Picking out conservative Presumptions: A Daniel Hannan Story

I still don’t generally check everything i post up here… but I should… it’s the bloggers responsibility to do so…just because you’re not misinforming your readers about what the other person said, doesn’t mean he wasn’t misinforming his own.

Nothing quite convinces me like a solid econometric model… i will eventually start doing my own but for now… i ran into this famous guy here… a very loud conservative who has been boasting lately about how he was right with his warnings about quitting the euro. I don’t really label myself as a liberal or conservative, i mostly just want a society where people are happiest… and I can defend that in a number of ways.

With the link posted above Daniel Hannan tries to convince his readers to follow his conservative path… let’s see if I’m conservative by the end of this post. So here we go:

1. Free-marketeers resent the bank bailouts. This might seem obvious: we are, after all, opposed to state subsidies and nationalisations. Yet it often surprises commentators, who mistake our support for open competition and free trade for a belief in plutocracy. There is a world of difference between being pro-market and being pro-business. Sometimes, the two positions happen to coincide; often they don’t.

I would have liked a clearer explanation between pro-business and pro-market, though so far it’s fairly neutral… I have always had difficulty buying Keynesian’s arguments.

2. What has happened since 2008 is not capitalism. In a capitalist system, bad banks would have been allowed to fail, their profitable operations bought by more efficient competitors. Shareholders, bondholders and some depositors would have lost money, but taxpayers would not have contributed a penny (see here).

How much does the central bank guarantee from deposits anyway? I think in the US its $85,000 per person. Now about this allowing to fail thing… it seems to me that these banks are profitable again… and it’s not like GM (which was also bailed out and profitable again) where the pieces and set up could just be bought by other entities should it have gone under, since the unique selling point of banks is their people, and going under probably means restructuring and firing, which would eliminate the only unique selling point of the bank. Also i would like to see a complete study on what could have possibly happened to various stakeholders with and without the bailout to make up my mind.

3. If you want the rich to pay more, create a flatter and simpler tax system. This is partly a question of closing loopholes (mansions put in company names to avoid stamp duty, capital gains tax exemption for non-doms etc). Mainly, though, it is a question of bringing the tax rate down to a level where evasion becomes pointless. As Art Laffer keeps telling anyone who’ll listen, it works every time. Between 1980 and 2007, the US cut taxes at all income levels. Result? The top one per cent went from paying 19.5 per cent of all taxes to 40 per cent. In Britain, since the top rate of income tax was lowered to 40 per cent in 1988, the share of income tax collected from the wealthiest percentile has risen from 14 to 27 per cent.

Now this is where i start getting skeptical, the link has no source to back up his point… it’s just someone agreeing with him. Also the numbers he quoting (apart from not knowing his source) are ridiculous, assuming they are true… they don’t tell us jack shit. Could it be that during that period, which is about when real wages started stagnating, the rich were paying a higher proportion because corporations were making record breaking profits? The rich weren’t paying more of the taxes by the magic of flat tax, they were EARNING ALOT MORE.

4. Those of us who believe in small government are not motivated by the desire to make the rich richer. We’re really not. We are, in most cases, nowhere near having to pay top rate tax ourselves; our most eloquent champions over the years have been modestly-paid academics. We believe that economic freedom will enrich the country as a whole. Yes, the wealthy might become wealthier still, but we don’t see that as an argument against raising living standards for the majority.

I’m not sure what to say this except… this, it’s not good enough to just get people out of poverty. What people care about is their relative wealth, and making inequality go higher will cause misery. We always unconsciously compare ourselves to the top, and with the globalized era being televised, it’s even more obvious.

5. We are not against equality. We generally recognise the benefits in Scandinavian-style homogeneity: crime tends to be lower, people are less stressed etc. Our objection is not that egalitarianism is undesirable in itself, but that the policies required to enforce in involve a disproportionate loss of liberty and prosperity.

