Wednesday, 28 September 2011

50p Tax and Competitiveness

The current Tory-led coalition government, alongside economists, is currently pushing for a reduction in the highest bracket of income tax. Their argument is plain: the 50p income tax rate curtails growth because it works as a disincentive to entrepenuers, investors and talented workers, who would, consequentally, go abroad.

Frankly, their argument is little more than ideological cant and only engages with problems to the extent that solutions are ignored. Thus, I would like to present three points that covers a few of the basic errors in their view.

First, there is no consensus among economists (that is, academic economists) about the optimal tax rate, which is what, when we get down to it, we're actually talking about. The optimal tax rate, which is often explained by way of the Laffer Curve, is the highest tax rate that doesn't work to disincentivise investment, production and, well, work. The problem is that no-one knows quite at what point people become disincentivised (the highest point on the Laffer Curve.) Politicians and economists like to claim that it is lower than where we currently are, but studies vastly disagree and many point to an assymetric Laffer Curve with a optimal tax rate of 70% (although, mostly, it should be pointed out that work on finding the optimal tax rate is riddled with problems.)

Second, decisions to invest or to continue living in a country are, or at least I hope they are, not based solely on tax rates. Even if we were uncompetitve internationally (which we're not) there are many reasons why people would choose to invest or work in Britain. The motivations of people, like people, are quite diverse and not based solely on financial well-being. It may work as a disincentive, but we've got plenty of incentives so that it won't "wreck the economy."

Final point - and it's an important one - is that there are already systems that tax citizens regardless of which country they live in; it does not matter if people choose to go abroad. In particular, the US uses such a system. That's right - the system that many who oppose the 50p tax would like to see us emulate, has the solution. So, the threat to "go abroad" could easily be neutralised by policy change.

So, to sum up, even within economic thinking no-one really knows if a 50p tax rate hurts an economy by disincentising the population, non-monetary incentives exist and, in line with already existing policies around the world, it is an option to tax citizens regardless of state residence. The argument, then, for reducing the 50p tax rate has little foundation, but, in contrast, the argument for keeping the 50p tax rate, maybe even increasing it, is well founded.

Sunday, 18 September 2011

How the Political Focus on GDP Growth is Harming Society

It has long been held, in an unqualified manner, that economic growth is good. That is to say, that increases in Gross Domestic Product (GDP) - which is the aggregated market value of all the final goods produced/sold in a country during a year - are beneficial to society. As such, increases in GDP have become a central goal of political action, and decreases in GDP are seen as signs that an earlier policy was harmful. The logic has some merit to it: increases in GDP equate to increases in the economic activity in a country, if there is greater economic activity there are more jobs and more products, people are thus materially wealthier and there is more work for the unemployed - society is better off.

However, the focus on GDP growth and the logic supporting it is mistaken on several counts. Firstly, GDP was never intended as a measure of the good of society. Indeed, it's inventor, Simon Kuznets, on presenting GDP to the US Congress said that "the welfare of a nation can scarcely be inferred from a measurement of national income." To do so is to reduce the good of society to purely economic, market measures.

Secondly, as a consequence of the first point, that which is outside the market (i.e. not sold) is not considered. Instead, many things which are beneficial to society are not included. So, informal childcare arrangements, family housecare, home-made/grown produce, neighbourhood watches, charity support groups, sports teams, youth groups, etc are not included; are not, by users of the metric, counted as beneficial to society. Equally, many things that are harmful to society - crime, inequality, environmental damage, etc - are also not included in GDP. For example, an increase in GDP could be caused by a few people (say, bankers) getting significantly richer, rather than a more general increase in the welfare of society. Put together, increases in GDP could accompany a reduction in non-market factors that are beneficial to society and an increase in non-market factors that are harmful to society - GDP simply does not reflect them.

Thirdly, GDP growth does not necessarily equate to an increased numbers of jobs. GDP can be increased, without accompanying job growth, by increases in productivity or by the increased production of an expensive primary resource or service. Equally, GDP can decrease while the number of jobs goes up by movements from the production of high-market-value  products to low-value products (such as a company switching from financial services advice to growing potatoes.)

The essential point, then, is that GDP is not a measure of the welfare of society, nor is it a proxy measure. In itself, this point does not matter. However, that GDP growth is a central goal of political action means that the weaknesses of GDP have real world consequences, in that by promoting GDP growth negative outcomes can be encouraged. For example, in Canada the tar sands projects, which are destroying and degrading large areas of Canada and its environment, account for about 2% of national GDP. So, according to the "growth is good" mantra and in spite of any serious lasting damage the projects are doing, the tar sands exploitation equate to an improvement of the national well-being.

