Monday, 7 May 2018

Nationalism: the greatest enemy to happiness today

International Law: Part 1 – Nationalism

     "Wherein", asks C.E.M. Joad in 1939, "is to be found the greatest enemy to the happiness of contemporary man?" In poverty? In pain? In the wickedness of the human heart? Possibly and perhaps. But these have oppressed men in all times; they were not distinctive of 1939. Twentieth century man (Joad suggested) suffered more from the unchecked power of the Nation State, than from pain, poverty, or personal brutality.
      "The Nation State regards itself as the sole arbiter of right and wrong, claiming to be both judge and jury in its own cause, acknowledges no law to govern is relations with other States and no morality in restraint of its designs upon its neighbours. Over the lives and liberties of its citizens it exercises an absolute control. It requires of them a willingness to kill other human beings whom they have never seen, whenever it deems the mass slaughter of the members of some other State to be desirable, and conceives that its welfare may be promoted by exacting from them the most horrible sacrifices, in order that they may harm the citizens of its alleged enemy.....
     "It tramples upon the liberties of individuals in order to establish its independence. While proclaiming its determination to be free, it deprives its citizens of their freedom......
     "The State is an anachronism. With its trade restrictions and tariffs, its customs and quotas, it sets up barriers between itself and its neighbours and seeks to the best of its ability to impede the manifest drive of our civilization towards unity. ...(driven by)...the abolition of distance.....It is only 150 years ago that it took a man as long to travel from York to London as it now takes him to fly from London to New York. The future holds in store advances no less remarkable than those of the past......... Today we can fly in the air; tomorrow we shall fly in the stratosphere." (Joad writing, we should remember, in 1939).

     I admire Joad's clarity, and vision. So much he got right! Yet the shrinking of distance that has seen a man walk on the moon, and that has sent this week a rocket to land on Mars (!!), has not yet welded Europe into a Federal State, nor abolished the concept of protective tariffs. At least this seems to be the case in the slower-moving parts of the Anglo Saxon world, like Derbyshire and Detroit. 

(This is the beginning of an investigation into the slow process by which we evolve International Law; a folk process; almost a religious process. )


Friday, 20 April 2018

Syria may have used toxic chemicals against civilians

Ian Blackford (SNP MP) spoke on the Radio 4 Today programme (14th April 2018 at 08:45 hrs) on the question of bombing Syria as a rebuke for its possible (or probable) use of chemical weapons against civilians. His emerged as one of the most considered and constructive voices to speak in public on the subject over the last few days. From repeated interruptions, it was hard to hear what he was trying to say, but it sounded as though he thought Britain's actions should be:
[1]  within International law;
[2]  tending to strengthen the authority of international institutions such as the Organisation for the Prohibition of Chemical Weapons (OPCW) and the United Nations (UN), rather than undermining them;
[3]  part of a clear strategic plan, such as isolating rogue states;
[4]  seen as having a clear trajectory other than merely bombs, and more bombs.

I think the same. In the event, I think our actions were none of those.


Monday, 2 April 2018

Government Spending

The Benefits of Government Spending

     In July 2016 I showed [1], in a very simple and straightforward way, how raising taxes and spending the money thus raised can cause an immediate increase in GDP, while at the same time allowing increased expenditure on infrastructure. My simple model (detailed in Table 2 below, and in [1]) shows how money is recycled; one man’s spending is another man’s income, and so on repeatedly, towards a limit. My analysis has not been widely heeded by the media, and maybe it should be restated. It also raises a number of issues that I did not discuss, such as: who should spend our money — the citizen or the state, and is VAT better than income tax?  I extend the analysis and the discussion here.
     In Table 1 below, I start with an notional GDP of 100 (arbitrary units) and using the estimates discussed earlier (and listed in Table 2) for amount spent on raw materials, infrastructure, luxury goods, taken in tax, or wasted, I come up with different percentages of GDP recycled depending on the tax regime (and my assumptions on how the tax is spent – see Table 2). The recycled GDP will itself split as before, and some of it will itself be recycled. But this is not an infinite regression; there is a mathematical limit given by the formula 1/(1-x), where x is the fraction recycled (e.g. 0.556). We see that recycling adds considerably to the final GDP, and more so in the high-tax regimes.        

I do not think this point has been often made in the literature generally available to the public: that raising the level of taxation can increase GDP.