Loss of liberty and prosperity for whom? The rich obviously right? The video at the end of the link he posted is the most ridiculous thing i have seen this week. If you’re really worried about the small business owner AND about inequality… how about you set up a new system and Tax accumulated wealth, this would mean that if you have a really good year, the high tax rate would not eat it up, there see? Protect the masses, protect the small business owners! Also studies show that well paid workers are more productive workers… imagine if everyone in the economy was well motivated? That would be real prosperity.

6. Nor, by the way, does state intervention seem to be an effective way to promote equality. On the most elemental indicators – height, calorie intake, infant mortality, literacy, longevity – Britain has been becoming a steadily more equal society since the calamity of 1066. It’s true that, around half a century ago, this approximation halted and, on some measures, went into reverse. There are competing theories as to why, but one thing is undeniable: the recent widening of the wealth gap has taken place at a time when the state controls a far greater share of national wealth than ever before.

It’s easy to make such a statement but there’s no evidence of causality, these presumptions are terrible… imagine setting up a policy based on this… read Krugman on this… it’s not voluntary state intervention, the state is taking a larger share because people are suffering…

7. Let’s tackle the idea that being on the Left means being on the side of ordinary people, while being on the Right means defending privileged elites. It’s hard to think of a single tax, or a single regulation, that doesn’t end up privileging some vested interest at the expense of the general population. The reason governments keep growing is because of what economists call ‘dispersed costs and concentrated gains’: people are generally more aware the benefits they receive than of the taxes they pay.

At the expense of the General population? I’m glad he doesn’t use the word Majority because… oof that’s a close one. Let’s be theoretical about this, there’s over a thousand Billionaires in the US. Some of them have more than 1 billion too, that’s a trillion dollars… the cuts they were discussing of making the other day would save 50 billion(just to put it into perspective), with that kind of money you could send 5 MILLION people to higher education(purely theoretical of course).

8. Capitalism, with all its imperfections, is the fairest scheme yet tried. In a system based on property rights and free contract, people succeed by providing an honest service to others. Bill Gates became rich by enriching hundreds of millions of us: I am typing these words using one of his programmes. He gained from the exchange (adding fractionally to his net worth), and so did I (adding to my convenience). In a state-run system, by contrast, third parties get to hand out the goodies.

The state isn’t running the system, its correcting it… its VERY contradictory that he talks about, property rights and free contract… when those are in themselves government intervention.

9. Talking of fairness, let’s remember that the word doesn’t belong to any faction. How about parity between public and private sector pay? How about being fair to our children, whom we have freighted with a debt unprecedented in peacetime? How about being fair to the boy who leaves school at 16 and starts paying taxes to subsidise the one who goes to university? How about being fair to the unemployed, whom firms cannot afford to hire because of the social protection enjoyed by existing employees?

At a time in history the difference between private and public pay weren’t so big… but ever since the private sector started not sharing profits, this has changed. Also the public sector does have job security factored in… The capitalist system is the one filling in debt; private education is draining the poor… Capitalism created poverty which the government tried to correct (admittedly not well done) by subsidizing sub-prime loans and reducing debt.

10. Let’s not forget ethics, either. There is virtue in deciding to do the right thing, but there is no virtue in being compelled. Choosing to give your money to charity is meritorious; paying tax is morally neutral (see here). Evidence suggests that, as taxes rise, and the state squeezes out civic society, people give less to good causes.

See my previous post for this one

Anyways if your still… hope you enjoyed it or at least learned something about critical thinking!

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Why tax them? they are humanitarians after all!

edit: the original article is here

The NYT had a nice and shiny article telling us about how many butterflies circle around the rich with their humanitarian contributions. There was a moment where i thought the tone of the article would change…

Officials in New York and Newark say the money from private sources will not replace existing public programs

But then the rest of the sentence had to follow

but will instead allow rapid experimentation with new approaches to old and seemingly intractable problems,

Yes of course these Billionaires are the new innovators and help us out a lot. But wait they get tax benefits… actually…do you know who was complaining when Obama was trying to end Bush era tax cuts? take a wild guess…no? Charities! Because they know that these billionaires aren’t doing these contributions out of the goodness of their hearts, and it would signify that less money would be donated.

