Monday, December 14, 2009

What's 'New' about this economics?

The New Economics Foundation, an anti-free-market thinktank, has issued a report claiming to assess the value of various professions (BBC). Are they credible?

Not on your nelly.

You might want to agree with them that hospital cleaners are worth more than bankers: the claim is that cleaners create £10 of value for every pound of pay, while bankers have destroyed £7 of value for every pound of pay. But wait a minute.

First of all, the bankers were responding to a market with government-structured incentives. The credit crunch which, as Gordon Brown reminds us at every available opportunity, began in the States, had as chief among its causes the government-sponsored enterprises Fannie Mae and Freddie Mac, especially since the US federal government had been using them as a tool of social policy to encourage people into home ownership who, frankly, couldn't afford to own a home. That was bad policy for banks, bad policy for the economy and extremely bad for those people who were mis-sold a home by Washington. The administrations which ran this crazy scheme thought they were being nice to the poor by encouraging them to own a home, but if those poor people have been forced into bankruptcy, then they are worse off than when they started.

So actually, it was politicians and regulators who destroyed all that value. But hey, let's keep blaming the bankers, even though at least one of the politicians has 'fessed up (link).

But here is the reason why I don't believe their results at all:

Tax accountants:
"Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate."
Is it really credible to say that a pound spent by a rich person generates no economic benefit while a pound spent by the government generates a pound's worth of economic benefit? Not a chance. The rich — at least, those whose riches come from their own business or exertions — rarely stay rich without being prudent and sensible. The government, meanwhile, spends your taxes and mine on such deserving projects as massive NHS IT projects, ID cards, public 'consultations' and state-funded recipe books. Labour government ministers are the real value-destroyers in the British economy.

The aim of this report is clear. Anyone claiming to know the 'true' value of someone's labour to another person is making a power-grab. They believe they are better placed to know what an employee is worth than the employer employing them. The end result is a group of experts — or, heaven forbid, politicians — directing the economy from the centre and determining wages and prices. New Economics? More like Old Bennites, if you ask me.

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