Bank bonuses


The fuss about bank bonuses will run and run. The Royal Bank of Scotland, recipient of £20bn of taxpayers' money, is planning to give bonuses to its senior bankers and City traders that might well run into millions for some of them. And the Treasury seems to have agreed, provoking much public outrage. Why should a failed bank, especially a state-owned one, pay bonuses at all?

But there's a great deal of misapprehension about bonuses. They are actually a way in which banks, and other businesses that face upswings and downswings, manage their wage bills. For most companies who pay staff bonuses, it's a way to manage wages, not inflate them. Bonuses are tied to the performance of the individual or the company. So if times have been hard, the wage bill can be reduced, and when times are good, it's made up again.

Sure, there's a lag, because you can't calculate the bonus until your accounts are done and dusted, which might be nine months later. And these are contractual obligations: because things are bad now doesn't mean you can just tear up contracts for the sake of political correctness.

There is also the point that bonus payments incentivize people. When traders are paid according to the business they generate for a company, they are incentivized to generate more.  If people are bringing in billions' of pounds' worth of business, isn't that indeed worth millions? Of course, you need to make sure that they are bringing in good business, and not just selling more mortgages to people who can't afford them. And some bank executives have certainly made mistakes on that front. Incentives need to be carefully managed (as Gordon Brown should know: witness all those people waiting in ambulances and corridors because the A&E department don't want to go over their target time for treating people whom they admit).

The fourth plinth waiting game


Will Trafalgar Square ever see a permanent resident to it’s vacant fourth plinth? I say vacant, it’s currently supporting a model that the pigeons have adopted as a dance club! Later in 2009, Anthony Gormley will be asking 2,400 people to stand on the plinth, 100 per hour (you can apply here). Following him will be “Victory in a Bottle" by Yinka Shonibare, which is exactly what it says on the tin. But perhaps the time has come to move away from the concept of placing modern art on there, it’s become somewhat staid. Modern art is supposed to push the envelope and it’s proven that.

However, the plinth is there for a statue to be placed on it, completing the square if you will, and recently there have been two very good proposals. The first, which is currently in the planning application stages would see RAF hero, Sir Keith Park overlooking the square. It would be in keeping with the military theme and would bring the area up-to-date by rightly immortalizing a Second World War flyer. The second is nothing more than a rumour that circulated in the press late last year, but one that is in fact a very noble idea: a statue of the Queen on horseback. The one drawback is that it would be unveiled after her passing (which could be a long way hence). Perhaps we shouldn’t wait. Why not set the goal of having it erected by 2012, 60 years after her ascension to the throne and also in the Olympic year?

What needs to be undertaken is a drive to erect something permanent there to stop us from enduring the rather public death of modern art. Modern art need not be constricted to one site in the corner of a square, it should be interspersed throughout the city so that it becomes a daily interaction that enlivens us. Rather than a drab reminder of where pigeons go to party.

Blog Review 863


Further proof that protectionism really isn't all that wise.

And other political ideas are even less sensible.

This talk about green shoots of recovery. Might it actually be true?

Although this might not be true in every country.

Climate change and global warming.

Wouldn't it be terrible if families just sorted it out themselves? Whatever it is?

And finally, a stimulus proposal we can really get behind!

Don't do it, President Obama


Dr Helen Evans, an ASI Fellow and Director of Nurses for Reform, has written an excellent new briefing paper for the Washington-based Heritage Foundation, titled Comparative Effectiveness in Health Care Reform: Lessons from Abroad. It assesses President Obama's proposals for the creation of an 'Institute for Comparative Effectiveness' (sounds sinister, doesn't it?) in the light of the British, Danish and German experience.

The key point that Helen makes is that the idea that government is intrinsically superior to a spontaneous and free market in healthcare is groundless – and that you only have to look at the UK's socialized system to see why. In particular, the government's reliance on coercion and 'cost effectiveness' has led to a system of rationing that most Americans would be appalled by.

It's an interesting paper, and well worth a read. It is clear to me that the US healthcare system is definitely in need of reform, but it's also clear that Obama's ideas are not the right ones. The real key to bringing down costs – and thereby widen coverage – is to stengthen market forces (allowing interstate competition, for instance, and introducing individual, rather than corporate, tax credits), not putting big government in charge.

The reins of power


On this day, February 6, back in 1952, Elizabeth II became Queen of the United Kingdom after the death of her father George VI. Britain was on the cusp between 'postwar austerity' and (in the words of a future Prime Minister, Harold Macmillan) 'you've never had it so good'. There was much talk of a new beginning; a new Elizabethan Age presided over by the young Queen.

It was a year of some interest. Prime Minister Winston Churchill announced that the UK had an atomic bomb. The Americans tested their own versions in the Nevada Desert. Nehru became leader of India. The Mau Mau uprising in Kenya led to martial law being declared. Former general Dwight D Eisenhower became President of the United States. The Mousetrap opened in London (it's still running).

One of the signs that Britain was indeed changing, however, was the abolition of Identity Cards. They had been introduced during the Second World War as an aid to national security. And people imagined that they would be ditched soon after. But the postwar Labour government of Clement Atlee found all sorts of reasons to keep them – mostly their ability to make life easier for state officials. Police would routinely ask for ID any time they stopped or questioned a motorist, for example, but in 1951 the Lord Chief Justice ruled that this was contrary to the purpose of ID Cards, and in March 1952, they went.

The last rationing, which had also hung on too long, went a few years later. Governments are never quick to give up their controls over our lives. But Churchill's government should be congratulated for doing so.