Table 1.  Initial GDP set at 100 arbitrary units. With recycling it swells to > 220
Income tax rate (p/£)
20
30
20
30
VAT tax rate (p/£)
20
20
30
30
Percentage of GDP recycled (=x)
55.6
57.4
56.4
58.1
Total Additional GDP at limit (i.e. 1/(1-x))
225.2
234.7
229.4
238.7
Total final GDP including initial injection
325.2
334.7
329.4
338.7
Percentage of GDP spent on Raw Materials
36.0
31.5
34.0
29.7
Percentage of GDP spent on Infrastructure
5.6
7.4
6.4
8.1
Percentage of GDP wasted
2.8
3.7
3.2
4.1
Percentage of GDP spent by citizens
72.0
63.0
68.0
59.5
Percentage of GDP spent on VAT-able goods
32.0
28.0
28.0
24.5
Percentage of GDP spent on VAT-free goods
40.0
35.0
40.0
35.0
Percentage of GDP collected in tax
28.0
37.0
32.0
40.5

There are a number of other points that can be illustrated with this simple model besides that just made about the importance of recycling GDP.  

Crucial to the effect of GDP recycling lies the question of what the government does with the taxes it collects. In the model here, it is assumed that some is spent on infrastructure, and it will be noted that higher taxes allow a proportionally higher annual spend on infrastructure (and waste). But a much larger fraction of government income is assumed to be spent on salaries (nurses, police, teachers, etc.), and on benefits (which I have treated as GDP, for it will be spent as such). To keep the modelling simple I have assumed the same split of government resources in each tax regime; so higher grovernment revenue pours more money into the pockets of millions of people. Hence the positive effect on GDP. If the model allowed foreign trade, and people spent their money on foreign cars, the spent money would not recycle as our GDP; it would figure in the economy of the car-makers.

You might wonder why this route of “Tax and Spend” has not recommended itself to governments before now. But of course, taxes take money out of the pockets of the wage-earners. Spending power is particularly hit for what I have called “voluntary spending” or “VAT-able spending”; essentials are slightly protected. Few politicians care to campaign for votes with a proposal to raise taxes, even if that is the sensible thing to do.

Table 2.  Variables used in the model and values assumed in calculations. Only the GDP (i.e. the ‘wages’) is recycled. The model assumes no foreign trade. ‘Waste’ refers to submarines and paperclips. If any reader has accurate data on these issues they can insert their own figures here, and write to me.
Variable
Symbol
Value assumed
Units
Input GDP for round 1
a
100
Arbitrary, e.g. B£
‘Average’ income tax rate
b
20 or 30
Pence/£
‘Average’ VAT rate
c
20 or 30
Pence/£
Portion of net income spent VAT-free
d
0.5

Part of VAT-free -> wages
e
0.5

Part of VAT-free -> raw material
1-e
0.5

After VAT, part -> wages (i.e. GDP)
f
0.5

After VAT, part -> raw material
1-f
0.5

Fraction of total tax on wages
g
0.5

Fraction of total tax on benefits
h
0.2

Fraction total tax on infrastructure
i
0.2

Fraction of total tax on waste
1-(g+h+i)
0.1


There was a theory, promulgated by some macro-economists, that lowering taxes will leave more money in the hands of the spending public, who will spend it and boost GDP. But will they spend it? And what will they spend it on? It is paternalistic to suppose that the government will spend more wisely than the citizen; paternalistic and perhaps also over-optimistic. Our governments since the credit squeeze of 2007 have shown no great wisdom in leading the way towards economic recovery. They have beggared the health service, given tax cuts to those on super-tax rates, and flooded the banks with fake money, ostensibly to cause inflation. On the present model we can see why tax cuts can fail to simulate the economy, when accompanied by spending cuts.

References


Friday, 19 January 2018

Limits to the NHS: which healthcare spending should be free?

I shall be sad if the British National Health Service dies from deliberate starvation of resources, and passes into history — a lofty and "once successful" product of the human spirit. (See e.g. /https://labour.org.uk/page/nhs-crisis/). 
     However, I think the death of the free-for-all-at-point-of-use health service comes partly from the failure of the medical professionals themselves; their understandable failure to limit their costs.  The Hippocratic concept does not have space for rationing. 
     The valiant committees of the institute for health and care excellence (NICE), make recommendations that limit the way public money is spent, to maximise value for money. But perhaps not quite enough to dispel the vague notion we all share that the NHS is a bottomless money-pit. Their spending cut-off point is a sensitive matter of judgement, and may drift in time. 
     For example, I would point to the case of in vitro fertilisation (IVF), which is limited to a few rounds of implantation, and to a certain age range (see:https://www.theguardian.com/society/2018/jan/19/would-be-parents-moving-house-to-get-free-ivf-on-nhs). But we are in a badly over-populated world. And babies are not an "inalienable human right", given by providence to all. We are coming to the point where, to introduce one more life is, in effect, to introduce one more death; and incrementally intensifies the tensions and rivalries we see all around. 
     I, though over seventy myself, see some grounds for limiting free healthcare of the elderly to palliative care only.  

