Tax Freedom Day is here!

Yes—the day you've been waiting for is finally here.

For every day of 2017 up to and including most of June 11th, every pound the average Brit earned went to Philip Hammond and the government. June 12th is the first full day where the national income is being paid into your pocket, and not to the taxman.

To learn more about Tax Freedom Day—how it is calculated, how it has changed over time, and what it really means, go to our Tax Freedom Day info page or read my CapX essay explaining it in detail.

And for more info on why we at the ASI think too much tax can be damaging, read my explanation of the ASI's tax research and priorities—there are many links there to info and arguments about taxation in the UK and around the world.

Well, there's your problem then

True to form Philip Blond, he of "Red Toryism," is calling for more of what just did not work. That is, the way to win the hearts and minds of the British people to to offer a milquetoast version of what others are offering the full fat version of:

“Thanks to Jeremy Corbyn Red Toryism is needed now more than ever, because it is the only thing that the party has in the box to match it.”

We do not, of course, agree with this analysis indeed we've been somewhat impolite about Blond before now. Nick Timothy's ideas o seem to run in this vein though and this is as neat an encapsulation of them as we've seen:

Timothy presumably believed that he had found an electoral sweet spot, marrying together a more leftwing, interventionist approach to economics with a more rightwing socially conservative vision.

An encapsulation which we entirely disagree with. For a leftwing, in what is absurdly called "liberal" these days, economic policy is indeed more interventionist. And so is a socially conservative set of policies, it's more interventionist. As in the economics the interventions being no, you must not do it that way, don't do what you wish as long as you're not harming others, you must, under the pressure of the law, do it this way. So it is with socially conservative policies, they are interventions insisting  no, you must not do it that way, don't do what you wish as long as you're not harming others, you must, under the pressure of the law, do it this way.

It is we neoliberals, we happy few, this band of siblings, who keep the true liberal flame alive. Do as you wish as long as you're not damaging the the rights of others to do the same. That is, a less interventionist set of policies on both economics and society.

Wouldn't it be interesting if a political party went to the country on that manifesto?

So that's another problem pretty much solved then

We don't have to go too far to find the miserablists who insist that we're all doomed, doomed I tell 'ee, because the human population is growing uncontrollably. Half the environmental publications on the planet harp on about this. And near every piece anyone at all writes on the subject of growth, or environmental limits, will have someone pop up in the comments insisting that we just must stop the peasantry having so many damn children. 

What this misses is that we've already solved this problem. And yes, it has indeed been solved by that heady mixture of free markets and capitalism, that thing we call neoliberal globalisation. This little snippet proves it:

Three men who have fathered nearly 100 children among them are doing their bit for Pakistan’s skyrocketing population, which is being counted for the first time in 19 years.

But in a country where experts warn the surging populace is gouging into hard-won economic gains and social services, the three patriarchs are unconcerned. Allah, they say, will provide.

Pakistan has the highest birth rate in South Asia at around three children per woman, according to the World Bank and government figures, and the census is expected to show that growth remains high.

That really is patriarchy of course. But what drives population size is not how many wives a man might have but how many children per woman, it is that 9 months in the womb which is the bottleneck. Two children per woman and the population falls over time - after the demographic effect of increasing lifespans - and 3.8 means a doubling every generation. Assuming that all children survive of course.

Historic fertility rates have been up at 7 and including pregnancies, still births and so on higher again. That is what led to Malthusian growth of course, the productive capacity of society was the limiting factor in how many did survive. When that capacity expanded then more survived and growth became an expansion of the population living at the same old standard rather than an increase in the level of living.

Shifting a society over to where most to all children survive, in itself a measure of increased wealth, means that people entirely voluntarily have fewer children. There are other things to do in this life after one has ensured the existence of grandchildren, after all. And this has happened where those free markets, that capitalism, have taken root. And so an increase in the productive ability of society starts to lead to an increase in living standards instead of an increase in population.  

That is, Garrett Hardin was wrong to apply the Tragedy of the Commons to population, even as his analysis of the basic problem itself was correct. Neoliberal globalisation reduces population growth.

