Tim Worstall

I’m in southern Portugal. The Algarve. Towards the end of May.

And I’ve got the wood fire going in my office to prevent my hands going blue as I type.

Global warming, eh?

So Ouur Wullie decides to tell us about Tyler Cowen’s views.

Mr. Cowen begs to differ:

Such views make for a convenient target, but that is not close to what I wrote in The Great Stagnation. For instance on p.83 you will find me proclaiming, after several pages of details, “For these reasons, I am optimistic about getting some future low-hanging fruit.” Those are not Straussian passages hidden like the extra Nirvana audio track at the end of Nevermind. The very subtitle of the book announces “How America…(Eventually) Will Feel Better Again.”

Sigh.

Then there’s the other stuff Wullie tells us:

Some argue that a dystopian world is emerging in which good jobs and full-time employment will become the preserve of an educated, computer-literate elite.

Oh for the Lord’s Sake!

We don’t actually want “good jobs” nor do we want full-time employment. What we want is the ability to consume as much as we can with the minimum amount of effort.

Which is exactly what mechanisation of anything at all brings us. The machines make it, we consume it and no sweated brows to be seen anywhere.

Seriously, who gives a fuck about the alphas all having to go to work as long as the rest of us have our flying cars?

I bought a Powerball ticket for the $500MM lottery last Saturday, and was actually interviewed by a local TV crew when I bought my one ticket, and said something to the effect that $2 buys me several minutes of daydreams about buying ridiculous things (that $100k lake submarine in SkyMall magazine). Later I discovered a better reason for my purchase. In the many-worlds interpretation of quantum mechanics, every quantum event happens. It’s basically the only way many can reconcile the EPR paradox or Schrodinger’s cat being alive and dead. All possible alternative histories and futures are real, each representing an actual “world” or “universe”. Therefore, after buying that ticket, I actually won the $500MM jackpot in many of those universes. Unfortunately, in this particular universe I did not win the lottery, but, I can take comfort that many of ‘me’ did win, and my utility function somewhere among those universes is insanely high. For some reason, I’m not enjoying that as much as I should based on the math.

China has adopted the mores of Hong Kong and they are now working to a model of economic growth that glorifies excess.

It was said back 15 years that the handover of Hong Kong might be the greatest reverse takeover in history.

Might even be right….

The retailer dispatches online orders destined for mainland Europe from the UK but bills the transaction to Ireland, according to documents seen by the Guardian.

In a structure used only for overseas sales, the company’s UK warehouses sell goods to Marks & Spencer (Ireland) Ltd at wholesale prices, allowing M&S to pay Ireland’s 12.5pc rate of corporation tax, the lowest in Western Europe, on any retail mark-up.

Such arrangements, known as “transfer pricing” are completely legal but have drawn heavy criticism in recent months. Tax avoidance is set to feature high on the agenda at next month’s G8 economic summit.

M&S is a UK domiciled company. So doing this doesn’t save it any tax at all.

It might delay or defer a tax bill, but it doesn’t reduce it.

For any profits that are brought in to the UK so that they can be paid out as dividends (which is the purpose of the whole game, after all) will be subject to the UK corporate tax rate minus the corporation tax that has already been paid. If they don’t bring it in but reinvest it in the business, well, there are enough tax breaks and investment allowances that they wouldn’t be paying corporation tax on it anyway.

The important point to note is that using Ireland (or Luxembourg, Bermuda, whatever) does work to dodge UK corporation tax for companies not domiciled in the UK. It does not work for companies which are domiciled in the UK.

UPDATE: And wouldn’t it be interesting if Timmy understood the tax laws?

At the ASI.

More about capitalism. Americans really are rich and they don’t actually work longer hours to be so. Maybe there is something to this free market stuff?

A new ban on restaurants serving olive oil in jugs is “silly” but not a reason to quit the European Union, Danny Alexander has said.

It isn’t a reason to quit, no.

But it is symptomatic of all of the reasons to quit. That, you know, we’re being ruled by fuckwits.

Perhaps we should take Schmidt’s “aspiration” to do the right thing at face value. But if Mr Schmidt is anything like me, he might need a bit of outside assistance to achieve his aspirations. So, how about we legislate to crack down on all forms of tax avoidance: like passing the General Anti-Tax Avoidance Bill, drawn up by Richard Murphy and introduced by Labour MP Michael Meacher.

As we’ve pointed out many a time, that bill would loosen, not tighten, the definition of avoidance that can be cracked down upon.

For it states that anything that is specifically mentioned in legislation is outside the scope of tax avoidance. Thus Amazon relying upon the warehouse exclusion in the double taxation treaty with Luxembourg is absolutely not, under the definitions of this bill, tax avoidance. Google selling from Ireland is absolutely not tax avoidance: mentioned in EU law.

Plus of course Our Owen is blindingly ignorant about tax incidence.

At the ASI.

These AA allegations of speculation in the petrol price.

There’s a certain number of people over in the US who think that Apple has shifted a large part of its profits out of the US. This simply isn’t true.