Cabinet Crisis


Tom Daschle and Nancy Killefer will not be joining Obama’s bipartisan cabinet crew due to their failure to comply with American tax code. Is the American tax code too complex that not even two successful and presumably intelligent politicians can figure out on what items they need to pay taxes?

Daschle is a former US senator and Killefer is an MIT graduate, they seem pretty capable to me. Or maybe it is too easy to cheat on them, it surely took the IRS a long enough time to catch these high profile figures. In Daschle’s case, it is difficult to believe his initial response of naivety to the tax dilemma. His combined failure to pay taxes on a car service, income on consulting work, in addition to an overstatement of tax breaks from charitable contributions trap him in a run of peculiar “oversights."

But maybe the tax code really is too difficult to follow, especially for citizens with above average expenditures. Nancy Killefer failed to pay unemployment taxes on domestic help in 2005, which added up to about $1000. For a top-level executive like Killefer, it is hard to believe that she would risk the future of her career to intentionally evade one thousand dollars in taxes.

A simplification of the US tax code could make life easier on both sides. Politicians will be able to properly account for all aspects of their extravagant lifestyles, and the IRS will have an easier time tracking them down when they do decide to cheat Uncle Sam. It’s a Win Win!

Brussels Dispatch: Human Action in action in the European Parliament


I mentioned in last week’s blog that one of my main duties at work is to draft the amendments to the reports and opinions that pass through the Development and Foreign Affairs committees. These are the two committees that the Viceroy sits on – commonly known here by their respective abbreviations DEVE and AFET. The Viceroy is an old nickname coined for Nirj by Fr. Michael Seed some 25 years ago.

An amendment works like this; the text on the left is the actual proposed text as drafted by the rapporteur. Members of that committee then mark in bold italics that part which they want deleting, and consequently, in the text on the right, they mark in bold italics that text which they propose to add. Both are then bundled together and taken as one vote in the relevant committee. In this way, we table amendments to delete the socialism and insert the laissez-faire. Sometimes, we even win.

Here is a good example from the past week – this amendment is to an opinion written by Mrs. Kinnock.

I would be very interested to see how Dispatch readers would have rendered this amendment.

Draft opinion

Paragraph 6

Draft opinion
Stresses that, as the financial crisis develops into a deepening recession, developing countries could be set back by decades as a result of falling commodity prices, lower investment flows, financial instability, and a decline in remittances; further notes that the value of existing EU aid commitments will fall by nearly USD 12 billion a year, because they are expressed as a percentage of Member State GDP Stresses that, as the financial crisis develops into a deepening recession, developing countries now have a historic opportunity to take advantage of the decline in Foreign Direct Investment flows by exploiting their competitive advantage of low labour costs – this is especially true at the present time when the existing EU donors are increasingly burdening themselves with such costs (minimum wage, employer social security contributions, union ‘rights’, over-regulation etc.) which can only serve to accelerate investment flight to the developing world


Blog Review 862


It seems that no one wants to use Burke's small battalions any more: to our increasing poverty.

Yes, it is true, Adam Smith really did predict Gordon Brown.

The bad bank proposal is even worse than you thought it could be.

Perhaps resolution (that's bankruptcy by another name) might now be better?

One more economist opposed to the fiscal stimulus.

Staggering: sales fall by 32% and market share rises?

And finally, well, and finally.

Savers and the interest rate cut


The general wisdom is that when economic conditions are this dire, you need to slash interest rates to get things to pick up again. To make borrowing cheaper, so we might all borrow and spend a bit more, and so that entrepreneurs will find it cheaper to finance new plant and equipment, and so boost production.

But interest rates this low can do more harm than good. Where does all the cash come from that these entrepreneurs and their customers are going to borrow? From savers, of course. But who in their right mind would save right now, when the interest you get is almost non-existent?

Well, say the economists, that will just encourage people to spend rather than save, which is what we want anyway. But they're wrong. Many savers, like pensioners, are actually living off their interest. They don't want to run down their savings, because they depend on the future interest. But they're getting less interest right now. So they are spending less, not more, which is just adding to the economic depression (sorry, slip of the tongue - recession).

Also, low interest rates push down the value of the pound. When interest rates are high, people abroad buy pounds to put into accounts that will capture the high rates. When rates are low, they figure they can get more interest elsewhere, and sell their pounds to buy other things.

Again, the economists say that's just fine, because a low pound makes our exports cheaper and soon we'll be selling a lot more and getting in some much-needed cash. But again, there's a downside. The government aims to pay for its vast bail-outs through borrowing. Well, I don't know about you, but like most of the country, I'm skint. They're not going to borrow it from me. No, they will be borrowing a lot of it from overseas. But who wants to lend to a decrepit country that promises to repay you in a decrepit currency? The government will have to offer much higher interest rates to attract the lenders it needs.

And there will be a lot of people looking at the UK and figuring that interest rates now have nowhere to go. The government's used up every weapon it has – apart from printing money and risking inflation. It's hardly a situation that would give anyone any incentive to back Britain. We should start composing our begging letters to the IMF now.

Sympathy for the consumer


 As you can see, the taxman has his hand in all our pockets...

After some research last week, I was able to calculate the average percentage of tax paid on some of the “sinful" goods purchased regularly here in the United Kingdom. Keep in mind that these percentages are estimates and only include direct taxes on the products, the VAT and Excise Taxes. I am currently calculating the average tax rates on the same goods in the state of California (to represent the United States’ mid-range for tax rates). I started off with a few popular pub drinks and continued with tobacco and fuel. The findings were quite alarming…

Click 'read more' to fnd out how much tax you're paying on wine, cigarettes, petrol, and more...