David Gauke is responsible for teen violence and murders in inner cities, not middle class cocaine users

Not that we think this is unusual, a politician getting things the wrong way around, but David Gauke is displaying a particularly disturbing misunderstanding of cause and effect here. 

Middle class cocaine users who take the drug at dinner parties should feel responsible for rising levels of teen violence and murders in inner cities, the Justice Secretary has said.

David Gauke said the drugs trade was “strongly linked” to violent crime as he took aim at people who take the Class A drug in the safety of their own homes at suburban get togethers.  

We admit to being a little out of touch with what is fashionable at middle class dinner parties these days, car keys in a hat, cocaine, some triumph of a dessert with Carte d'Or, who knows? But responsibility here is easier to work out.

There being, we are sure, many things that the middle class enjoy consuming in the privacy of their own homes. We are also quite certain that the violence is indeed linked to the drug trade. 

But not to that middle class desire to consume said drugs. For the markets producing the steak, car keys, hats, ice cream and so on which are consumed at such gatherings do not produce violence nor dead teenagers. The market for drugs does.

There is therefore something specific to said market which causes the violence, middle class dinner parties not being it.

Ah, yes, that's the one, it's the illegality of supplying those goods to said tete a tetes, isn't it?  Just like when the booze which is consumed at them - in moderation these days of course - was illegal that provision led to that Prohibition caused violence.

Who is responsible for the illegality? Mr. Gauke, please go find a mirror.

Markets are voluntary cooperation, it's only when they're illegal that they produce violence. Over to you Mr. Justice Secretary.

Make the tax system simpler, sure, but don't make it worse

The Office for Tax Simplification is trying to make the UK tax system simpler. That's a great idea. But it's important to note that we shouldn't be making the tax system worse as we do so - that, sadly, being precisely what the OTS is doing here with its suggestion over the taxation of dividends.

The OTS says the allowance leads to complex calculations in some cases, and suggests one option is to tax any dividend income above the allowance at people's income tax rates of 20 per cent, 40 per cent and 45 per cent instead.

That is absolutely not the way to do it at all. Quite the contrary, we should be lowering those dividend taxation rates. Or alternatively changing the corporation tax regime.

The reason being something that is mentioned in the full report but not teased out. Before recent messing around with the system there was a clear system of imputation. Corporate profits are taxed, first, at the level of the company, through corporation tax. Dividends are - always - paid out of this post-corporation tax income.

So, when the dividends arrive in the hands of shareholders they have already paid some tax. Do not think that the company pays then the shareholders - this is one stream of income and it is the accumulation of taxes upon it which is the true tax rate. Thus that old system operated along the lines of "some tax has already been paid, pay only a little more now." More specifically, higher income in general taxpayers paid more tax, bringing that on their dividend income up to something like their marginal rate, lower income taxpayers perhaps nothing as corporation tax had already taxed it at their marginal rate of income tax.

The suggestion is to entirely do away with any vestige of this imputation, the current version of which is to have lower dividend tax rates.

This is wrong. For it is still true that the dividends are paying tax at the corporate level and then also at the individual.

Yet it's entirely standard that we want to tax capital incomes at lower rates - even nothing - as opposed to labour incomes. The reason being, obviously enough, that capital accumulation is what makes then society generally richer over time. We want people to be saving and investing therefore.

We're aware that politics means that the rentiers are not going to be allowed to have tax free incomes, even though that's what optimal tax theory and standard economic theory insist. The Mirrlees Review shaded this, by arguing that normal profits should indeed be tax free, only excess such - economic rents if you prefer that terminology - being taxed.

Yet it is still true that we want to have lower, not higher, capital income tax rates than labour income. Raising the dividend tax rate to that of standard incomes goes the wrong way with this. That the profits are already taxed at the corporate level means we'd have higher accumulated taxes upon capital income. Entirely the wrong direction of travel for the tax system and economy as a whole.

We could avoid this mistake and still simplify the system by stating that dividends be paid out of profits untaxed at the corporate level, without corporation tax applied. But that won't fly either, given the large revenue gained by taxing foreign shareholders in this manner.  