If we continue to follow this "GDP fetish", then environmental restrictions, consumer protections, mandatory safety features - regulations that can improve societal welfare - will  persist in being seen as costing GDP growth and thus as harming society, and activites that harm society will carry on to be seen as beneficial. What we will continue to do, then, is to set the cart before the horse - to favour "growth" over genuine progress.

Saturday, 17 September 2011

The Free Market Illusion

In Anglo-Saxon politics there are continued calls to "free" the market from government regulation, particularly in the US. Such moves are intellectually validated by right-wing thinktanks and economists, some of who believe in a free market to such an extent they even cheer when companies shut down; celebrating the creative destruction of the market. According to this diverse mix of rich white men, "red tape" unnecessarily limits the opportunities for business expansion and, as such, economic growth.

However, the argument is false as the free market does not, and can not, exist; the concept is an illusion often used to justify a rampant and destructive form of capitalism. The reason the concept is illusionary, as Ha-Joon Chang (Thing 1) states, is that "the "freedom" of a market is, like beauty, in the eye of the beholder." Put another way, regulations that people agree go unnoticed and so are not regarded as limitations on the markets, whereas regulations that people disagree with are noticed and thus labelled as restrictions on the market. Hence, arguments for the free market are merely utilising an illusion in order to justify one's own political beliefs.

Take private property rights in their current formulation for example. These could be seen as restrictions on the market as if the government instead understood land as communally-owned (as was the case historically) then businesses would, arguably, be freer to utilise a wide array of resources than in the current system, where land is privately-owned and limited to the uses of the owner. Current private property rights are also restrictions on the market in that they decide what counts as property. So, for example, it could be seen as a limitation of the free market in that businesses may not own slaves; that people do not count as property.

Government also limits what transactions are allowed to take place and what services can be offered. So, bribery, assassination or heroin-dealing, for example, could all be legalised if we were to free the market and harness the full wealth-creating powers of the market. Likewise, child labour laws and minimum wage laws place limitations on the market that limit the opportunites for business expansion and increased economic activity.

Interestingly, proponents of the "free market" are yet to express a desire to re-intoduce slavery, legalise assassination, bribery and drug dealing, and allow children to work for pittance wages. The reason for this oversight is that these limitations are not considered limitations at all because they agree with the need for these regulations and so do not notice the continued operation of these laws. On the other hand, environmental protection and health and safety laws (which, frankly, if you go into the history of, are very much justified - just think Victorian work houses) are considered limitations on the free market....because free marketeers simply disagree with such restrictions.

Extending the logic, it would appear that any law or regulation that the government passes can be considered a restriction the free market. As such, a "free" market requires no government and no law - to free the market, one must destroy the state, law and authority. Once anarchy is achieved, then business will be free to pollute, kill, maim and destroy as it pleases, and we will all bask in the warm glow of the market.

Friday, 16 September 2011

World Shocked: Pakistani-born Woman has Critical Opinion of Muslims

In a shocking expose in The Daily Mail, Pakistani-born (actually British India-born) Baroness Flather writes of how the benefits system is being cheated by polygamous Muslim families, delivering line-after-line of body blows to those who support a welfare state and confirming what those who read The Daily Mail have always known.

Course, there's a few small problems with her views (why else would I write about it?) The article's argument starts off with her sketching a hypothetical situation -
For example, a Pakistani man contracts a marriage in his native country, and then brings his wife to England to start a family. Because they have been married only under Islamic law, she isn’t legally registered by British authorities as his wife. Even so, they are able to claim child benefit for any children they have.

But the state handouts do not end there, for under Islamic Sharia law, polygamy is permissible. So a man can return to Pakistan, take another bride and then, in a repetition of the process, bring her to England where they also have children together — obtaining yet more money from the state.

Because such Islamic multiple-marriages are not recognised in Britain, the women are regarded by the welfare system as single mothers — and are therefore entitled to the full range of lone-parent payments.
.....and that's pretty much it. That's her argument on polygamous Muslims ripping the taxpayer off in full. Nothing more. Nada. Zip.

That this hypothetical situation contains many unfounded assumptions (that all Muslims believe in Sharia law/polygamy, that people are solely motivated by claiming benefits, that it would be easy for an unmarried (in the view of UK law) Pakistani woman to move to the UK) isn't the biggest problem with this view. The biggest problem is that it is assumed that because there is a hypothetical incentive in place people will actually do it and follow her line of reasoning; that a hypothetical argument adheres to reality.