Sure, a fertility rate of 3 does mean that population is still growing. But note that's the highest in South Asia. It's also fallen considerably in only a generation and the only way any of us see it going is further downwards.

There is no rich country anywhere near that replacement rate of 2.1, absent immigration. Poor countries are all approaching it from the upside. To the extent that human population growth is a problem it's one that we've already largely solved.

So, what's the next thing this neoliberal globalisation is going to solve? Even the UN is saying that it will solve absolute poverty within the next couple of decades. So, what then after that? 

Ed Conway says Bitcoin could turn capitalism on its head

We think this is a deeply unlikely outcome:

Bitcoin could turn capitalism on its head

The insight is, apparently:

In much the same way as the least interesting thing about Wikileaks is Julian Assange, the least interesting thing about bitcoin is the currency itself. What really matters is the technology sitting behind it, a kind of cloud database created alongside the currency by its pseudonymous creator Satoshi Nakamoto.

The blockchain, as he called it, is a register of every bitcoin transaction ever made. With most currencies, electronic transfers are recorded by banks and payment systems, presided over by a central bank. With bitcoin those transactions are logged by volunteers’ computers around the world, all of them constantly chugging away, processing and verifying each transaction. Equally interesting is the way those computers — or rather their users — are incentivised to be part of the network: if they are the first to verify a transaction, they get rewarded with more than one bitcoin of their own.

The blockchain might be a more efficient method of doing this than the current one - although we're deeply, deeply, unsure about that efficiency - but an overturning of the manner in which capitalism works?

Seriously, putting the Land Registry into the cloud changes capitalism? Replacing Capita, Equiniti and Computershare as share registrars with a decentralised system is a radical change?

Even the idea of non-government fiat money isn't all that much of a change. Bitcoin is fiat money itself and we've always had non-governmental forms of that. Whose round is it next is an informal type of fiat money.

Bitcoin and associated ideas might well be interesting and even transformative but a new method of registering ownership of assets is hardly a change to capitalism now, is it? Given that capitalism itself is a system which depends upon , exists because of, the individual ownership of assets which we track so that the system itself works.

The latest proof of an oft repeated contention of ours

There's a new book out in the US, Dream Hoarders, which essentially says that the upper middle class (which for Americans is the 79% to 99% or so) are getting all the good gigs and positions in life because they're protecting their own children. No one can get a look in from outside the gilded group because you've got to go through a certain formulaic development process to gain entry to it.

The right college, unpaid internships and so on, the right college being predicated on being able to do all the correct extracurricular things at high school and so on.

We're not sure about this analysis to be honest, those "right" US colleges do rather bend over backwards to make allowances, to welcome in, those who are not from this background. Yet we do agree that there's far too much credentialism around.

But to our oft repeated contention:

As Reeves notes, this is not usually due to direct classism, although he’s appalled that American universities admit to giving preferential treatment to “legacy” students. Rather, those who got a head start in life are set up to succeed from the very beginning, when they attend well-funded public elementary schools, to the middle, when they get internships because of who they know. (I would also add that only the upper crust can afford to do unpaid internships.)

It's that bit about well funded public elementary schools. For if you look at actual school budgets per pupil around the US the most surprising fact is that the inner city schools tend--with obvious exceptions like the occasional rich enclave--to be very well funded indeed. Baltimore, the scene of The Wire, is regularly listed as being among the highest spending districts in the country.

We would, of course, entirely agree that a decent elementary education is going to be the starting point for any form of climb in a society. But this does bring us to that contention. It's not how much money is spent that matters, but how the money is spent which does.

America's inner city schools can indeed be entirely appalling, but they're not short of money, short of money in the system that is, rather than in the schools themselves.

The US leaving the Paris Accord Just doesn't matter

Actually, we can argue that whether anyone signs up or doesn't to the Paris Accord isn't a matter of importance. For here's some talking about the effects of the US not remaining:

Existing climate efforts expected to keep US goals on track

More specifically:

The momentum of climate change efforts and the affordability of cleaner fuels will keep the United States moving toward its goals of cutting emissions despite the Trump administration's withdrawal from the Paris global accord, business and government leaders in a growing alliance said.