Additionally contributing to charity in public and loud ways creates media attention, and if every person had a balance sheet, that would increase the “intangible assets”. Its not unilateral the benefits they obtain are substantial, heck i bet companies would pay(if they haven’t already and i am not aware of it) Zuckerberg millions to be in their adverts in the hope that his good name will rub off on them.

Here’s the piece de resistance of that sentence!

at no cost to taxpayers.

It might be true that these billionaires might discover more efficient ways of using the money, but if they are really worried about efficiency I imagine that people with their statures can easily advise government on effective uses, but the approach they are taking is one that attacks democracy, as few non-elect people decide how to best help the many. You don’t buy it? Well here’s another interesting thing i read here

Depending on the relevant tax rate, the dollars contributed to philanthropies by the wealthy could lead to losses of government revenue of as much as 50 percent of the money contributed.

It does harm democratic governance… if then the government is getting less significant sums of money from these loopholes, then who can make up the difference? that’s right the Taxpayer.

The Fat tax!Should we punish individual freedom?

If you haven’t heard yet Denmark started the world’s first so called “fat tax”. Read up on it here . From a business point of view, this is a crippling approach, since the extra cost could mean it would be more profitable to produce in another country and import it back to Denmark. Even though the ERM II mechanism is present, there is still a conversion cost which makes the tax more viable. But if Denmark does eventually adopt the Euro, it would probably not be sustainable any longer(though perhaps by that time there will be further integration which will negate any loss in one countries trade deficit).

But the more interesting part is… does it make sense on a moral perspective? Depends on your point of view really… are you the kind of person who waits for his friends? or would you leave them behind if they slow you down? Assume the first option, how different is a “friend” from someone unknown to you, someone from the same country? I for instance don’t have much sense of nationalism and i don’t feel particularly closer to any one from my country of origin. So no i would not want to pay extra in taxes to accommodate health care just so someone will else can exercise their freedom to eat, the fact is, their freedom is weighing down on my wallet, and with less money, i have less options, and consequently my own individual freedom is  constrained.

I am not more sympathetic to someone with a choice to do something than i am to someone who has not, like a poverty stricken child just because the latter is not born or inhabiting the same km squared land(measured not even by proximity to my home, i might be living closer to another nationality than this person).

In fact you gotta punish the reckless behavior in some way, even if this is not the right way, it represents a new framework for thinking about how to stop this projection, half the US population will be obese by 2030. That’s 65 million more obese people in the US, additionally there will be 11 million more in Britain.

Being fat isn’t cheap either, although its not a very conclusive econometric study, this one, absenteeism could be costing about 1% of US GDP per year. If this effect were true, it would be much smaller in Denmark and Britain, but perhaps its much more appropriate for Denmark to apply it because poverty isn’t nearly as big a problem there(though GNI per capita is higher in the US, inequality is too, which leaves more people with less flexibility in their choices).

Using weight to adjust prices isn’t a new thing, we probably already have the infrastructure to do it, though only the ballsy RyanAir dared do this before by having weight based fees. In any case here’s a link arguing that its dystopian if your interested in reading more.

So whats the final note? well for me Taxing those who are going to use a higher proportion of healthcare makes sense. But the method employed is not very efficient because it creates this import advantage. Using guidelines which you can find here, its easy to just tax fat people directly. Taxing fat people directly for being fat is more efficient than taxing their food since if someone can get away with eating fatty foods(by keeping a balanced lifestyle, or winning the genetic lottery) why should they be punished? Of course people who are genetically fat, would be exempt again… they never had a choice.

