You don’t have to be a non-dom to avoid paying income tax. Over the last 12 months, I’ve paid less than 10% tax and national insurance on my income. This isn’t because I’m a non-dom – I haven’t been abroad for 15 years – or because I have a fancy accountant. continue reading… »

This effort from John Redwood seems to contain many of the errors that arise when economic thinking is subordinated to party political motives: confusion, lack of empirical evidence, and an over-emphasis upon the importance of policy.

He says:

Borrowing is deferred taxation…
Taxpayers will have to help repay all that debt with interest in the years ahead. They know that means tax increases to do so. More borrowing can make people more negative about spending up to their current incomes.

A reasonable hypothesis – though he doesn’t provide any hard evidence that this is actually happening. But then he says:

Much of the money the government is borrowing will be lent by banks. This is money the banks will not then be able to lend to the private sector…No wonder money supply growth is weak, and no wonder the private sector finds it difficult to borrow enough at a sensible rate.

There are two problems with this claim. continue reading… »

The BBC’s proposal to cut 6Music and the Asian Network is, I fear, a portent of coming cuts in government spending – because it shows that when a top-down organization makes cuts, it does so on the basis of power, not efficiency.

Put it this way. If the BBC were to restructure itself according to public service broadcasting principles it would abolish BBC3 (£115m a year for a pile of crap), privatize Radio 1 and possibly Radio 2 , and stop paying huge salaries for “talent” – though the fact that Anne Robinson gets £3m a year suggests this word is used very elastically.

So, why does it leave all these alone and target instead two radio stations which seem to fulfil the public service remit by offering things which the commercial sector probably wouldn’t? continue reading… »

Here are three stories which are more closely related than they seem. First:

Workers judged to be lonely and to have a chaotic home life could be barred from working with vulnerable people, even though there is no evidence that they pose a risk, according to guidelines from the Government's new vetting agency…
If a teaching assistant was believed to be "unable to sustain emotionally intimate relationships" and also had a "chaotic, unstable lifestyle" they could be barred from ever working with children.
If a nurse was judged to suffer from "severe emotional loneliness" and believed to have "poor coping skills" their career could also be ended.

Second:

People who inform on benefit cheats could be given a share of the resulting savings to the state under proposals being examined by Labour’s manifesto team.

Third:

Shares in state-owned banks would be offered to voters at a discount as part of a Tory effort to encourage young people and those on modest incomes to invest, George Osborne has announced.
The shadow chancellor said his "people's bank bonus" would reward taxpayers for the £850 billion ploughed by the Government into propping up crisis-hit financial institutions.

The common theme here is that these stories show that the state is not a rational force for justice, but rather a means of bullying the vulnerable whilst handing cash over to its favourites.
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It’s common for some people to have excessive faith in the power of markets. It’s also common for others to be excessively hostile to them.

Congratulations, then, to James Purnell – because, in a fantastic example of triangulation, he has committed both these errors. He says:

Markets are a wonderful tool: innovative, wealth-generating and elite-busting. But sometimes they don’t serve society. We should bring back the old usury laws so no one need fall victim to loan sharks. We should campaign for a living wage so that no one who works hard ends up in poverty.

These are silly proposals. If we outlaw usury, we won’t abolish loan sharks, but encourage them. Banning usury means that legitimate lenders won’t lend to bad risks because they‘ll not be able to charge a high enough interest rate to cover the risk of default. Such people will therefore turn, as Joe did, to loan sharks. If you criminalize sub-prime lending, criminals will become sub-prime lenders.
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The 193 governments that met at Copenhagen were unanimous about one proposition. And it’s a remarkable one – that whereas anarchy is a bad idea within national borders, it’s a good idea across borders.

The anarchist says: “We don’t need government. Private contractual agreements between individuals are sufficient.” No-one at Copenhagen agrees with this when they look within a national boundary. But they all agree with it, when it comes to supra-national matters. They think global government – in the sense of a coercive body standing above national governments – is inferior to agreements between national governments.

The failure to reach a meaningful agreement at Copenhagen, however, throws this view into  question.

What I mean is that there are clear reasons why anarchy within borders is thought undesirable.  If laws could only be reached by the unanimous agreement of all individuals, the rich and powerful would only consent to be bound by them on terms onerous to the poor.
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There’s a paradox raised by the reaction to “Rod” Liddle’s mostly incorrect claim that “the overwhelming majority of street crime, knife crime, gun crime, robbery and crimes of sexual violence in London is carried out by young men from the African-Caribbean community.”

The paradox is this. When it comes to tax, the right are keen to stress that people respond to incentives. And yet when it comes to crime they seem coy about incentives, and prefer to talk about “multiculturalism“ or genes.

