. And we're importing it from paid donors in the US. The moral point has already, therefore, been trumped. We are paying donors for their plasma. But still there is the insistence that we must not ever pay for anybody part - even when we already do.

Our own view is that efficiency trumps the ethical concerns of some. After all, those who object to the financialisation of such medicine can always register their protest by dying without it.

Fixed odds betting terminals - Mancur Olson was right

The government has announced that the stakes on fixed odds betting terminals will be reduced to £2. This is proof that governance does in fact work as Mancur Olson insisted it does. It's a fight among special interests for who gets to extract from us.

The news:

The maximum stake on addictive betting machines will be cut from £100 to £2, ministers announced today after reaching a compromise to limit damage to the public purse.

New rules on fixed-odds betting terminals (FOBTs) — described as the “crack cocaine” of gambling — will come with tax rises on bookmakers.

There's been a sustained campaign to get this to happen:

It’s nearly 20 years since I was put in charge of fixed-odds betting terminals (FOBTs) for one of the major bookmakers, rolling out some of the first ones, and it’s six years since I put the boot into them by turning whistleblower on Panorama.

Why did I turn whistleblower? To highlight the absurdity of £100 spins, in what was then a relatively lax regulatory environment around FOBTs. I wanted to expose the failure of the industry to recognise the impact of £100 stakes and the roulette game itself on the daily life of betting shops – customers and staff.

The point being not that the individual realised how damaging they were. But that other gambling interests were able to coopt those feelings:

Reducing the stake has always been a red herring. As opponents of FOBTs now admit, a £2 stake will make the machines 'unplayable'. The campaign isn't called Stop The FOBTs for nothing. And if FOBTs are removed from the high street, punters will move online, thousands of jobs will be lost and horse-racing will lose millions of pounds.

Gambling is going to continue, problem gamblers will still be problem gamblers. Who makes the money out of them will change, that's all.

As Mancur Olson did point out. Democratic governance does become the fight of the special interest groups over who is able to farm us. By altering the law in their favour and against their competitors.

Polly's just found out that most of us don't care

Polly Toynbee is outraged by her latest discovery - the British people aren't up to having her guidance. We're just not good enough for her - no doubt the calls for another people will be along soon enough.

 The more precise complaints are about big business. Pay for CEOs is too high, according to Our Poll,  tax dodging too high and all that. Labour has excellent policies on these matters, so she says, the Tories don't. And yet, and yet, we don't vote for Labour and their policies? 

The answer being, as she says:

Good, say I! Class war! riposted the Mail. But when Trickett averred, “People have had enough of the elite pinching wealth from the pockets of working people,” the trouble is that they haven’t really, or not enough of them. 

Truly we are not worthy of such a visionary.

For what is happening here is that we are in fact a democracy. Not a system where what happens is determined by the enlightened in the elite. Instead, we hoi polloi have our say about what is important to us. And the basic point is that we just don't care about these things. Or don't care enough to live up to Polly's vision of the Good Society.

But then that is the point of our being a democracy, isn't it? That we don't have visions of the Good Society imposed upon us but get to choose for ourselves? 

No wonder she's disappointed in us.


The proof that millennials should love the market

It's not obvious that millennials - the young and unwise of our society - like or even understand markets. Yet here we've a little story which shows that they should love them.

That story being a little listicle of things which have fallen out of fashion as the portion of purchasing power deployed by those millennials rises.

It’s not just frozen food that millennials have helped bring back. Millennials get a bad rap for killing things, but they’re also helping saving a number of industries. But are they reviving as many industries as they’re killing? I’ve conducted an investigative analysis to find out.

In are diamonds, golf, and vinyl records apparently, out go bar soap, chewing gum, focus groups, napkins, thongs and the Olympics.

Now let us think of an economic system which accommodates such desires. There's nothing particularly rational about some of them, they're just changes in taste. Rational in the sense of being calculable that is. Thus a planner could not possibly forsee them nor, well, plan for them. 

Who, after all, knows why the desired shape of knickers changes? 

We thus need some sort of system which indicates to producers that tastes are changing, preferably with a vicious feedback system to clear out those who don't take note. That being exactly what the market does provide for us. Those who fail to rise those changing tastes go bust an vanish from our economy.  And precisely because changes in taste aren't predictable they cannot be planned for at the system level - only by individual market actors who may or may not strike it lucky.

Millennials, whatever their thoughts about markets, really should love them. For they're precisely what caters to their tastes.

A remarkable example of missing the point entirely

Even to seasoned readers of the newspaper like ourselves there are still gobsmackers to be found in the pages of The Guardian:

Back when local councils directly funded nurseries, there was at least some democratic accountability for how public money was being spent. But now that subsidies are channelled via individual parents, there is too little oversight for how £6bn of taxpayer money is being used to help give children the best possible start in life. Instead, the care of young children has increasingly become a commodity to be bought and sold.