Inequality and Milton Friedman… presumptuous idealism

So these videos have been going around… and it being Milton Friedman… everyone just nods to these comments…

Although i agree with this chaotic feeling, the message one should get is… we don’t know. People don’t know how long they will live, and assuming they will be spending a certain % of their wealth per year according to how many years they have left is very much reaching. Going about this in such a presumptive manner is a non-enlightening way of looking at the world, we don’t really know what would happen, we have no evidence to suggest that a family based society is more creditworthy than an individualistic one. In fact there is not even a guarantee that it will turn individualistic, maybe people will just find alternative means to give money back to their families. This is all to say that I don’t know if I believe in inheritance tax , however maybe in a society with 100% inheritance tax they would not believe that reducing the inheritance would be the answer either. What I do consider thought provoking is that such a system would probably reduce hoarding of cash.
The free market isn’t perfect, why would the free market create unconditional institutions that would educate for free? The Free market as powerful a force as it is, needs something back, whether it be something now, or something later with interest, an interest much higher than expected because not all of the children will be able to make money back, and so the interest expected will be weigh down the ones that did. Taking a child to a high quality school, in exchange for a proportion of his future income, will still create inequality due to the interest he or she would have to pay that the richer child would not. Additionally there is also a moral slave issue here where we would be forcing the child upon a certain path for the rest of his life. You could argue that the risk can be taken in by other investors, as a form of securitization, but if government subsidies are required to motivate sub-prime mortgages, and even then they create such a crisis what reason is there to believe something much bigger in scale and much riskier would be better?

How bout an end to minimum wage? Real Wages in the US have stagnated for a few years now, and there is no evidence of the skill gap increasing. The market does not perfectly allocate skill with wage, a large factor is luck. Profit in enterprises has shown to have an upward bias, and the market creates a never ending friction between the employer who wants to pay the least amount possible, and the employee who wants to receive the most amount of money possible. The end of minimum wage just gives the employers more leeway.

Life Expectancy Bump or Peak?

I keep reading about the peak of Life Expectancy in the US… catch up here. This is ridiculous phrasing, Life Expectancy hasn’t Peaked, there is merely a bump in the road.

Why has it decreased? People are eating unhealthy food.

Why are they eating unhealthy food? Because its cheap and they can’t afford more luxurious dining.

Why can’t they afford it? Because they are poor.

Why are they poor? Because real wages have stagnated

Why have they stagnated? Increased corporate profitability has not been shared equally.

What can we do? When capitalism fails, the big guns come in, Government must act. Measures to tackle inequality must be taken. Chile’s concept of “Unidad De Fomento” must be adopted, indexed units of account, are the key to protecting the consumer from the “money illusion”. Read up on it here. It is the most innovative way to keep purchasing power constant.

China… something new? Or is Einstein’s insanity nearby?

I’m going to talk about China for a little bit, its going to range quite a bit though… so i apologize.

There’s seems to be a strange communist movement arising from China’s recent surge in the news, being hailed as the next super power… and it is amazing how well they keep their balance of trade in check with such a well bolstered export economy. But is China really spectacular in its exports? i mean basic arithmetic suggests otherwise the only thing we need to take into account is their population. They are a sixth of the world’s population, which is over 16% of the world. Now China’s share of World export is not anywhere close to that number… you could say its still developing but wait until you read further.

China’s main advantage is its labor costs, and with that growing in double digits, its very hard to imagine this advantage remaining for long , this effect will also have currency as a catalyst if China decides to listen to western pressures to stop using a fixed exchange rate.

There’s also a wide perception that China’s surplus is what’s leading its growth. In truth the trade surplus is less than 10% of its GDP with over 50% being domestic consumption.

1 per cent per year… this is two things, the share of the economy that is privatized every year, 2012, will be 50-50. Can you really call them a communist economy now? And the second is the % of people living in Urban and Rural, every year 1 per cent of people move to Urban areas where the opportunity is greater.Which brings me to my next point area of interest: China’s distributive power… it may seem that China is a very unequal country by just looking at the GINI, however its not so much the systemic structure of the economy that causes this so much as it is the geographical structure, within rural areas inequality is nothing outlandish and probably is close to the western structure, the same goes for Urban areas, however when you juxtapose them and look at them in tandem the GINI jumps.

Here we see a comparative study of China and US in terms of money illusion, are its people better educated? probably not then why is the money illusion in China much less prominent? Well in my opinion it helps that the currency is artificially controlled… but this article here has a much more ornate view on this and concludes its to due with less inflationary pressures due to the cycle of the country’s development.