In detail:

The momentum of existing climate-change efforts and the availability natural gas, wind and solar power mean those loyal to the Paris accord in the U.S. will have an easier time, with emissions expected to fall overall for years, said Robert Perciasepe with the Center for Climate and Energy Solutions, who worked with Bloomberg's group on the climate pledge.

Some studies suggest the United States will cut emissions as much as 19 percent by 2025 if it simply moves forward as is, he said. That's not far from former President Barack Obama's goals for a reduction of 25 to 28 percent as part of the Paris accord, Perciasepe said.

If it doesn't matter much whether the US is in or out of Paris then Paris itself doesn't matter very much, does it?

Which underlines a point we continually make. The world has already done rather a lot to create the possibility of reduced emissions. Absolutely all of the predictions of future emissions - such as this one in The Guardian - resolutely ignore what has already been done. Those charts you see going off into infinity are ignoring the manner in which we're already closing or have closed coal stations, we've brought solar power down in price by an order of magnitude, people are already buying electric cars and so on and on.

Leave aside the basic contentions for a moment and consider this important detail. The predictions of total disaster are all based upon our doing nothing at all. Yet we've done a lot, we are already quite obviously not on the higher emissions pathways. Thus the predictions of total doom are simply wrong for we've already done quite a lot about it.

Hey, maybe we need to do more, maybe we don't, but we should at least start from the current position, not the predictions based upon our having done nothing for 20 years, for we've not done nothing in those decades.

Free market welfare: not this!

Out of all the think tanks in the world, probably the one that has the closest "fit" with the ASI is the Niskanen Centre in Washington DC. They share our pragmatic, compassionate, and neoliberal outlook, proposing liberal market-orientated policies that raise the wealth, and welfare, of the majority. But a recent article of theirs by Sam Hammond clarifies a major disagreement that nevertheless exists between our approaches.

Hammond, a friendly acquaintance and poverty researcher at Niskanen, makes the case for a "free market welfare system", asking "what is the welfare state for". So far, so good. And we do start with a lot in common. Hammond is right that spending and regulation are not necessarily intertwined, and that reducing regulation should be more of a priority for market liberals. He is right that redistribution can be a compensatory mechanism, paid out of the massive gains from free trade and relaxed immigration policies, to the minority who lose out. And he is right that, historically, the social insurance systems he describes, were not justified so much by their redistributive functions, but as social insurance systems.

But there is also a lot to disagree with.

Social Security retirement benefits, for example, represent a transfer from people who die young to those who live a long, long life — a structure that may even be mildly regressive in its first-order effects. Every year, thousands of millionaires collect unemployment insurance between gigs, having paid an outsize share of payroll taxes. And then there are infrastructure, policing, national defense, and all the other things the state provides out of general revenue, not due to fairness, but because they are public goods.

If Heath is right, the normative logic of the social safety net and the market are not at all in tension. States provide public goods for the very same win-win efficiency reasons that they enforce property rights and a robust legal system (public goods in their own right). We all benefit from things like national defense, but high transaction costs prevent us from organizing to provide them privately. We also all stand to benefit from the ability to insure against economic risks like the loss of a job — millionaires have bills to pay, too — even when information asymmetries make private-sector unemployment insurance a challenge. Too much insurance has costs, as well, like inducing overly risky behavior. Yet such “moral hazards” are a generic feature of all insurance, and an inevitable part of making trade-offs.

The upshot is that the welfare state is better thought of as a kind of democratic mutual insurance scheme rather than, as it is often portrayed, a nationalized form of private charity or a tool to soak the rich. We fail to realize this because the ex ante win-win nature of social insurance (and, indeed, insurance more generally) is obscured by the ex post win-lose transfer to the recipient. The Swedes’ concept of “the people’s insurance,” which developed alongside the construction of their own formidable welfare state, shows that this notion is not even foreign to the places that strong egalitarians look up to.