What is true is that Apple is making a significant amount (some 70% or so) of its profits outside the US and keeping them there.

There is a significant difference between the two statements.

The accusation of profit shifting is that Apple has been making lots of profits in the US. Then, by some forms of chicanery, possibly legal, possibly, not, but almost certainly “immoral”, Apple has been shifting stuff around so that these profits now look as if they are being made outside the US.

The advantage of this is that profits made inside the US must pay the 35% US corporate income tax and those made outside don’t, not until they are brought back into the US.

That’s what profit shifting means. And it’s not something that Apple is doing. Or at least, there’s absolutely no evidence at all that it is, not even a hint of it anywhere in their accounts. And it’s also something very difficult for a US company to do. The IRS knows this game and doesn’t allow much of it to happen.

However, it is true that Apple is now making 70% of its profits outside the US. But this is because their international business has grown enormously. Their second largest market is China these days (I think? Or is it about to become so?). So, Foxconn makes the iPhones in China, Apple sells them in China and vast profits are made. These are new profits being made outside the US: these are not US profits being shifted outside the US.

Apple has what is it, 30% of the world’s smartphone market? 25%? That’s where that 70% of profits that are made outside the US are coming from. And Apple keeps those profits outside the US to miss having to pay the 35% US corporate income tax.

This is very definitely legal. And you have to apply your own system of morality to decide whether it is immoral or not.

But this is very different indeed from *shifting* profits out of the US. Shifting means moving US profits outside the US. Apple isn’t doing that: they’re just making lots of profits outside the US as well as making lots of profit inside the US.

To regular readers: this is really an answer to someone on Twitter……

I’m a little confused about what’s going on with corporation tax.

So, UK total dividends seem to be some £80 billion this year.

However, Capita Registrars is forecasting total 2013 dividends of £80.5bn, which is flat ion a year-on-year basis. Underling dividends are expected to rise 8.6pc over the course of the year, implying an increase in dividend growth through the rest of the year.

Corporation tax runs around £40, £45 billion a year.

Now, some of that corporation tax paid is (or is it not?) the tax paid on dividends in advance of their distribution.

The company pays corporation tax at the usual rate (now 26%?) and the dividends are treated as if they’ve already got basic rate income tax paid. That’s right, isn’t it?

So, some portion of that £45 billion corporation tax is actually the equivalent of basic rate income tax paid on that £80 billion of dividends, yes? Well, actually, no, because we want the grossed up amount of the dividends which is more like, err, £105 billion or summat?

So, the amount of corporation tax which is really just advance income tax on dividends is around and about £26 billion?

Have I actually got that right?

Thus, if we move from the current system to one where we just tax dividends as the normal income they are that £26 billion collected moves from corporation tax to income tax but nowt else changes.

The actual collections from corporation tax itself, on the retained profits of companies, is thus more like £19, £20 billion.

Thus the cost of simply abolishing corporation tax is not the £45 billion collected in corporation tax but the £19 billion that we’ll not catch via our new dividend taxation policy?

This seems to simple: I’ve got something wrong here, haven’t I?

I write this blog pretty much in my own time because I don’t think anyone funds me to wrok at 6am when I usually begin blogging for the day, or late at night when I often finish. And in between I actually do the work I am paid for.

Isn’t that an odd statement. For I’m pretty sure that when we looked at the accounts of Tax Research LLP they said that the Joseph Rowntree folks are funding Ritchie to the tune of £35 k a year to write the blog.

Unitary taxation would tax Google, Amazon, and the others who are intent on free-riding

That’s interesting, isn’t it?

Given that Amazon made a $39 million loss last year the UK would be offering Amazon a tax credit under unitary taxation.

Which is something less than the several million £ they did pay isn’t it?

So says Ritchie.

Would all those accountants who wish to receive a handjob from the Tax Justice Network please form an orderly queue over there.

Well over there please.

Kinsley writes that all the ways of looking at the national debt “lead to varying degrees of panic.” But obviously there is no panic where it matters, among those who lend money to Uncle Sam. Otherwise 30-year Treasury bonds wouldn’t be at 3.7 percent, would they?

That’s from Jamie Galbraith.

An economist who loudly and often argues that markets are not efficient at price discovery. Who rails against bubbles and booms like the dotcom and housing finance ones.

But here he is assuming that the efficient markets hypothesis holds to show that bonds are currently correctly priced.

Isn’t that lovely?

Here’s how they might do it: if a trader at a major oil firm bought a million barrels of oil at, say, $100 a barrel, there appears to be little stopping him reporting to Platts that he actually bought the oil for $100.10 a barrel.

Then, if he’s colluded with enough of his trading competitors to deliver similarly inflated prices, Platts will, in good faith, report that oil is being bought and sold at a higher price than the one it is really being traded for.

Of course, the increase in the Platts benchmark figure will be less than 10 cents a barrel because most traders report accurate data, and an average figure is arrived at.

Still, the increase, even if it is only a few cents, could lead to massive profits if the trades are big enough.