The claim being made is that bureaucrats, overseen by politicians to some extent, care more about the quality of goods and services being delivered than private sector economic actors do.

Well, to be honest, that might even be true. It's the next stage which is so important though. The only way we will get decent supply from the bureaucrats is if they do care. Those private sector actors have to care for if they don't then they lose business, go bust, get fired.  

Which is why that move to commoditisation, the insistence that care for children is something to be bought and sold. The decision makers being the very people to whom the welfare of the children is most important, their parents. Because, as hard won experience has taught us, it's the pressure from buyers that makes suppliers deliver the goods.

That, after we surveyed the rubble heading east from the Brandenburg Gate in 1989, anyone can seriously argue otherwise really is a gobsmacker.

In which we refute Piketty - thusly

All too few of us really understand the scientific method. Certainly, whenever it comes to the social sciences the truth of the technique rather goes by the wayside. So, to repeat, we come up with an idea, this becomes the hypothesis. We then look around for facts which will refute this idea. For as long as we find no facts that do disprove our idea then it stands as a possibly useful description of our world.

But note the truly important part. When we find a fact which cannot be true if the hypothesis also is then it is the hypothesis, that idea about how the world works, which is rejected, not the fact.

That's the bit the social sciences have such difficulty with, the rejection by fact-finding. Clearly, if this were not so then we'd not have as many as we do insisting that socialism and planning will make us richer given our evidence of 1989.

Thomas Piketty made waves with his insistence that inheritance of wealth is leading to a division in society., one where place in that society is solely determined by membership of the lucky sperm club. We also have certain facts about wealth and who has it and why:

The number of people who inherited their wealth has gone down, with 94 per cent of the rich list being comprised of self-made entrepreneurs. 

Yes, that's a strong enough fact to refute the hypothesis. The idea is wrong and we not just should but must discard it.

Those concentrations of wealth are not being inherited, they're being newly created. Which is great of course, we like new wealth being created, given that we know how much of - some 97% or so in fact - entreprenurial wealth flows to us, the consumers, only that fraction sticking with the entrepreneur.

An elegant proof of why planned economies don't work, the efficient markets hypothesis

The efficient markets hypothesis tells us that it's not possible to regularly beat the market. For information about what prices should be is already incorporated into those prices. Sure, some beat it for some period of time because that's just the way statistical variability works. Some, like Warren Buffett, beat it for a long time but then his cost of funds is lower than the market's.

We also have all sorts of people out there who insist that the use or markets to allocate economic resources is the wrong way to be doing it. That the wise people in government should be doing this for us instead perhaps. 

At which point, an interesting comparison:

The message is clear: the beat-the-market efforts of professionals are impressively and overwhelmingly negative. In any asset class, the only consistently superior performer is the market itself. It is well to consider, briefly, the connection between the socialists and the active managers. I believe they are cut from the same cloth. What links them is a disbelief or skepticism about the efficacy of market prices in gathering and conveying information.

Odd to equate socialists and money managers, true. But the underlying point does stand. If we had evidence from our unfettered (no, don't titter at the back there) financial markets that they could consistently be beaten by good planners, then it's possible that good planners with adequate powers could improve upon a market economy.

We don't see that market outperformance - thus the planning part isn't going to work either, is it? For all the evidence we have is insisting that we cannot beat the market.

Why shouldn't the people who benefit pay for infrastructure?

There's a certain amount of shock, horror, being expressed at the idea that property owners near Crossrail 2 stations might chip in some of their value gains to pay for Crossrail 2. It being a reasonably obvious observation that being close to a station running in and out of London increases property values.

Home owners living within a certain radius of Crossrail 2 stations could be forced to stump up millions to pay for the project.

Transport for London is considering introducing a levy to fund the £30 billion scheme, which will run from Broxbourne in Hertfordshire to Epsom in Surrey, through central London.

It would create three zones stretching a kilometre around each station. Each zone, mapped out in concentric circles, would have a scaled charge, known as the Transport Property Charge, descending with the distance from the station, according to Estates Gazette.

This is of course close to, a variant of perhaps, land value taxation. The society around you has increased the value of your land. Why not a tax to pay for the process of increasing your land value? 

We might also note that this is not uncommon in transport circles. Hong Kong's metro is largely paid for in this manner, the Jubilee Line to Canary Wharf, the more recent Northern Line to Battersea. Property owners benefit from this, why not property owners pay for it at least in part? 

There most certainly can be specifics wrong with such charges - come on, this is government, of course there will be errors. But the basic idea, that those who profit from infrastructure pay for it seems fair enough.