Lastly this study here, discusses China’s openness as a main variable for contributing to its growth and compares it to Mexico, here’s the conclusion:

Absent serious reforms in China in such areas as the financial system and contract enforcement, we expect economic growth there to slow down sharply at some point. It is an open question whether or not this slowdown will occur when China is still behind Mexico in terms of real GDP per working-age person. In fact, in the 22 October 2011 edition of the Economist, one articlepoints out the fragility in the Chinese financial system, while another asks whether China can avoid a hard landing when its economy starts to slow down. It is worth reflecting on the 1982–95 crisis period in Mexico that followed its rapid growth from 1952 to 1981.

China, like Mexico did, has a weak financial system, and without it, this growth will surely slow.

The later you open up, the quicker your growth will be, probably due to technological advances that you can just skip to. I.E you can skip the tapes and the dvd’s and go right to Blu Ray and HDMI. Especially when your like China and have very little respect of Intellectual Property. Does this suggest all countries should wait? Of course not, the only reason the growth is this fast is because they lagged behind and only joined the WTO in 2001. The growth is fast but its people are still relatively poor(in PPP terms), and just like other developing countries, it will reach the point where it will slow down, i have doubts they will surpass Mexico’s GDP per capita any time in the next 10 years.

China is doing great, sure, but the general consensus is that its unsustainable, even by the Chinese government itself, whose 12 year plan basically openly admits this and is structured for change.

Its impressive that your son gets a mm taller every day, but don’t forget to look at their accumulated height… if you believe the media’s expectations of China’s growth, then you should also believe that all our kids heights will exceed 3meters in due time. If not then congratulations, you’ve realized adolescence isn’t forever.

What’s the point of Higher Education?

If your still wondering… then there’s probably some idealism at play here. The point of Higher Education is to create value for the society which established it. If a model of government subsided education is not sustainable then leave it to privatization to determine if it is in fact worth its weight in gold.

There’s an overwhelming amount of hogwash in Britain about the rising fees and interdepartmental funding. This might not even be going far enough…

Nobody wants to graduate and left wondering why they still can’t find a job… overwhelmingly it seems like one of the reasons employers are no longer hiring, is because there is a lack expertise among graduates. China’s new program here will issue cutting of subsidies if a program fails to find jobs for at least 60% of its graduates in the last 2 years.Although this approach is probably not perfect, it is the first step we need into rethinking how to set up our education.

Cheap(or free) education is important because it allows income and social mobility but when that education is non value-adding(and hence with limited prospects), perhaps it should be only for those who have the money and time to spend… for the rest of us, we need to focus on making sure we can bring food to the table by giving back to society. I.E i have great respect for Film Makers, and there are people who make it out there, however the vast majority do not, and with the development of the internet technologies the “winner take all effect” is taking place. With such a high rate of failure, only those who can afford to take this risk should do so. Government should only subsidize programs that are known for their value adding abilities.

If this approach is taken, in the long run, every degree will have an equal chance of yielding success, government need only offer support to make this happen. The alternative of private education will create too much inequality as seen in the US today.

A note on my beliefs

I consider myself to be a fairly objective person who only uses empirical evidence and sound logic to evaluate ideas. However there is one presumption or ideal i have in place, though i have no real clear idea of how i would want it to be.

It is this:
Assume your about to be born, anywhere is possible, you could be some Hollywood star’s kid, the Milk man’s daughter, or some poor starving African family’s son. What should you fear?

Two things, poverty, and inequality(especially with studies showing that happiness is to linked it).

Inequality, my great assumption is that it is a terrible thing, and although i don’t strive for complete egalitarianism, i do believe that no one person should be a thousand times better of than another on this world. Why is Zuckerberg net worth over a million times more than some child in Africa? especially when creating Facebook is not even a feat of great talents… i would say that 90% of computer science grads would be able to create it too, Mark was just struck with the luck of circumstance.  The right place at the right time…