Tuesday, September 04, 2007

Alternative Routes to Work

My regular readers would find any comment on the current tube strike tiresomely predictable so I'm going to talk about something else instead.

Being unable to get the Waterloo and City line from Bank, I went to Tower Gateway this morning and caught the RV1 bus to the South Bank instead.

I had a seat for both legs of the journey (the Tower Gateway services are always less congested than the DLR's Bank services) and being above ground for the whole journey made a refreshing change.

It took twenty minutes longer than ordinary but I think I got off lightly compared to some. 

Tax "Justice", revisited

Richard Murphy was good enough to respond to my observations on the Tax "Justice" phenomenon. He addressed the three points in order and I will do the same here. As in my original post, I try to concentrate on the argument and not the person. I ask any commenters to do the same. 

"Perspective on whose money it is"

As Tim Worstall has commented, the rebuttal to my first point was eye-opening.  Murphy chose to mount a rousing defence of the concept of a state as part of his answer. I'm not sure why he did this because my point was about the mindset of those who propagate notions of "Tax Justice" but the argument was interesting, nevertheless.

The key passage is this:  (my formatting)

This system also corrects the very obvious failings of the market system. That system could not ever provide a socially optimal outcome in any society in reality because so many of the pre-conditions of it doing so do not exist. Those that do not exist include:

  • Perfect knowledge of the future;

  • Perfect knowledge of all products and services available in the market now, and their prices; ...

I could add many more, all of which are required[1] to make markets produce successful outcomes and the absence of any one of which will result in an imperfect result. The degree of imperfection cannot be predicted, but will tend towards monopoly exploitation[2]. This is why the State must intervene to protect those whom the market would otherwise both fail and exploit.[3]

Taking the highlighted points in turn, (1) is probably the most problematic. Murphy confuses sufficient conditions with necessary conditions and so has set up a straw-man (seemingly unwittingly).  Unlike Murphy, I am not a trained economist. But I am a trained mathematician; the difference between "necessary" and "sufficient" tends to be quite important.

He then makes an unsupported claim (2) about what bad things might happen in the absence of one of the sufficient conditions and then, inexplicably, claims (3) that the solution to imperfect knowledge is to create an institution which cannot hope to accumulate the missing information.

"Is poverty created - or escaped from?"

Apart from reiterating his flawed understanding of economic theory, Murphy doesn't really address the substance of my core argument (that poverty isn't created; wealth is) and so there's not much more I can write on this one

"Anyone who disagrees is greedy"

Murphy's response to this is to assert:

The first is that the whole basis of mainstream economic thinking is that greed is both acceptable and desirable. This is what the maximisation of self interest that it promotes means, at least to many who seem to simplistically buy into this economic vision.

This is, of course, a very cleverly-constructed straw-man. He chooses a narrow definition of "self-interest" and then suggests that it is my definition. 

Quite apart from the fact that it isn't my opinion, it doesn't really address the point.

When it comes to taxes, there are three cases:

  • You are unambiguously liable to a particular tax
  • You are unambiguously not liable
  • There is doubt about whether you are liable or there is a divergence between the law-as-written and the supposed intent of those who wrote it

Clearly, most (all, I hope!) of us agree that we should pay demands that fall into the first category and I'm sure not even Murphy pays demands that fall into the second. So the only point of disagreement is the third.

Now, if you do not believe government does a good job of spending money, it is illogical voluntarily to pay more than is required (and let's be clear, that's what is being asked of us; if it wasn't voluntary, there would be no debate as it would fall into the first category!) This does not make one greedy.

So, I am grateful for Murphy's response (truly - even faulty arguments can force one to clarify one's thinking) but I'm not convinced he's supported his assertions.

Monday, September 03, 2007

Political Compass Cheat Sheet

The discussions on Roo's post about the Political Compass made me think. Some of the questions are clearly ones of opinion. But others, to my mind, have a right or wrong answer.

Here are some examples:

'Controlling inflation is more important than controlling unemployment.'

I thought the lesson of the 1970s had been well and truly learned. Perhaps not.

' "From each according to his ability, to each according to his need" is a fundamentally good idea. '

It might be a fundamentally nice idea. That doesn't make it a good idea.  If you truly believe that it is a good idea, you cannot simultaneously believe in the power of incentives, the tragedy of the commons, the free-rider problem or any of the other insights of economics. In other words, it is possible, strictly, to agree with the statement but to do so logically places you far outside the mainstream.  "Intent" is not the same as "outcome" and it is logically inconsistent to agree with statements you believe to have good intent if you know the outcome will be bad.

'Land shouldn't be a commodity to be bought and sold.'

Again, one may not like the idea of property or of property rights. However, to agree with this statement is to call for a complete abandonment of our economic system. That's fine; some people really do believe they know better and think the miracle of the last 500 years (humanity's discovery of how to escape from poverty) could have been achieved better in another manner.  But glibly to agree with such a statement without acknowledging its implications is of questionable rigor. 

And just in case anybody thinks I'm merely defining my opinion as the truth, here's an example where I do believe opinion comes into it:

'No broadcasting institution, however independent its content, should receive public funding.'

I have strong opinions on this one but I accept that some people genuinely do believe applying a regressive tax on the poor (as happens in the UK) to fund a broadcaster is acceptable. I find such people are immune to (my) argument and have, reluctantly, concluded that this one truly does seem to be a matter of opinion!

Sunday, September 02, 2007

Should we do anything about climate change?

John Llewellyn, Senior Economic Policy Advisor at Lehman Brothers, wrote an article in today's Observer discussing whether we should act on climate change.

