Coase: “I can tell you– I was helping when Britain was trying to get a loan from the United States immediately after the war, and I was talking to one of Keynes’s assistants. And Keynes came in the room and walked over to us and the man I was talking to us said, ‘This is Coase, who is helping us with the statistics. I don’t think you know him.’ And Keynes said, ‘No, I don’t.’ And walked off. And that’s my life with Keynes.

Not a lot really.

As a student, lawyer and business person I never doubted capitalism as an engine of growth and prosperity for the whole of society.

In my career I have started and built several companies across the US, Europe and Asia, benefiting from a system that – to borrow Yuval Levin’s words – lets markets set prices, buyers make choices, and producers experiment, innovate, and make what they think they can sell.

In recent years, however, financial failures have shaken the world’s confidence in free markets.

Caoitalism and free markets are not the same thing at all. One is description of a method of ownership of productive assets, the other a description of a method of exchange.

You can have either one without the other as many places have shown over the centuries. Please, do stop conflating the two.

Oh, and as to which is more important? Markets, of course.

From Ben and Jerry’s ice cream:

He insists that focusing on “shared values” – rather, presumably, than share value – is “very profitable”. Whereas conventional companies “pay a whole bunch of money to advertising agencies to come up with a made-up story to try to make the public feel good about their brands, a value-led business puts its resources into adding to the quality of life in the community. That builds customer loyalty.”

Super, go for it. Have fun, make money.

But of course, this only works with those who share or desire those values that you are pushing. And there are some very different value systems out there. There is an, admittedly and thankfully very small, market out there for a company whose values include being beastly to Jews. I don’t think it will shock anyone at all to hear that there really are racists in our society who would respond to having their idiocy pandered to. Or sexists, capitalists, neoliberals and all sorts of groups that have slightly different value systems from those put forward by Ben and Jerry’s.

And yes, there are those who will respond to the idea that the Brazil nuts in their ice cream were harvested from wild forests. Although quite why they should, given that the nuts don’t grow well in plantations and are thus not commercially farmed in that manner is a tad beyond me.

So, companies that appeal to the values of their potential customers: yup, great idea. Have fiun and make money. But I’m afraid you cannot complain if some of them appeal to values you don’t share: for many will not share the values that you push.

Which leads then to the joy of this market thing. Companies that do define themselves by these values get to compete for the attentions of those who care about such things. Those catering to the rarer prejudices will either fail or stay small, those who cater to the mass ones successfully will prosper and grow fat. Which is excellent, isn’t it?

For it is how we get both Simon Cowell and the Royal Philharmonic, both Virgin Airlines and Ryanair and both Walls and Ben and Jerry’s.

7. Sin taxes don’t discourage addicts because they need the products that much. High taxes on the rich, however, will discourage them, despite the fact that they are the most driven and innovative individuals in society.

Because elasticity. Look it up.

We can and do impose high taxes on those so called sin products because we know that demand is pretty inelastic with respect to price changes.

We also have pretty good estimates of the response of the wealthy (and, indeed, of the poor to the much higher tax and benefit withdrawal rates they sometimes face) to marginal tax rates.

The advice is therefore that marginal income tax rates should be lower than those sin tax rates.

Because elasticity. Worth looking it up really.

There is no inherent contradiction between delivering higher returns to investors and addressing society’s most pressing unmet needs.

Well of course there bloody isn’t.

If you are making high returns you are, by definition, adding great value to the resources you are using to create your production. Adding value is how unmet needs are met. So adding lots of value meets needs which produces high returns.

This is actually the very point of the whole capitalist/free market melange, not some surprising side issue.

Inflation is predicted to stay obstinately high while wages lag, shrinking demand in households with ever less to spend.

Imagine that you were a country worried that the amount that must be paid locally for labour made the production of that country uncompetitive on the world markets. No, go on, really, imagine it: you’re Germany circa 2000.

So, what do you do? Quite, you deliberately plan to have wages grow less quickly than either (or even both) inflation and productivity growth.