The paradox is especially strong because economic theory is much clearer on the link between poverty and crime than between tax rates and tax revenue.

This is because in the case of taxes, the income and substitution effects work in opposite ways. The substitution effect causes people to prefer leisure over work when taxes rise, whilst the income effect causes them to want to work more to recoup lost income. However, with crime the two work in the same direction. The income effect causes a poor person to turn to crime to raise money, whilst the substitution effect means the unemployed have more time with which to commit crime, and lower penalties – no danger of losing one‘s job – for doing so.
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Why is there still a row about bankers’ bonuses? What I mean is that the issue should by now be settled against them. There’s abundant evidence that large bonus “incentives” are not only not justified (pdf) by efficiency considerations, but can actually backfire, with the result that intelligent observers are demanding an end to them.

If we were serious about designing high-powered incentives, we’d consider abandoning bonuses and instead simply killing under-performing bankers. After all, the threat of death works perfectly well in motivating airline pilots or soldiers. So why not apply it more generally?*

Let’s be clear. Bankers’ bonuses have less to do with rational incentive mechanisms than with the fact that bankers have power. It’s a form of legal extortion.

Which raises the question; why is this not more clear? It’s because any power structure is sustained by ideology – a set of cognitive biases which might have a grain of truth but which serve to defend vested interests. In the case of bonuses, there are four such biases:
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Maybe it’s a good job that newspapers don’t matter, because even the so-called quality ones carry appalling errors. Via Tim and Danny, here are two in the Torygraph.
First, it tells us that:

A low income household is one that lives on less than 60 per cent of the average UK household income

No. Low income is defined, for official purposes, as 60% of the median household income. If you’d read the Joseph Rowntree report, or even just the summary of it, you’d know this*.

Second, Janet Daley writes:

The Office for National Statistics points out that the amount spent on state education has risen by 43 per cent since 2000 but school “productivity” – measured by GCSE and stats results - has actually declined by 7.5 per cent. There is what statisticians call an inverse correlation between the amount of money spent by the state on schools and their academic success.

This is just gibber.
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Via Paul, I see that Frank Field has written some utter bilge. He says:

It simply isn't possible to increase the money supply by 300% and for there not to be a megadose of hyperinflation built into the system.

This is plain wrong. I assume he’s talking here about the Bank of England’s balance sheet. Its overall liabilities/assets have quadrupled since the summer of 2008.

Now, things are complicated here by a change in the data in 2006. But there is a precedent. The Bank of England’s balance sheet also exploded in 1998-99. There was no subsequent hyper-inflation.
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Tim and Richard are debating that old question, would higher taxes on the rich, as demanded by Compass, actually raise tax revenue, or would the rich emigrate, work less or fiddle their taxes with the result that less income would be raised?

Economic theory is absolutely no help here, as there are two competing effects. The income effect predicts that higher taxes might lead people to work harder, in order to maintain their post-tax incomes. The substitution effect says that if work becomes less remunerative, they’d do less of it and spend more time with the guitar or golf clubs.

It is an entirely empirical question as to which one dominates – in other words, as to where the Laffer curve is.

Here, though, is the problem – the empirics are also uncertain. Take, for example a recent paper (pdf) from IFS economists. It says:

If the richest 1% see a 1% fall in the proportion of each additional pound of earnings that is left after tax, then the income they report will rise by less than half that – only 0.46%. Although a tentative estimate, this suggests that the government would maximise the revenue it collects by imposing an overall marginal rate on the highest earners of 56.6%, very close to the 53.0% currently charged.

Victory to Tim, you might think.

No. For one thing, as they say, the estimate is tentative. Allowing for this gives us another interpretation. This is that the revenue-maximizing top tax rate is 95% likely to be in the range 45-75%. This encompasses Tim’s and Richard’s views.

And it could be that Richard is nearer the truth. continue reading… »

The house next to mine is up for rent. But I have no say over who the tenant should be. Is this right?
I’m prompted to ask by Martin Wolf’s argument for immigration controls.

He points out that immigrants add to congestion. But if next door is rented out to a three-car family, I’ll suffer from extra congestion. Why do supporters of immigration controls think I should have no say over this, and yet should be able to control the numbers of people moving into areas I never visit?

Wolf goes on:

Diversity brings social benefits. But it also brings costs. These costs arise from declining trust and erosion of a sense of shared values. Such costs are likely to be particularly high when immigrants congregate in communities that reject some values of the wider community, not least over the role of women in society.

Now, leave aside the dog whistle he’s blowing here.
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Two different comments on different subjects reveal a common error in thinking about social affairs.

First, in response to my claim that much of the gender pay gap is due to women having children, Toto says: “you didn't consult any childless women before writing this, did you?” You’re damn right, I didn’t.