He seemed to conflate the question of whether it is happening with whether we should do anything about it. I don't think this is helpful.

Dear Dr Llewellyn,

I read your article on climate change in today's Observer with interest.

Your categorisation of people with an opinion on the topic was probably fair (although I didn't recognise myself in any of them!) but I can't help thinking you missed a key point: the question of whether human-caused climate change is occurring is different to the question of what, if anything, we should do about it. Crucially, the first question is one for scientists whereas the second question is one, primarily, for economists.

If we grant that climate change is occurring, it does not follow that we should do anything about it. 1% of GDP, spent every year for a hundred years is a great deal of money and the power of compounding is such that world GDP in 100 years would be materially lower than it otherwise would have been. Therefore, it is necessary to show that the negative effects of climate change are sufficient to outweigh this massive reduction in the living standards of the people of the future (compared to what they would have been). In other words, arguments based on the idea of doing something "just in case" only work if the negative consequences of doing something are also considered.

Yours sincerely,

Richard Brown

At the risk of my blogging today turning into a link fest to the Portuguese scandium monopolist, I must confess that this argument was stolen shamelessly from him.

[EDIT: Do read kyb's post in the comments. As he points out, even if climate change isn't man-caused, there may still be a case for doing something about it. I may not agree with that but it makes the need to separate the two issues crystal clear]

Tax "Justice"

A week or so ago, I commented on AccManPro that I disagreed with pretty much everything that appears on the taxresearch.org.uk blog. One of the commenters there asked me to expand on this and to explain why I thought the ideas being discussed were wrong. I sense that I was being baited but what the heck....

I was going to write a long piece on the ideas behind "tax justice" and the silliness intrinsic in it. However, I found it getting unnecessarily wordy so I thought I'd highlight examples instead:

1) The primary fallacy seems to be the tendency to start from the perspective that your money is the state's - and that you should be allowed to keep what is left after the state has taken what it wants. This perspective is then used to argue that arranging one's affairs to reduce tax liabilities is somehow "taking" money from others. To see why they can think this, you must put yourself in their heads. They start with the assumption that the £100 you just earned is the state's. If you pay 41% tax on it, you're allowed to keep £59 of it - they'll give you the £59, in other words. However, if you find a way to make the tax liability 40%, say, then the state would have to give you £60 back. You've just been given an extra £1. And here's where it gets screwy... they seem to be claiming that this £1 has been funded by somebody else. Yes. That truly does seem to be the thought process. The idea that the original £100 was yours to start with seems completely to escape them. Bizarre.

2) The headline on this piece on a different website related to tax justice shows the "interesting" level of economic literacy prevalent in this field. There seems to be a belief that poverty is "caused" and that, naturally, it is somebody's fault. Sorry, folks. Poverty is not "caused". It is the natural state of humanity. The story of the last five hundred years has been our discovery of how to escape it by creating wealth for ourselves and for others. It is clearly true that many, many people are doing a lot less well than we would like. However, any analysis that starts with the assertion that this is somebody else's fault is not going to lead to anything sensible.

3) Anybody who disagrees with the tax justice crowd is "greedy". See this comment to somebody upset by the impact of inheritance tax. One can argue about the merits of inheritance tax or explain why one believes a tax paid only by the stupid and the unlucky is morally justifiable but note that this isn't what happens. Instead, the ad hominem is deployed. Lovely.

I should point out that I am sure the tax justice crowd are well-meaning, pleasant people. Indeed, I am sure I could spend an enjoyable evening in the company of such people (and I am sufficiently polite in person that I'm sure they could tolerate me!). However, I don't think they would manage to persuade me that this movement is one to which I should subscribe.

I notice that Tim Worstall also sometimes links to taxresearch to take issue with them. Well worth reading.

[EDIT 2007-09-02 19:08 Corrected typo and added link to Tim Worstall]

[UPDATE 2007-09-03 17:23 Richard Murphy has responded. http://www.taxresearch.org.uk/Blog/2007/09/03/tax-justice-2/ ]

I'm surrounded by woolly liberals.

Gah. What's wrong with some people?!

Roo admits to being a greeny 1972 Labour-type (sort of)

And kyb is almost as bad.

I need to start tracking some different bloggers :-p

This is more like it:

I can only conclude that my mission to educate the world in the correct way of economic thinking (i.e. mine!) is not yet complete.

[UPDATE: Roo is tracking people's results in one place. Seems Uncle Milt and I would have been soul-mates - http://rooreynolds.com/2007/09/02/political-compass/]

We should ban the sun to protect lightbulb manufacturers

The EU's ridiculous attempt to make us all poor by banning cheap, safe incandescent lightbulbs and forcing us all to buy mercury-filled, harsh fluorescent lamps was bad enough.  That they then placed import tariffs on the energy-saving bulbs is beyond farce.

A commenter on "Devil's Kitchen" suggested that the reason might be because the EU's trade commissioner is an economic illiterate and suggested sending him some pointers.

So I did.

Commissioner Mandelson
DG Trade
European Commission
200 Rue de la Loi
B-1049 Brussels

Dear Commissioner,

I was bemused by recent press reports that the EU is simultaneously banning incandescent lightbulbs and placing import tariffs on low-energy replacements being sent from China.

If the Chinese wish to send us cheap goods, we should open our arms and accept the gifts with gratitude. I resent your efforts to keep the people of Europe poorer than we otherwise would be.

I am enclosing a copy of an essay, written in 1845, by French economist Frédéric Bastiat. It is as relevant today as it was then and I hope it proves illuminating.

Yours sincerely,

Richard G Brown