Councillor David Faulkner, former Newcastle City council leader, said: "I would have preferred a bold decision that made the entire region one big enterprise zone, so that we don’t just see jobs being relocated within the region, which is a risk. Instead, we could use the enterprise zone to see jobs being relocated from elsewhere in the UK." (src)Dear me, Coun Faulkner, why set your sights so low? I would dispute strongly the zero-sum language of 'jobs being relocated', but the idea is sound: the enterprise zones will create some economic growth in and around the areas where they are set up. So I ask again: why such low ambitions?Setting up enterprise zones suggests quite strongly that enterprise is in the doldrums, and that government is getting in the way. So let's make the whole country an enterprise zone. It's nice to see Lib Dems so persuaded about the benefits of supply-side reform in their region: time to see them apply the same reasoning to the entire UK.
Wednesday, August 24, 2011
Friday, August 19, 2011
Yes folks, it's true. I have the link to prove it (link).The back-story is Stagecoach's £340mn distribution to shareholders. The company has generated a pile o' cash and has paid off a shedload of debt. More, in fact, than is fashionable, so it intends to shell some cash out to shareholders to make itself a bit leaner of balance sheet.Of course, your average Guardian reader is utterly uninterested in the workings of the capital markets , and so does not realise that (for example) shareholders can elect to take their share of the distribution in any proportion of income and capital they wish (src). (Some have been calling it a 'dividend': for some this will be true; for others, less so. For holders in pensions or Isas, this will be irrelevant.)Others, I suspect, do not quite comprehend what would happen if the payment were 'blocked'. This almost certainly includes the Guardian staffer who thought up this bizarre question. For the company would have access to borrowing facilities it wasn't using. (I thought current Guardian economic, um, 'thinking' was that companies' balance sheets ought to be stuffed to the gunwales with debt.) Now, the directors have a legal duty to use it to further the interests of shareholders, which would entail using those facilities expanding Stagecoach's market share and other activities I am quite certain the Guardian readers would dislike intensely.It is one thing to question whether rail franchises should be, in effect, Crown monopolies. Some Groan readers seem perilously close to this view (I say perilously, since to hold it would imply supporting liberalisation, not nationalisation). But if the company has earnt its revenue legally by conducting itself in a commercially sound manner, with all due probity — if, in short, it has earnt it well — then why should Guardian readers object to its shareholders receiving their compensation as owners and suppliers of capital? After all, they would be most put out if its employees had their salaries blocked. I imply no slight. It is perfectly fine to be utterly uninterested in the workings of the capital markets; taking an interest is very much a minority sport. But if one is so uninterested, then one ought to avoid holding strong opinions on them, for fear of being caught believing something not only contrary to fact, but also to good sense.I neither hold nor intend to hold shares in Stagecoach.
Thursday, August 18, 2011
Warren Buffett wrote a column the other day. (Why he can't stick to being a fantastic fund manager, I'll never understand.) He made two rather curious claims. Well, curious when taken together. Watch.
Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends. I didn’t refuse, nor did others. …Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent. (src, excerpted and re-paragraphed)So in the first paragraph, he claims that the Laffer curve doesn't exist. But, um, what about the second?Gee, even I can tell, without the aid of an electronic calculating machine, that 21% of $91bn is going to be rather more than 29% of $17bn. So they cut the rate and the receipts went up.Of course, this needs caveating. The biggie, as usual, is that you can't say anything about causality. Moreover, there is an issue to do with netting off background growth over the period. But still, it is fairly clear: Warren, you just found yourself some prima facie evidence of a Laffer curve, and tried to use it to claim there is no such thing. Well done. Now, go back to identifying undervalued stocks. You're good at that; not so good at logic or economics.
Tim Montgomerie, of ConservativeHome, writes in the Groan:
My second idea would be to rebalance the tax system in a way that will be less comfortable for some Conservatives. Britain taxes income quite highly and wealth hardly at all. In other words we are taxing job creation more heavily than we are taxing inequality. (src)Except that this isn't true, of course. Taxes on income are not taxes on job creation, since the burden is borne by the employee. Income taxes tax labour, decreasing the rewards enjoyed by employees for their toil. Raising income taxes decreases (at the margin) supply of labour, rather than demand.However, taxing wealth would be taxing job creation. That is, unless you think that capital only ever lies unused and inert. When capital is deployed, it is used to employ people in pursuit of profit. The profits are then split between the provider of the capital and the provider(s) of the labour. If you tax wealth, you decrease the amount of capital available to employ people. This is exactly the definition of a tax on job creation — not to mention attacks on job creation. Cut into capital, and you cut demand for labour.Sorry, Tim: economics says No.
Monday, August 15, 2011
This is where the paradox of thrift comes in:
Like most of sub-Saharan Africa, the informal sector is massive in Mozambique, but the profits are rarely deposited. The government says if they were that cash could help banks provide loans to other businesses, which could in turn create jobs. (src)Even with the calamitous nature of the banking crisis in the West, I don't think our economic infrastructure has hit Mozambican levels. There's no paradox here between saving and economic growth.For your added amusement, here (link) is Paul Krugman making a very similar point, back when he was a proper economist. Feel free to discuss answers to the following question: "Richard Dawkins is to biology as Paul Krugman is to what?"