Second, a commenter on a post by DK says:

Both commenters make the same mistake – they think we can trust the evidence of our own eyes. We can’t.
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The right’s prejudice in favour of marriage can sometimes lead it to some very sloppy thinking. Two recent pieces suggest this. First, the Spectator’s leader cites ONS research showing that married men are more likely to find work that single ones, and infers that “perhaps it’s time to chivvy the unemployed to church.”

This inference suffers from two problems. One is: why does marriage enhance employability? It could be because marriage causes men to want to work more, perhaps to escape the wife’s nagging. Or it could be that marriage is merely correlated with factors that make men attractive to employers: good social skills, reliability, a conventional mindset etc.

There’s lots of research (pdf) on this question – none of which the Spectator cites – which is gloriously ambiguous.
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Boris Johnson is threatening to kill some children and worsen the educational outcomes of many more.

The reason for this is straightforward. He intends to remove the western extension zone of the congestion charge, and delay phase three of the low emission zone, which would charge polluting vans more for entering London.

The effects of these will be to increase congestion and emissions of carbon and nitrogen oxide. Such emissions, however, are quite strongly associated with pre-natal health, as a new paper by Janet Currie and Reed Walker demonstrate.

They studied the impact of the introduction of E-Z Pass in New Jersey and Pennsylvania. This system allows cars to travel onto toll roads without stopping to pay manually. They therefore greatly reduce congestion and emissions around the toll plazas.
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The debate about government borrowing shows how backward our political class and media are. It's being conducted within the wrong framework. It’s about what the parties will or will not do, when in fact it should be about the range of policies they are considering.

To see what I mean, here is my view of the deficit, which I suspect is reasonably mainstream among economists.

We haven’t a hope of cutting the deficit significantly by policy measures alone; Osborne‘s proposed measures aren’t just a tiny fraction of borrowing, but are a tiny fraction of the forecast errors for the deficit. Our only chance of getting the deficit down seriously is to grow our way out of it.

This requires that the  private sector start borrowing again, which means that policies that “encourage saving”, such as the raising of the pension age, might actually raise the deficit.
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The financial crisis suggests there’s a strong argument for the BBC remaining state-owned and not carrying adverts.
Yes, this claim looks bald. But the reasoning’s simple.

Let’s start from the assumption (which might be questionable) that high levels of personal debt were a contributory factor to the recession, and/or that a desire to pay down this debt might hold back the recovery.

The question then arises: why is debt so high?

TV advertising, that‘s one reason. A new paper by Matthew Baker and Lisa George establish this very cleverly. They exploited the fact that TV’s spread across the US in the 1950s was uneven, with some areas getting it earlier than others. They show that, in those areas where TV reception arrived earlier, households were more likely to take on debt.

In other words, TV – and TV advertising – contributes to household borrowing.
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Philippe Legrain, author of Immigrants: Your Country Needs Them, is on the wireless tonight advocating scrapping immigration controls. What puzzles me, though, is the BBC’s description of this position as iconoclastic.

In truth, Philippe’s position is mainstream. What’s odd and extreme is the argument for immigration controls. Look at this from three perspectives.

1. The invisible hand. Perhaps the dominant strain in liberal thinking is the Smithian-Millian argument that liberty promotes aggregate well-being. Immigration controls are a denial of this. They raise the question. If a freedom as basic as the right to work where one chooses diminishes overall well-being, is there a consequentialist argument for any liberties at all? Of course, you can argue that immigration brings negative externalities. But I’m not at all sure these are any greater than the externalities created by many other market transactions.

An attack on the right of immigrants is an attack on the fundamental argument for a market economy. It’s a radical view.
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The question of whether the BNP should appear on Question Time raises a worrying question for the health of our democracy.
Matthew Syed thinks the BNP should appear,  on the Millian grounds that:

The more oxygen they are given to publicise their views, the more the British people will choke on their bigotry and hatred.

But this runs into Paul Sagar’s objection – that QT is not a platform for debate but merely a zoo in which soundbites are vomited into an audience who clap like hyperactive seals.

There’s a danger that Nick Griffin could actually emerge well from such a show.
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The Tory right is, yet again, showing its ignorance of the income distribution and tax system. The Speccie’s leader says:

Mr Cameron has been criticised for telling Mr Marr that he would remove tax credits for households which earn more than £50,000 a year. This…would hit 130,000 families immediately and unsettle many more. It is a proposal that would undoubtedly hurt Middle Britain. Considered in isolation, this would indeed be an objectionable and vindictive proposal.

The first flaw here is an albeit mild version of the middle England/Britain error – the notion that the well-off are just ordinary folk. In truth, a two parent household with two children and earnings of £50,000 a year is better off than almost two-thirds of the population.
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