Carillion: for and against PPI

Mainly Macro (namely Simon Wren-Lewis) has written a good piece on the collapse of the large bulding firm (Carillion) that won contracts to build for the government. Not only are the points clear, telling, and fair; the writing is unusually free of the blemishes of hasty, late-night, blogging.

He fairly sees advantages as well as disadvantages in letting private firms compete for contracts. Competition holds down prices. But private firms seem to needs more supervision than they tend to get; supervision of quality and of management ethics. Furthermore, lending to private firms is riskier than lending to Government, and so interest rates are higher.
    https://mainlymacro.blogspot.mx/2018/01/what-carillion-tells-us-about-public.html

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Thursday, 11 January 2018

Ebeling on the virtues of Austrian and the fallacies of Keynesian Macroeconomics

Dr. Richard Ebeling posted a piece on the Cobden Centre website on 10th January contrasting Austrian with Keynesian economics. 

On the one hand Ebeling criticises the widely accepted `Keynesian´ approach to macro economics on the grounds that it deals with aggregate quantities (average prices, average wages); quantities that have no real existence, an approach that overlooks all the individual prices and wages of specific products and skills. On the other hand he praises the 'Austrian' way of looking at macro economics (as expounded by von Mise, Hayek, Rothbard and others) for its refusal to consider such aggregates, and its insistence that the economy will adjust itself far better if left alone than when tampered with by ill-informed government intervention.

I think it is ridiculous to view these two approaches to macroeconomics as though they are in conflict; as though one must be `wrong´if the other is `right´.

Of course there is an average wage and an average price level. They do not exist, but they are determinable quantities.  Keynesian theory does not interfere with the prices of individual items nor the wages of particular operatives, any more than the Austrian theory does; they are of course left to market forces, by both theories. If the average price level rises (or is raised) a few percent relative to appropriate wages, individual productions will become profitable one after the other in the same general way(#) on the Keynesian theory as with the Austrian theory.

The Austrian theory does not require aggregates because it is not going to advocate any government interference. It is simply going to watch while the business cycle works its way through the economy, bankrupting firms and depriving families, until entrepreneurs once again find that there are too few skilled workers, and start to hire `foreigners´. It explains, but does not intervene. 

Non-intervention is better than bad intervention, and that is the virtue of the Austrian school. But is it better than good intervention? I think not, and that is the weakness of the Austrian school. I think that it is morally impossible to sit back and watch capitalism at work. I mean impossible for a moral conscience. It is too easy for the wealthy to exploit the poor, the clever to cheat the foolish. And I think western civilisation has come to the same conclusion over the last thousand years, instituting taxes and charities, encouraged by a predominantly Christian view of heaven and hell.

But if that is the weakness of the Austrian School, what of its strengths? And do governments effect more harm that good? 

It is undoubtedly a weakness of democracies that they find it hard to raise sufficient revenue in taxes. Who, for example, campaigns for votes by offering to raise taxes? (Only in Scandinavia, and that one suspects is for predominantly climatic reasons.) So, I suggest that the fact that governments seem to get it wrong more often than right, may not be solely down to their (governmental) stupidity. (As for the newspapers and the voters, that is another matter, and I suspect that ignorance plays a considerable part.)  I like to think that, since 1936 when Keynes published his "General Theory", governments have, occasionally, mitigated the severity of the business cycle on the populations in their care, by providing relief, or work on infrastructural projects. 

Tinkering with bank rate has its limitations, and I am not yet convinced of the benefits of "quantitive easing", except benefits for the bankers, for I am skeptical of the extent of "trickle-down".

(#  I realize that the order in which businesses become profitable one after the other will be slightly different when the price rise is general (as it might be if government intervenes) compared with the diverse price rises that pure market forces can devise. The Keynesian result will not be identical to the Austrian result.)