Economy & Tax

Patterns of sustainable specialization and trade

Adam Smith and David Ricardo explained the benefits of trade, based on specialisation and comparative advantage. These concepts, says Arnold Kling, also can provide the basis for explaining fluctuations in employment. In this paper Kling proposes that we jettison the Keynesian paradigm of aggregate supply and demand (AS-AD) in favour of an alternative paradigm, which he calls patterns of sustainable specialisation and trade (PSST).

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The law of opposites: Illusory profits in the financial sector

Accurate accounting is at the root of the legal and scrutiny framework; without accurate accounts basic laws are incapable of enforcement. This report argues that international accounting rules have given the impression of illusory profits on bank balance sheets, inflating bonuses and creating perverse incentives for banks to act recklessly.

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Hanging London out to dry: The impact of an EU Financial Transaction Tax

In a follow up his last report on the Tobin Tax, Adam Baldwin assesses the impact of the European Commission's Financial Transaction Tax on Britain. He draws on the EC's impact assessment and independent research and concludes that it would wipe out derivatives trading in the City, hurt economic growth and increase market volatility.

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How Basel III threatens small businesses

  • Basel III requires an increase in the size of banks' equity relative to their loans and a more formal assessment of risk. It is built on the same foundations as Basel I and II. The reasons why those initiatives failed may well apply also to Basel III, not least because the adjusment of assets for risk cannot be conducted with any certainty.
  • Soverign debts once considered safe are not necessarily safe any longer.
  • The rules agreed in September 2010 are to be phased in between 2014 and 2019 to give banks time to adjust. Most of the capital adjustment will come from banks lending less but better and with increased margins - that is, higher interest rates to customers.
  • Big companies will be able to shop around within the competitive international markets. However, in a situation where five big banks dominate the UK market, Britain's smal and medium-sized enterprises (SMEs) will be hit both by the reduced aviailability of loans and by higher interest rates.
  • Since SMEs drive the UK economy, the consequence of Basel III is negative for the UK.

Read the full briefing paper here.