By not considering the economics of the matter, by mentioning but not examining that point of imputation, the OTS has recommended moving the taxation system in entirely the wrong direction. Capital incomes should be taxed less than labour incomes, doing the opposite is a terrible suggestion.
 

A confusion about how people sell this internet data

An interesting little case of how a subject is framed swaying public opinion and action upon that very subject. The new GDPR regulations, those about who has what digital data about us and what they may do with it.

The public cry is that "they're selling our data" - even that data is the new oil and it should all be taxed most heavily. When that's not really what is in fact happening at Facebook, Google and the like. What they are doing is much more akin to the standard media pack of the legacy media.

If you decide that you might like to advertise in, say, the Telegraph, or Mirror, then you'll ask to see the demographics of their audience. You can then decide whether you'd prefer to advertise to broadsheet readers or tabloid, those leaning right or left, the different age cohorts that read each and so on. You are given as much data as they have on who their audience is.

Facebook, Google and so on do much the same thing. Instead of saying here's our audience though they ask, well, which portion of our audience would you like to advertise to? The data on offer is how would you like to slice and dice that audience we've got available?

The sale is of the advertising, the sale is not of the data itself. The data is to inform the sale of the advertising in much the same manner as that standard media pack. It's just a more fine grained set of distinctions.

To our mind this makes the basic cry, that they're selling our data, incorrect. Incorrect to such an extent that it's deliberately misleading - you know, a propagandistic lie?

But then that's politics isn't it? Finding a justification for what you'd like to do anyway rather than trying to solve any real world problem.

Even Jeremy Hunt doesn't believe what he's just said about the NHS and taxes

We can prove that this is wrong very easily:

People want to pay more in tax to fund hospitals, Jeremy Hunt said on Thursday night in a direct challenge to Philip Hammond, the Chancellor.

The Health Secretary said people “recognise that through the tax system we will end up having to contribute more” to support the National Health Service.

He added that “there is a willingness to do that, providing they can see the money going to the NHS, providing they can see that it's not being wasted”.

If people wish to pay more taxes to fund the NHS then where are those more taxes funding the NHS? 

As one of us pointed out over a decade ago, after burrowing into the Treasury to get the information, a reasonable guide to the number of people who voluntarily pay more tax each year is a handful. Most of whom are dead. Subsequent checks on the same cheques have shown the situation doesn't change much over time.

We can be more expansive in our definition of course and look at those who donate to, or volunteer in, the NHS itself or a specific hospital. Which is great, we're all in favour. All of us should indeed be deploying our resources in the manner which gains us the greatest utility.

But it is still true that there is no pent up desire to pay more tax in order to fund the NHS. Those who wish to do so are already doing exactly that and we can measure, accurately, how much they are doing so.

Now, there's a very much larger number of people who want other people to pay more tax to fund the NHS. But that's a rather different statement, isn't it Mr. Hunt?

As George Monbiot fails to note, we already do this and he complains about it

George Monbiot tells us that it's just appalling the manner in which executives at companies get to walk away, protected by limited liability, when things go wrong. George has also been known to complain about how much executives at companies get paid. Which is a pity as the two are intimately connected. Here's his suggestion:

As for the executives, I have a tentative proposal of my own. Any managers earning more than a certain amount – say £200,000 – would have half their total remuneration placed in an escrow account, which is controlled not by the company but by an external agency. The deferred half of their income would not become payable until the agency judged that the company had met the targets it set on pension provision, workers’ pay, the treatment of suppliers and contractors, and wider social and environmental performance. This judgment should draw on mandatory social and environmental reporting, assessed by independent auditors.

If they miss their targets, the executives would lose part or all of the deferred sum. In other words, they would pay for any disasters they impose on others. To ensure it isn’t captured by corporate interests, the agency would be funded by the income it confiscates.