Umm, yeah, but no, but yeah.

Where’s the profit? What’s the mechanism by which someone profits from doing what is described above?

No, I understand about moving futures positions etc: but he’s not mentioned any of that. He’s saying that misreporting leading to the benchmark rising automatically produces a profit. What?

The traders’ books will be judged after they sell what they’ve bought: so it will always be real market prices, not the benchmark, that determine their perceived success.

The AA has published a report claiming that speculators are using an age-old trick to make a fast buck at the expense of Britain’s 33  million motorists.

Traders working for major commodity-dealing firms are said to have been buying up vast amounts of oil with a view to making a large profit when they sell it. They do this by refusing to release the fuel onto the market and, in so doing, force a squeeze in supply. That inevitably pushes the prices up.

Dear God.

I think I’d pay a little more attention to someone who was able to spot the difference between oil and fuel myself.

Quoting at length just so you know I’m not manipulating her words:

About $1.7tn of US corporate dollars are sitting overseas, and those companies say they would love to bring it back to the United States. But what they would do with it?

They say they would invest it in the American economy. A New America Foundation study (pdf), co-written by Laura D’Andrea Tyson,
maintained that companies could use the money for two purposes:

“They can distribute them to their shareholders in the form of dividend payments and share repurchases; and they can use them directly to fund their domestic economic activities or to reduce their debt.”

The paper estimated that $581bn in repatriated cash would go to to US shareholders, of which $192bn will go to US households. With the struggling US consumer and 12 million people unemployed, that sounds like a nice boost for the economy. Appealing, right? Companies could spread the wealth, either giving it to stockholders or pumping it into the economy – wouldn’t that be a nice change from what we hear about the unevenness of the economy, and companies hoarding cash while households struggle?

Unfortunately, it’s more like wealth redistribution for corporate dummies. History shows us that these promises are not to be trusted.

Companies had a tax holiday once before, in 2004, when a set of major corporations were allowed to bring back their overseas profits at a tax rate of only 5.25%. You might imagine that it resulted in an enormous economic boost, but here’s what happened instead, in the words of Treasury official Michael Mundaca:

“There is no evidence that it increased US investment or jobs, and it cost taxpayers billions … the nonpartisan Congressional Research Service reports that most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 – despite overall economy-wide job growth in those years – and many used the repatriated funds simply to repurchase stock or pay dividends.”

So we tried a tax holiday before, it accomplished nothing except lining some corporate coffers, and it hurt the economy.

No, run through that again.

So, Laura Tyson, real live economist, says that bringing the corporate cash piles home could be a good idea because the money will flow out to shareholders and households in dividends and stock buybacks. Ms. Moore thinks this is a good idea.

The evidence from last time is that the money brought back from the corporate cash piles flowed out to households and shareholders in dividends and stock buybacks.

Ms. Moore takes this as evidence that it all didn’t work because it worked exactly as advertised, exactly as she herself agrees would be a good idea: the money flowed out to shareholders and households.

Is there some kind of special lobotomy it’s necessary to get to write about economics for The Guardian?

And it is indeed the sort of breakthrough we desperately need, since – in little more than 35 years – the world will have to increase food production by a challenging 70 per cent if it is to feed its growing population.

The population is expected to grow from 7 billion ish to 9 billion.

That’s a 30 % or so rise in population. Why would a 30% rise in population require a 70% rise in food grown?

Note that he’s not saying a richer population (which is more understandable) but purely a larger one.

And do note that Mr. Lean is also the one who tells us that up to 50% of the food currently grown doesn’t get into the bellies of people. I do sorta wonder whether these people can do joined up thinking.

That time period (the last three decades), which coincidentally spans my professional career, has seen the global economy increase by approximately 3.4pc per annum in purchasing power parity terms.

Compounding you see: that makes the total economic output some 2.7 times what it was only 30 years ago.

There’s another way of putting this: GDP is the value of all goods and services produced at market prices. That is, the value added in the economy. And another way of thinking about value added is that this is the capacity, a measurement of our ability, to solve human problems. Which has more than doubled and near tripled in just a grandfather (as Terry Pratchett calls 30 years).

All rather good, innit?

Oh, and we could try mapping this over the IPCC’s economic forecasts too. A1 is where we have more globalisation, more and continuing capitalist free marketry. GDP growth continues in the 20th century as it did in the 20th…..at about 3% actually. And there are two very important outcomes of that forecast. Firstly, human poverty is abolished by 2100. Finally, entirely done, over.

Hurrah!

Further, if solar power continues to get cheaper as it did in the 20th, if energy intensity of production declines at that same 20 th century rate, then according to A1T then there’s no problem with climate change either. This is, note, without any plans at all to do anything about it.

As Mr. Dillow (pbuh) has been wont to note the best forecasts are usually that tomorrow will be much like today, next year like this, next decade like last.

If we just carry on like we have been our two most difficult problems would appear to very much solve themselves.

Hurrah, eh?

At the ASI.

The way the ultimatum game differs across societies