The outcome of which is? Quite, look at Germany today.

So, UK today: our trade deficit does show that the place ain’t competitive in many things. So, what should we do? Yup, let’s have a little burst of inflation to lower real wage costs.

And won’t Will Hutton be pleased that we’re finally following Germany?

Excellent, so let us continue to study this question and use such cash incentives where they do work and not where they don’t.

My suspicion (OK, call it what it is, prejudice) is that they do work in many fields where current society says they do not or should not.

In China, the business of paying people to queue has become routine at top hospitals. There, the market reforms of the last two decades have resulted in funding cuts for public hospitals and clinics, especially in rural areas. So patients from the countryside now journey to the major public hospitals in Beijing, creating long waits in registration halls. They queue overnight, sometimes for days, to get an appointment ticket to see a doctor.

The appointment tickets are a bargain – only 14 yuan (about £1.20) – but it isn’t easy to get one. Rather than camp out for days and nights, some patients, desperate for an appointment, buy tickets from touts. The touts hire people to queue for appointment tickets and then resell them for hundreds of pounds – more than a typical peasant makes in months.

There is something distasteful about touting tickets to see a doctor. For one thing, the system rewards unsavoury middlemen rather than those who provide the care. Doctors could well ask why, if appointments are worth so much, most of the money should go to touts rather than to them, or to the hospitals. Economists might agree and advise hospitals to raise their prices. In fact, some Beijing hospitals have added special ticket windows, where the appointments are more expensive and the queues much shorter.

For example, why shouldn’t there be a reasonable co-paymnet for seeing a doctor? As there is in various European medical systems but not in the NHS?

I’ve no problem with hte idea that all markets all the time cash markets does not a perfect society make. But I do, as above, have a very strong feeling that proper study of this particular point would lead to more cash markets than we currently have.

The insight that the fiscal policy stance in the periphery prior to this crisis was insufficiently countercyclical

Talkin’ about Spain and Ireland although the same was true of our own G. Brown in smaller measure.

Let us, for a moment, accept the basic Keynesian premise, that we should run great big stonking deficits to provide fiscal stimulus in the middle of a recession/depression.

That also means that we should run great big stonking budget surpluses in the middle to end periods of the largest and longest economic booms in advanced country history.

They don’t quite have to be symmetrical given the effect of growth and inflation upon debt levels. The surpluses and the deficits that is.

But there does have to be, or at least there ought to be, some connection between the general size of them.

Now, look around you, we’ve got countries that are, or have been, running deficits of 5, 10, 15% of GDP in those recessionary years. This implies (but for the above reasons of asymmetry not quite proves) that countries, back in that boom time or the next time a boom comes along, should be running surpluses of 5, 10, 15% of GDP.

And no, it’s not just to save up the money to leave room to blow out the deficit again in the next recession. It’s that this is what you’re supposed to be doing to manage the economy: temper the booms just as you temper the recessions through fiscal policy.

OK, hands up, who can imagine anyone running a 2 or even 3% budget surplus consistently for some years, let alone 5 or 10%?

We actually had this ourselves: debt repayment in 2000, 2001 wasn’t it? Before Brown splurged after the second election to “invest” in public services? To the great cheers of all at The G?

Quite: it’s the politics of Keynesianism that clearly does not work. Doesn’t in fact matter whether it actually works as economics, the incentives to politicians mean that it never will work in practice. Simply because the body politic would never let anyone get away with running the appropriate surpluses that are a necessary part of the complete theory.

Keyens may even have been right in his economics but that’s not the appropriate argument. It’s just not possible to make it work in this real world.

Here’s the problem: what does this have to do with income distribution in a modern capitalist economy? The answer is as follows: nothing. Absolutely nothing. In this island there is no state; people do not cooperate (actually they appear not to have any relationship whatsoever); there is no injustice; there is not even trade. So the thought experiment is worthless.