The thing is, we largely - imperfectly of course we're human after all - do this right now. And we've been doing increasing amounts of it over recent decades too. It's the explanation for why executive pay has been rising so much. For we do indeed insist that they don't get all their pay as just pay. They get substantial parts of it - the vast majority of any of the large numbers too - in the form of shares. Maybe options, more likely these days restricted stock and good practice these days is that sales can only take part some years after retirement.

The reason for this being that we'd like to make sure that in return for that bounty being paid those executives are in fact hitting those real world targets. That a substantial portion of their pay is at risk is also why the pay is larger. We all do insist upon more money for shouldering more risk.

All of which leads to an interesting point. That if we were to do as George suggests then executive pay would rise even higher, wouldn't it? The more of it is at risk then the more will be demanded simply because we humans do demand higher incomes for shouldering more risk.

Grammar schools make no difference - great, let's have more grammar schools

The standard argument against grammar schools is that they confer privilege. Presumably the complaint is that if the academic are given an academic education then this is somehow unfair. At which point we've the news that grammars do not in fact confer such privilege. Great, so, let's have more grammars then:

Grammar schools do not help children achieve academic success, a UCL study has claimed.

Researchers also said attending a grammar school had no positive impact on a teenager's self-esteem or their aspirations for the future.

The study, by the UCL Institute of Education, comes weeks after the Government announced plans to pump £50 million into creating more places at grammar schools.

"Against the conventional wisdom, we find little evidence that gaining entry into a grammar school has a positive impact upon most aspects of young people’s lives," the study concludes. 

"This leads us to an important conclusion: gaining entry into a grammar school may actually not be as important as many assume."

Professor John Jerrim, lead author of the study, said: "Our findings suggest that the money the Government is planning to spend on grammar school expansion is unlikely to bring benefits for young people.

"Even those children who are likely to fill these new places are unlikely to be happier, more engaged at school or have higher levels of academic achievement by the end of Year 9."

Co-author Sam Sims added: "Schools across the country are already hard-pressed financially. Our research suggests that the Government would be better off directing their money towards areas of existing need, rather than expanding grammar schools."

That is, of course, entirely the wrong conclusion to be reaching from the evidence presented.

The basic democratic deal is that we, the taxpayers and voters, get what we want. The restriction upon this is when what we so desire limits or impacts the rights of others among us. It's always, or at least should be, a negative restriction.

Spending money into order to inculcate privilege among the few would therefore be something that - potentially at least - shouldn't be one. But if that privilege isn't being created then the question becomes much simpler.

Do the people who pay the taxes, the voters, desire grammar schools? Yes, most certainly they, we, do. Given that there is no unfair privilege being created, as this research insists isn't, there's no reason to deny us all our wish, is there? 

 The finding that grammars do no harm means we should have more grammars.

British property taxation is already very high by international standards

It's astonishing quite how long people can believe things which just aren't so. Polly Toynbee is, rightly enough, casting around for some method of paying for the social care which an increasingly elderly population requires. In doing so she alights upon property - there's a stash of economic value which can be taxed!

The thing is though she's wrong:

Property is undertaxed in Britain so there’s symmetry and fairness in reaching into home values to pay for care. 

Undertaxed compared to what? For as we've pointed out before Britain gains more of its tax revenue from property than any other OECD country. Vastly so in fact. The OECD average is under 2% of GDP, we're at over 4% of it. We gain 12.5% of our total revenue from it, the average is 5.7%.

Any comparison with that reality around us isn't going to leave the impression that we undertax property, is it? 

It's not actually the being wrong which bugs so much. We have in fact told Polly this, directly, a number of times over the past decade. And yet still she insists upon what just ain't so.

A useful example of why we'd prefer a land value tax to business rates

The essence of a land value tax - this is without getting all Georgist about it, making it the single tax, or taxing away the entire rental value - is that it is the value added to the land by the activities of other people which is taxed. Mayfair land is worth more because 10 million other people have built London around it. Tax is going to come from somewhere, why not from that value created by the 10 million? 

Our current system of land taxation, rates, doesn't work this way at all. Rather, it tries to tax the value added by the owner of the land, entirely a different concept:

Supermarkets could be owed as much as £300m because of an ongoing legal wrangle about the business rates paid for cash machines, which threatens to heap additional financial pressure on the struggling industry.

