armchair economics - thinking about the stupid questions

Yes  I am lazy.

I am more interested in philosophising about economic issues than doing the graft e.g. fact checking

A hero of mine Tim Harford represnets what I am not - he says that the corrective to ideology is to regularly check to see if the predicitions you made on the basis of your position turned out to be true(See Good Judhgement Project). This is of course the scientific method where any hypothesis is only valuable if it can be proved wrong. Will shares on the FTSE 100 go down? Too general to be proved one way or the other.Will the FTSE 100 go down before the end of March? Can be confirmed or not.

So... leavig that empirical stuff to the Harfords of this world,  I am interested in asking the stupid questions.
for instance is social mobility such a good thing? Most peolpe proclaim it  as a goal for social democratic systems.But what about the peolpe whose mobility goes down? If social mobility is relative some people must go down for the people to rise upwardsly.Or Is there more room at the top now? How can that be? Maggie thatcher cleverly played this card with the selling off of the utilities n the 80's .We are now she proclaimed a 'sharholder democracy'. thirty years on and we see the rhetoric for what it was as inequality increases and the utilites are owned by entities - socvereign wealth funds, private equity - who have no interest in democracy or even value for money for the consumer.

Another question that bothers me... is it good for a country to have abundant natural resources? Why would it not be? Look at the counties who have the largest deposits of oil - outside of the USA. Saudi Arabia,Iraq,Iran,Venezuela,Nigeria. Would you wnat to live in any of these countries. I don't know what the causal relationship between oil and political instability and corruption but you can see why the term 'the oil curse' was coined.

Any stupid question of your own - let me know.

why tax?

I am interested in going back to first principles.

Tax is a way of redistributing the income generated in society. But why do we need to do this?
Is it a function of complexity? Or the size of the social group?

Take education as an example

If enough people want to send their children to school - rather than educate them ourselves or pay individually for a tutor - society must find a way of paying for the school - capital expenditure and running costs.e. salaries, heating ,etc. In Europe the first schools were faith schools and it was only later than responsibility for education shifted to government. this was enshrined n legislation and in the developed world there has been talk of the 'right to universal education'. But ideology plays a part when it comes to delineating the boundaries of this right. For instance, does this right extend to higher education? In the UK I grew up benefiting from a grant systems - so my tuition fees and some living costs were covered by my local council. My children though had to take out loans to pay for university education - these are underwritten by central government - and there is now some doubt about how much government saves as many loans will never be paid off.

I think that governments use the argument - as the UK governments did in the last 10 years with tuition fees - about affordability. This is a fig leaf - a pretence of non-ideological reasoning - when policy alternatives always involve preferences which is another word for ideology.

So what does this mean for overall tax policies? Firstly, how big should government be? Scandinavian countries believe in a larger size than the UK which is bigger than US. These are expressions of the balance of the individual versus the social. Secondly, what are the priorities within the overall government budget? US absolutely and relatively spend more on defence than European governments even if the size of the government - relative to GDP - is smaller. Thirdly, what are the sources of the revenue needed to fund government programmes - again this reflects choices - individual vs corporate taxes;direct vs indirect taxes.

At the end of the day tax is an expression of choices - ideological preferences  about the role of government.

Next time - tax and technologies.

Tax = The will of the people

tax is news.

tax fraud £100 billion           vs          benefits fraud £2

inland revenue officers for benefits fraud are 10x the IR officers for tax fraud

inequality again


BUT what is tax for ?

Think about it - in Al Capone's words there is nothing certain except death and taxes. But that is not true.

Taxes were first raised in the UK a few hundred years ago - to finance wars.

However there is alot that governments do that has to be paid for and in a democracy we can choose what we want government to spend money on on our behalf.  Tax is the will of the people. We want to raise money for wars so be it.We want to raise tax for the NHS so be it.We want to subsidise the nuclear industry(NDA - the Nuclear Decommissioning Authority - absorbs 70 -80 % of the Dept of Climate Change budget[Source Guardian Data Blog]).

It is not the sexiest of topics but think about it and you realise it is people power in practice.

Because our electoral system is flawed it is not reflecting the people's priorities but get that straight and then we need to embrace tax as the instrument it is.

so we need to start questioning why our tax code in UK - the manual - is the longest in the world(Hong Kong has the shortest). One answer I came across is that we have a vast financial sector that makes money by exploiting the difference between the rates in different countries (tax switching). This sector has no interest in harmonising tax rates across the world or even having multilateral tax agreements.Hence we have different bilateral agreements with dozens of countries across the world.

I am certain that tax does not have to be as complex as it appears to be.

So join in the conversation to stop the vested interests from pulling the wool from over our eyes.

I want our children to understand about not just personal finances but about what we do and can do together with our money.