The point of models being to strip away all that other stuff in order to just discuss the point at issue. In this particular case the point at issue is what is unjust? More specifically, is it just or unjust to force the productive to increase their production in order to supply the unproductive?

there is no injustice

Of course: given that we are trying to explore injustice, we cannot assume injustice in our model. That is petitio principii, a violation of logic let alone economics.

It is especially annoying that Banerjee was put back in the committee two years after he gave the award to his colleague and lover (not a secret any more now that they have a baby).

About the award of the John Bates Clark Medal by the American Economics Association to the best economist under 40.

Often thought of as as an indicator of a future Nobel.

Too few understand that what besets capitalism is unknowable risk – the risk of transformative new technologies, the risk of making epic business mistakes, or the risk of there being no demand for the goods and services a business produces. The task of government is to mitigate those risks – funding new technologies and actively using the tools of financial, fiscal and monetary policy to ensure there are rewards from innovation and investing. The paradox of successful capitalism is that, one way or another, risk has to be socialised.

If the risks are unknowable then how can those clever technocrats in government plan what to invest in?

If we really are fumbling in the dark then we cannot have planning, can we? We have to have the experimentation of the free market.

just think of the way Henry Ford raised wages so Ford workers could buy his cars.

Dear God, this miserably stupid story again?

How is it that such obviously false fold tales persist?

As explained by an A level student at a 6 th form college.

So what are the figures? Well the total personal wealth in the UK stands at around £9,000bn (compare that with our national debt and it’s a pitiful £990 billion). Anyway, if you don’t feel you own that much wealth than that’s because you probably don’t. This is because the richest 10% own a very large amount (around £4,000bn). This averages at around £4 million per household. Therefore if we have a ‘one-off’ tax of 20% for the richest 10% (the 6 million households with an average net worth of £4 million) than the UK government would receive around £800 billion.

This would pay off the national debt and avoid the need for deep and harmful cuts in education, welfare and public services.

That gets an A* as part of an A level paper.

Familiarity with the figures, capable of following the argument, correctly distinguishing between stocks and flows. Who wouldn’t give this top marks?

It will also fail the first year of a university course.

For how is this tax to be collected? Sure, we calculate what each person’s wealth is: difficult but not impossible. We don’t actually keep records of the value of wealth by who holds it but we could do the task and work it out. We know total wealth, we know the rough distribution, but we don’t in fact know to the accuracy necessary for taxation because we don’t currently tax it. Valuations of private companies, of houses not on the market, of paintings and jewelry not recenty bought or sold. Sure, we can approximate, compare, but that’s not qute the same as having a solid number we can tax.

But overlook all of that. What actually happens? We’ve calculated the tax bills, sent them out and then they must, obviously, sell some portion of their wealth in order raise the cash to give to HMRC. For HMRC certainly doesn’t want to be paid in paintings that go to the National Gallery, that doesn’t reduce the national debt, does it? Nor houses in Belgravia: we’re not going to turn them into council houses and even that wouldn’t reduce the national debt.

Sell them to whom?

We’ve got the top 10% of the wealth holders all trying to liquidate 20% of their wealth at the same time. So no wealthy person will be a buyer of any of these assets. And we can’t expect the 90% of the country to buy them as by definition they’re the people without enough wealth to buy them in the first place.

So prices of top end assets tumble: leading to one of two things. People have to keep liqudating assets to meet that 20% charge on the pre-tumbling asset prices. This will obviously just continue and destroy the value of many of the assets. That wealth that we’re trying to tax disappears into hte mists as market prices fall. Which doesn’t really get us anywhere.

The other is that people are indeed able to pay their taxes in kind, can hand over a house or a painting to HMRC to avoid this problem. But then as HMRC tries to liquidate the same thing happens. And if they don’t liquidate then of course we’ve not paid off any of the national debt.

A wealth tax of 1%, 2%, avoids all of these problems as it doesn’t swamp the market for these assets. But a wealth tax of that level doesn’t pay off the national debt either.

So it simply will not work.