The Valuation Office Agency (VOA), which is responsible for administering business rates, issues an initial bill which retailers then check against the size of their shops, often resulting in a refund.

But these claims have been put on hold while a case about whether ATMs are part of supermarkets or not is fought through the courts. The Court of Appeal will hear the latest stage of the case later this month.

The VOA is arguing that ATMs located both outside and within a shop should be assessed separately for additional business rates, and that retailers should pay the business rates taxes on them in addition to their normal store rates.

ATMs are generally of value to the people passing by. They're also value that the holders of the land add to the environment about them. Not things which the society around adds to hte value of that plot.

It's an entirely different concept of taxation therefore. We want people to improve their own land to the benefit of the rest of us - why tax it therefore?

Land value taxation is the much better concept.

The capitalist who transformed a conservative United Kingdom into a more egalitarian society

Harry Selfridge’s founding of Selfridge’s in 1908, brought with it one of the
largest and most profound shifts in British culture seen since the inception of
our nation. Not only did it change consumer culture, not only did it innovate in
areas where previously people were restricted in shopping habits, it also
brought with it a groundbreaking wave of liberalization, which helped lead to the
emancipation of women and the breakdown of class barriers.

The department store, Selfridge’s, was one of the first spaces to contain
separate male and female toilets in the UK. We take it for granted today, but
prior to the 20th Century, women were not commonly seen outside the house.
The barriers to their emancipation were extreme. Imagine a society in which
there were no places to go to the bathroom; where the limiting factor for travel
was the distance from your own home. Selfridge’s, by utilizing gendered toilets
for the first time, by locating near public transport links, became a place in
which women felt safe to frequent alone, or with other women. It was a place
they could be individually empowered. And this was revolutionary to the
emancipation of women.

Selfridge himself was also a supporter of the Suffragettes, and the wider
campaign in favour of women’s rights in the UK. Whether this was a gesture
utilized to enhance profits, or whether there was a genuine streak of early
American freedom and liberalism behind this decision is moot, the support of
the Suffragettes meant that when militant feminism came to the streets of the
UK, one of the few shops which weren’t targeted and vandalized was
Selfridge’s. A smart business decision, but also a noble cause to support.

Selfridge was also unique in the way he advertised his new department store,
spending millions on mass advertisement prior to even finishing the
construction of his store. In his advertisement, he emphasized a simple fact; his
store was open to everyone, no matter which creed or class. Selfridge’s was
one of the first places in the UK where the doors were open to all regardless of
class, and the aristocracy, middle classes and working classes all shopped and
perused alongside one another. This egalitarianism was also helped by the
removal of what previously was common in stores.

Previously in shops, there would be staff members employed to ensure that
customers were served as speedily and efficiently as possible. The emphasis,
from the business point of view, was that the more time workers spent with
actual buying customers, the more profit that would be made, and ultimately
anyone seen to be loitering or spending unnecessary time would be moved on
by members of staff on the shop floor. Selfridge removed these staff. He
allowed people to spend time in his store, taking in every element of every
display stall. For those with little money, this opened the door to a vast space,
filled with artwork, flowers and grand architecture.

Selfridge’s prided itself on technological innovation, being one of the first stores
to demonstrate the television in action, it sold revolutionary wireless radios, and
even, as a publicity stunt, was host to the plane which first flew across the
English Channel. People from working class backgrounds could come into Selfridge’s as if it were a museum, a showcase of what was happening in the
world, and a taste of what could be achieved. Harry Selfridge was a self-made
man, he battled adversity and hardship to climb to where he perched. He grew
up in rural Wisconsin, to a single mother, worked up the ranks in Chicago
before noticing a break in the market for American style department stores in
the UK. This drive, and the fact he was a self-made man, underpinned his
classless emphasis within his store. He wanted people to be inspired by what
was within, so that they too could reach for the stars and become all that they
might be. Many members of the public saw technology previously seen only by
the upper middle classes and aristocracy inside his store. Selfridge installed
plentiful lift shafts, at a time when the thought of moving straight up was
unlikely, inspiring thousands. In the first week of opening, Selfridge’s bought in
1 million customers, when the population of London itself was only 4 million.