Following from her hypothetical argument she moves on to hard empirical facts.
Figures are hard to obtain, but it’s thought there may be around 1,000 polygamous families living in the UK, costing taxpayers millions of pounds a year.
You read that right: all she does, it appears, is pull a statistic completely out of her arse. Also, at this point, we're clearly meant to ignore that the (made-up) statistic doesn't even cover what she's talking about and can't be linked to costing taxpayers. We're meant to ignore that polygamous families could support themselves without the welfare state and that polygamous families could not be Muslim. Instead, we're meant to just assume that the statistic links up with her hypothetical situation.

After throwing in an anecdote (see the line "A friend of mine") she's clearly feels that her point is well-established and so moves on to complaining about how her voice is being drowned out by political correctness and how, in line with her libertarian sentiments, the welfare system should work to limit the size of families. Eurgh.

What really gets me about this article, though (beyond the complete and utter lack of evidence backing it up) is the assumption that being a secular Pakistani-born person makes someone an authority on Muslim welfare dependency in Britain; that hers, because of where she was born, is the voice of truth. It is a crude attempt at an appeal to authority that would be akin to this entire post instead reading "British-born blogger says British newspaper, The Daily Mail, is full of lies and not fit to wrap chips in."

Course, I actually have evidence to back that up.

Thursday, 15 September 2011

White Collar Criminal Arrested!!!!!

Yes, the use of five exclaimation marks in the title is justified. Suspected UBS rogue trader Kweku Adoboli has been arrested today in connection with a trading incident that is estimated to have cost UBS £1.3 billion ($2 billion.) Presumably, if found guilty he will, like his forebears before him, face a prison sentence of 4-8 years.

I do wonder, where were the arrests when the bankers cost the taxpayers of Britain an estimated $1.3 trillion? Are we just to ignore criminality, criminal negligence and individual culpability when it takes part on a grand scale and only ends up cheating the public out of money?

Of course we are!

Wednesday, 14 September 2011

9/11: The Scale of Tragedy

The ten year anniversary of the terrorist attacks of September 11th have just passed, marked by the many services honouring the near 3,000 dead - including the memorial at Ground Zero where each of the victims names were read out and then followed by the ringing of a bell for every one of the fallen. The sombre reflections this macabre anniversary invoked were moving, humanising and emotive, with one commenter on BBC News described the attacks as an example showcasing both the best - in the heroism of those who risked their lives to save others, and the global outpouring of sympathy afterwards - and the worst of humanity.  The terrorist attacks of 9/11 against civilian targets (and the Pentagon) were a tragedy, no doubt about it.

But the greater tragedy of 9/11 is that it is a lesson in perspective. Distorted perspective, that is. When disasters - man-made or otherwise - occur there is a global outpouring of sympathy, of concern, of help. When an event happens that gets the cameras rolling, that the media can ascribe simple motivations for, and where victims can be clearly identified, people come together to offer support. Such was with 9/11, the tsunami, the recent earthquake in Japan. At a very basic level, humans care about the lives and deaths of people they don't know.

This distortion in perspective comes from the failure of the world to notice the quiet, on-going and complex problems that are responsible for far greater numbers of deaths. UNICEF estimates that 9.7 million children under 5 die every year from preventable causes. For these deaths there can be no excuse that blames the individual; these are children and not accountable for their well-being. Where are the names intoned and bells rung for those who die in such circumstances? Instead of their names being honoured, these victims repeatedly die unknown - unemoted about and not humanised - to the world at large and, consequently, no lessons are learnt from their deaths; nothing is ever done because of their expiry.

The failure to utilise the good will of humanity to stop a scale of infant death in proportion to 9/11 every three hours is a failure of global political elites, particularly those in the media, to draw attention to issues of concern to the whole of humanity. Instead, the media prefer the spectacular to the important, the trivial to the serious, and the simply-explained to the complex. As long as such an editorial line is the norm by the majority of the media, political debate will continue to be about petty distractions instead of issues of real import.

As I said above, 9/11 was a tragedy. However, it is a tragedy that has highlighted both the capacity of humans to care about others, and the fact that, in ordinary times, people are not cared for, or about. Since, in spite of the protestations of the most cynical of people (politicians, economists, neoliberals), humans are capable of caring for people other than themselves, it is about time that this capacity of humanity is put to work for the good of humanity, instead of accepting the trivial distractions that entertain and divide us at present.

Tuesday, 13 September 2011


Welcome to the first (real) post of The Ordinary Times. The intention of this blog is to question the world, (especially British and American) politics and, most importantly, the assumptions underlying political arguments; it intends to cut right to the heart of the matter in a manner to which normal political discourse does not. This approach, particularly the questioning of assumptions, is increasingly necessary due to the dominance (and lack of competitors to) a mainstream neoliberal orthodoxy that constrains thought and comes with a number of received (and highly questionable) truths.

Anyhow, this post is really just a welcome; proper content should be on the way soon.