And that’s without even delving into the economics of taxation: taxes on capital cause hugely greater deadweight losses than repeated taxes on immovable property (ie, rates, or a 1% mansion tax, these sorts of things, or even LVT) or consumption.

So, this sort of essay will get you into university where you’ll learn why this sort of essay is wrong.

Next week we discuss how chemists aren’t adding much to the scholarship of Elizabethan sonnets.

It wasn’t always like this. One way of characterising what has happened in America and Britain over the past three decades is that people at the top have skimmed off increasing amounts of the money made by their corporations and societies.

And an economist would then go on to ask how? Why? Is it remediable? Would we even want to remediate it?

And the general pencil sketch answers might be because globalisation. Those at the very tippy top, the top 0.1% (and the increased inequality really is up there, not even the top 1%) are now able to sell their rare talents (and there’s even room for exploit their rents if you prefer) by taking pennies off billions of people rather than just the tens of millions in their home economies.

Is it remediable? The market distribution of such incomes: sure. Pull back on globalisation. That’ll cut those top incomes very nicely indeed. Do we want to remediate it thus?

Probably not for the flip side of globalisation has been the largest reduction in absolute poverty in the history of our species. Hundreds of millions, nay billions, have moved from rural peasantry to the pleasures of three squares and fresh clothes each day. With a roof n’all.

The effects of globalisation have roughly been a rise in within country inequality, a falling in global inequality and the rise of those billions up out of absolute poverty. And despite my not being in that top 0.1% (nor even the top 1%….some years I just about manage to scrape into the top 10% of UK incomes) I do have to say that I think that’s an extremely good bargain for all.

You know, we are supposed to celebrate the poor getting rich, aren’t we?

Poverty is shifting from inner to outer London, report finds

Sure, we’d all prefer that there wasn’t any poverty at all (which to a large extent there isn’t in the UK, this is talking about relative poverty, not absolute).

But if poverty there is going to be then we’d rather it was in cheap places not expensive ones really.

You know, not in the middle of one of the most expensive cities on the planet?

So, whatever it is that’s being done it seems to be working, eh?

However, it is
increasingly the case that the economy is dominated by non-marketed services, such as
public health and education provision. These are included in GDP, but the fact that output
in these areas is difficult to measure means GDP is now a less-r eliable representation of
the economy.

…

Furthermore, some activities that increase production are deemed to contribute fully
to GDP even though they have negative impacts on society’s wellbeing.

This is absolutely true. Government spending is counted as a contribution to GDP by counting how much is spent, not the value of the production that comes frm that spending.

If we’re to improve our measurement of GDP then we really ought to solve that problem, eh?

However Nick Pearce, the IPPR’s director, voiced concern at the implications of the study.

“This shift has implications for inequality, as well-educated, higher earners marry each other and then pass on the fruits of their combined success to their children,” he said.

“While governments have no business telling people who to marry, and have plenty of bigger economic inequalities to aim at, it is important for policy-makers to understand these trends if they are to have a full understanding of what’s driving the stagnation in social mobility.”

Of course, we need to go further than this: assortative (or associative, your choice) mating has indeed rather changed the face of inequality in the UK.

The move of women into the workforce, the delay of marriage (and primagravidae) until 30 ish, has meant that partners are generally chosen from those one works with. Or at least those one meets in the social activities surrounding work.

Thus we’ve a great increase in professionals marrying professionals, white collar white collar, blue collar blue collar and so on. The social classes may well have sorted themselves this way before: but those in work did not in quite the same way.

Thus we’ve got the rise of the two professional income household: this is rather different from what we had before. I’ve not seen the numbers for the UK but in the US it’s really quite stark. When you look at the distribution of household incomes the top 10% and 20% (ignoring the very few who are making millions upon millions) are dominated by those two professional households. The bottom 10% by those where there’s no one in work. Then two manual worker households and so on.

This obviously has effects on the inequality of household incomes. And there’s really not much that anyone can do about it either. We’re certainly not going to go back to the days when it was the income of the household rather than the individual that was taxed. That would be to make women mere economic appendages again.