Firstly, the fact that some aspects of the benefits system are, considered alone, regressive, does not tell us much, because the overall system is highly progressive. Just look how the UK GINI coefficient shifts when you switch from market income and income after taxes and transfers. The UK government now does 30% of its spending directly on alleviating poverty and inequality, and most of the rest is in-kind benefits that achieve a similar thing. The US isn't much different. The fact that historically these systems were justified in the language of reciprocity and efficiency doesn't change this.

Secondly, there is a strange slide between public goods and "public goods". A public good is nonrival and nonexcludable, or close to. The combination of these two features, according to solid Econ101 principles, means it will be underprovided by the market. National defence is a very solid example. Defending me, by defending the country, doesn't defend my compatriots any less, and there is only rarely any way of excluding citizens from the benefits of the national defence. Lighthouses are another classic example. Vaccination for herd immunity is another. And clean air may be yet another.

But it's not clear at all that most policing is a public good: most of its features are straightforwardly rival and excludable. Maybe the government should provide policing for areas that can't afford it, and maybe it should subsidise it because some elements (deterrence) do have public good features. But at least two recent papers show private US police forces massively outperforming US government police.

Infrastructure only very rarely has public good features (roads, rail, cables, pipes, wires, and even electromagnetic spectrum are always excludable, and usually rival), which is why the UK was able to fund a gigantic railway network privately, as were most Western countries. Japan does it that way now. The UK also expanded its turnpike (toll road) network that way. And coal. And electricity. And so on.

Finally, social insurance certainly isn't a public good! My drawing from a fund is highly rival to yours, and highly excludable. This is why it's, historically, been quite easy to insure against the mishaps he worries about—if you have enough money. Even in the 19th century workers who were actually able to work could get unemployment, healthcare, and life insurance through friendly societies. Divorce used to be insured against with binding prenuptial agreements and tough marriage contractsboth scrapped. And millionaires insure against rent and bills risk by buying their house and saving money.

The problem was that this left a lot of people without. Some can't work at all. Some don't earn enough to support themselves. Some don't have parents. And some don't have what we consider enough for a decent life. The market can provide perfectly well for the majority, but, for others, state supplementation is necessary to avoid destitution, and allow freedom. There is a real cost to those paying huge fractions in, but it's outweighed by the benefit to those receiving. That's what we at the ASI call free market welfare.

Why Corbyn's wave of youth support may not carry him to Downing Street

Much has been said and criticised about the "magic money tree" Corybn will have to unearth to make Labour's overambitious economic plan work. But a more important aspect of Corbyn's policies is his appeal to under 25s, an age group who feel that they have long been alienated by mainstream politics.

Historically this has been the group with the lowest voting turnout, with just 58% of 18-24 voting in the 2015 general election according to British Election Study (BES). But this fraction has been highly variable, rising from a 52% turnout in 2010 and just 38% in 2005. A study conducted by Matt Henn and Nick Foard concluded that whilst young people are firmly absorbed in political ideas, they "feel considerably disenchanted by their recent experiences of formal politics, and remain relatively disengaged from the political process and from democratic institutions and players". If Corbyn is able to overcome this disenchantment then, coupled with Corbyn's seductive policies aimed at the younger voter—the abolition of university fees, a possible write-off of existing student debt, and rent controls—he could see a wave of support from the so-called 'Snowflake generation'.

Corbyn has resonated with the young voter, partly through gimmicks such as meeting with popular grime artists, appearing at a Libertines gig, as well as his youth-targeting policies. Many 18-24s see Corbyn as a rare breed—a genuinely compassionate politician, eager to spearhead positive change for the youth. Whilst the youth are often branded as naive and impressionable, the flipside is that they can also provide a boisterous base for a social media campaign, not to mention memes. His perceived honesty too is another factor that seems to play well with the younger voter, many of whom may feel disenchanted and embittered by Theresa May's inability to answer a question directly, not to mention her association with Brexit (18-24s were strongly in favour of Remain), and austerity.