The staff members in previous stores were treated much like the servants in
aristocratic homes. Many of them would live on site in accommodation above
the stores, in rather squalor conditions, with minimal pay. Selfridge did not
follow this pattern. He wanted his staff to enjoy working, and to pass that
enjoyment on to his customers, emphasizing customer service over efficiency; a
model that turned out to be more profitable. He paid his staff a higher amount,
so they could afford to live outside of work and commute themselves,
liberalizing the workers, setting an example to other stores, and changing the
way that people, who otherwise would have had very few rights, could live.

Other department stores saw the success Selfridge’s achieved and emulated it.
They precipitated an environment which encouraged female emancipation and
liberalization, and broke down class barriers. As Harry Selfridge himself said,
“the customer is always right”, regardless of class or gender. His take on
capitalism, his fight to succeed and profit above other stores lead to a greater
delicacy in customer service, a greater emphasis on care, and better treatment
for workers.

Selfridge understood that capitalism is not a race to the bottom, because for
companies to succeed they need to please customers, and the greatest
weapon for change possessed by the masses is the power of the purse. We live
in a world today of immense wealth and technology that otherwise would have
been out of reach to the vast majority at the bottom of the ladder. Looking at
where society was in the past, and how far it has come to the present, should
lead to a great optimism about where it will go, and to its future state.
Capitalism and liberalism go hand in hand to bring about better living
conditions, higher pay, and opportunities and freedom for all. Every customer is
capable of creating profit, regardless of individual attributes, and can thus
command better treatment.

The Keynesian problem that ails the UK commercial property market

As JM Keynes noted, we humans just hate having our nominal incomes reduced. We're a lot less worried about falling real incomes through inflation and the like a long as nominals don't fall. This is something of a problem in a recession for that's exactly when real incomes should fall and also when we've not got much inflation.

The answer is to do as we have done, create a flexible labour market. Thus, in recessionary times we get falling incomes, not massively rising unemployment. This is exactly what did just happen in fact and is a great victory for that idea of the flexible market. Sure there was recessionary pain. But it was generally shared, not just dumped on the 10 or 15% who lost their jobs an thus everything. The rise in unemployment we did have was very much lower than we would usually have expected from such a fall in GDP.

Places such as Greece have had to have very much higher unemployment, very much more economic pain, in order to get those reductions in real wages.

At which point: 

The fashion retailer Next is preparing to take a stand against landlords who grant rent cuts and store closures to rivals using a controversial insolvency process.

Company voluntary arrangements (CVAs), which allow struggling businesses to walk away from their liabilities, are sweeping through the retail industry as traditional operators reel from a downturn in consumer spending and the ongoing shift to online shopping.

Retail and restaurant chains including Byron, Jamie’s Italian, Prezzo, New Look and Carpetright have used CVAs to close hundreds of sites and cut rents on hundreds more since the start of the year. House of Fraser and Mothercare are among those ready to follow.

Like many healthy retailers, Next, run by Lord (Simon) Wolfson, believes that CVAs give an unfair advantage to competitors by allowing them to sever leases while better-run companies are forced to honour expensive commitments. New Look slashed rents by up to 55% on some of its stores.

Next has started demanding a “CVA clause” when it renegotiates leases. The clause says Next’s rent should fall by a similar degree if one of its neighbours in a shopping centre or retail parade achieves a rent reduction through a CVA. The move could have huge implications for the commercial property market if other healthy retailers start asking for similar clauses, leading to mass drops in rents.

One of the things which ails that UK commercial property market is that rent reviews within a lease are upwards only. Thus directly analagous to our nominal wages problem. There has to be considerable and sustained pressure for rents to fall. Meaning that the economy as a whole is less flexible than perhaps it should be.

Not something we need to do something about for as we can see something is already happening under simple market forces. But it is something we should be aware of.