Think of it this way. We’ve some household in the Midlands, Dave works full time in metal bashing, making £25k a year, median wages (ish). Poll does a bit of part time work for a further £8k a year. This is true now and was true 50 years ago (yes, working class women have been part of the labour market for most of the time, they’ve had to be).

We’ve also got David who is senior in journalism, on one of the great national newspapers, on £100k plus, perhaps moves into PR on similar sorts of numbers. His Polly was a typist on the newspaper where they met and she’s carried on doing a bit of that here and there for £10-£15k a year (London numbers for part time).

Or today’s numbers, David’s the same but Polly is also one that £100k as she’s also a senior journalist on that great national newspaper.

We’ve moved the gap between household incomes from £33k to £100k to £33k to £200, £250k. Household income inequality has grown without wage income disparity having grown at all.

And there’s really not much that anyone can do about it.

A fourth phase now looms because up until 2008-09, regional policy – such as it was – involved redistributing tax revenues from the south into higher public spending in the north. As work by Karel Williams and Sukhdev Johal for the Centre for Research on Socio-Cultural Change at Manchester University has shown, the state compensated for the retreat of the private sector. London accounted for almost half the full-time job creation while Labour was in power between 1997 and 2010.

Perhaps it’s the way in which that higher public spending in the North has led to incomes being higher than productivity? Something which we know reduces employment as who is willing to employ labour for more than the value of employing labour?

The solution therefore is to reduce said public spending so as to reduce that cost of labour.

Or, if that’s all too much, why not reduce the burden of the State? In fact, when I’m dictator, this is what I’m going to do.

I’ll leave all of the current planning permissions and HSE and EU and all rules in place in London and the SE. And I’ll abolish them everywhere else. Then let’s see the power of capitalism and markets red in tooth and claw against the social democratic compromise.

It’ll be the current England rules against Hong Kong rules and may the best man win. Me, I think that the North would be richer than the SE within a decade: but at least this way we’ll find out, won’t we?

Hutton thinks that if clever people like Wee Willy Hutton tell everyone else to do then the economy will grow off into the indefinite future. This is pretty much what Japan did for decades when all the clever people were in MITI.

But there comes a point when this does not work. As explained by a real economist (ie, not either Wee Woolly or myself). Essentially, when playing catch up growth the clever people telling the proles to get educated, stick the women into the workforce, mechanise agriculture, this all works, to a point. When you get to the technological frontier this works no longer.

For a very simple reason: uncertainty.

No, not risk, but uncertainty.

When we’re trying to grow at that frontier we face the fact that we just simply do not know, among all of the possibilities, what it is that people will value. Thus, given that GDP is a measure of value added, if we don’t know what it is that people will value then we cannot know what it is that will increase value created.

It does not matter how clever people are. Doesn’t matter whether those clever people are in academia, the bureaucracy, politics, big business or small. No one knows and no one can know.

If you can point me to any of the above who predicted Angry Birds, pet rocks, consumer use of SMS or the popularity of Strictly Come Big Brother Darts Playing on Ice then I might be persuaded otherwise.

At this limit of what we know how to do we have no alternative to a pure market system. Not because we don’t have clever people but because being clever ain’t the point. Being lucky is. We need the tens of thousands of experiments, the 9,999 snds of failures, before anyone clever or not can work out what is adding value and thus is growing the economy.

And this is what I insist is wrong with Huttonism, that he just doesn’t get this basic point. He’s living in a country, he’s advising one, where the problem is not insufficient guidance by the clever, it is the impossibility of guidance by the clever.  So advocating such guidance just isn’t going to work.

In Japan, …… toilet seats are electronically warmed and cleaned;

Willy’s elderly British Bottom was thus presented with a warm and clean seat from which to crap his advice to you. So that’s OK then.

That the economics blogosphere is as close to a global free market* as we can get shows the need for more local production.

Hmm…..

* Zero cost at the point of consumption, zero transport costs, 7 billion potential providers etc