However, it does not seem like Corbyn will surf this tidal wave of youth support to Number 10, his resonance with the young is matched by the complete opposite reaction from the older voter. This focus on the youth vote may well prove to be an error—older voters have consistently proven to be the most likely to vote. What's more, the youth vote tends to be concentrated in areas that are overwhelmingly Labour anyway, with nine out of the 10 seats where young voters are the greatest share of the population, such as Sheffield Central and Cardiff Central, already won by Labour in 2015. Piling up extra votes in safe Labour seats is not the route to a Corbyn majority.

Ultimately, despite Corbyn's attempts to actively incorporate the younger voters as a major breeding ground of partisan Labour support, disenchantment and dissatisfaction towards mainstream politics, coupled with alienation of the older voter, will make it troublesome for Corybn to place so many eggs into the younger voter basket.

Tax avoidance? Or just tax competition?

Labour and the Greens have both given rousing speeches this week about how they are going to equalise society’s wealth stratifications by clamping down on tax avoidance. In declaring this, they’ve just set themselves a task that’s literally impossible to accomplish, because technically there is no such thing as tax avoidance that can be used to recoup losses.

In a society with tax laws, there are only two states: the state of paying tax and the state of evading tax. Taxpayers operate within the orbit of the law, and tax evaders break the law by not paying the taxes to which the law compels them. There is no third option called tax avoidance, because every action either places you in the category of a legal taxpayer or an illegal tax evader – you are either complying with the law or breaking it. 

What people call ‘tax avoidance’ is really only businesses being sensitive to tax competition – that is, the different tax rates set by each country and the ways in which competition helps drive down taxes elsewhere. Tax competition helps keep governments in check in not raising taxes too much, lest they lose business investments to other countries, which ultimately reduces the amount of tax they collect domestically.

People who are said to be guilty of ‘tax avoidance’ are simply people that look to invest and trade in more tax competitive countries. What they are doing is perfectly rational, and therefore politicians that wish to clamp down on tax avoidance are ostensibly trying to tax rationality – which is a bad thing, not just because if you tax something you generally get less of it, but also because tax competition is a benefit to everyone because it helps keeps our taxes lower and curbs politicians’ enthusiasm for making imprudent decisions centred on high taxes and excessive public spending.

Moreover, because this thing called ‘tax avoidance’ doesn’t exist in any meaningful definitional sense, there is no practical way to legislatively clamp down on it. Ironically, the best way to tackle the issue of untaxed income earned outside of the UK would be to lower UK taxes to a more competitive rate, whereby more investment and trade occurs in the UK, and more tax revenue is collected because of it.

 

A small note on where it's all going wrong

If we're to have useful conversations, discussions, about what the economy is, what's happening in it, where it's going, then we do need to have some generally accepted meaning of words with which to discuss such matters. For example, if we wish to discuss the gig economy then we need to understand why it has arisen and to agree upon the words we're going to use to describe it. At which point:

Too many people still talk about the casualisation of work as an innovation, as an impersonal, technological and irresistible force to which we must adapt if humanity is to continue its march into the future. Instead of a reversion to more exploitative form of labour relations, driven by the wealthy people who own and operate companies, we are told the “gig economy” is merely the inevitable outcome of inventions like the smartphone.

Nobody does say that the gig economy is inevitable. Not even that it's an inevitable outcome of the existence of the smartphone. But we must all agree that it is an innovation.

Further, we really must all agree what it is an innovation about. Those rules about secure employment, about sick pay, holiday, pensions, time off in lieu and all that are the very things that the gig economy is innovating around.

The reason we must all agree with the basics is that without doing so we'll not grasp the important truth here. Those labour rights and payments are costs. Perhaps they're worthwhile costs, perhaps they're essential ones, but they are indeed costs. And as we can see from what is happening out there they're costs that both employers and workers seem entirely happy to bypass when given the chance. Thus the real lesson of the gig economy, those costs, given that so many are entirely happy to side step them, may not actually be worthwhile. Or they may be, entirely possibly, but our discussion has to centre upon the cost benefit analysis of them.

Markets do indeed innovate around blockages to them. And one useful indicator of where things really are going wrong is that it's the Financial Times, of all papers, which doesn't grasp that.