Attempts to stabilise the economy have frustrated capitalismâs creative-destructive tendencies. Depressed economies need disrupting, not preserving
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Samizdata quote of the dayJuly 30th, 2016 |
 33 comments to Samizdata quote of the day |
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So, none is good, low is bad, high is good? Mullan correctly identifies the culprit as the “use of government subsidies, procurement policies, public-private partnerships, product and market regulation”, but those are bad policies on their own, not because they are combined with low taxes.
How about zero? It’s adorable how the Bank of England on their own website in the very first sentence are quick to redefine the mandate of price stability as low inflation. Cue in Inigo Montoya and this word not meaning what they think it means. Price stability is not the same as price change stability.
This and this.
Yeah I was pretty sure that was going to cause steam to come out of people’s ears, haha
In recent years we’ve seen massive ‘green’ R & D investments and subsidies disappear in a cesspool of cronyism, corruption and waste.
BUT, I get the impression that in the UK the R & D investment in medicine has been paying off and that Britain is now (once again) one of the world’s top centers of medical research, much of it paid for and subsidized by Her Majesty’s Taxpayers.
So I have to ask our friends on that side of the pond, why the difference ?
It is not that state funded R&D *cannot* produce good results, but rather other ways are better.
While I take issue with some of Mullan’s specific points*, the overall thrust of the article is spot on. Although targeted specifically to the UK, much of his argument applies equally on this side of the pond.
He is absolutely correct that “easy money” policies (artificially low interest rates) are economically distortive and are the direct cause of the present “zombie economy” (and of the inevitable correction, which is being delayed and, ultimately, exacerbated), and that “depressed economies need disrupting, not preserving.” Unfortunately, preservation of the status quo, and maintenance of the crony-capitalist gravy train, is the primary concern of some very powerful elements of society. That obstacle to real change will be very difficult to overcome.
My problems are mostly with his Steps 3, 4 and 5. I have issues with his call for a temporary “surge in government infrastructure spending” (which would likely degenerate into a typical “make-work” welfare program), but perhaps that’s not too high a price to pay for the rest of the necessary changes provided that they actually occur. And his call for a massive increase in government spending on scientific research is just silly. Most of that money will be wasted on “climate change” research and similar boondoggles for the politically-connected. A vibrant, growing economy will generate its own R&D from companies seeking to compete for business; no government help necessary. And he calls for far too much government involvement in his “fourth industrial revolution”; too much government “orchestration”; too much “catalyst funding and government-sponsored collaborative projects” to allow real change; too many calls for “a direct [governmental] role modernising physical infrastructure, including housing, transport, energy and communications.” But given the quasi-socialist nature of your society perhaps that’s the best you can hope for.
In response to Plamus’ complaint, Mullan isn’t saying that high business taxes are good; he’s merely saying that the call for a mere 2% reduction would be “timid and ineffective”, and that your current tax rate (the lowest of the G20 nations) isn’t the primary problem anyway; there are bigger fish to fry (such as the regulatory burden). He’s probably right WRT the UK, but probably not WRT the US. Unfortunately we don’t have a Brexit to act as a catalyst.
Mullan is on the right track. I hope his advice is given serious consideration.
* For example, I disagree with his cavalier dismissal of TINA, and with his implicit assumption that the government should be setting interest rates (his only objection seems to be the “outsourcing” of that function to the BofE).
This type of writing (Mullan’s) reflects what Hayek critiqued as constructivism.
[** added]
There are these constant conclusions that “policies” can provide solutions.
No doubt the comments will be replete with policies.
I certainly agree with Perry’s comment that government spending on “Research” should absolutely not be increased, and should ideally be cut or eliminated.
Taking the issue in purely “economic planning” terms (not the way Perry would treat it, I am sure, nor the totality of what I would say, but an attempt to meet Mr Mullan on his own terms), there is very little evidence that government spending on R&D drives economic growth. And if you’ve been following the meta coverage of scientific scandals of the last few years, there’s an increasing body of evidence that it doesn’t even increase scientific understanding, with much of it irreproducible or flat out fabricated.
Taken a leaf out of P.J. O’Rouke’s book, who waxed lyrical about an air-craft carrier as the best waste of government money he’d ever seen, if we’re going to spend vast amount of taxpayer’s cash, I’d much rather it got spent on transport infrastructure. Then you get something for it, even if not something worth what you paid, at least it isn’t totally pissed up against the wall. “Overinvestment” in roads, railways and airports might leave empty highways carving up the country, airports on the Spanish regional model, and so forth- not a good thing. But at least a comfort for those that use them; and I rather doubt Britain is going to see empty highways any time soon. “Overinvestment” in research, by contrast, at best stays in a drawer. Most likely it spills over into Grievance Studies courses, reasons why earning a living gives you cancer and must be stopped, and other such actively destructive outcomes.
Sure, like Perry, I would much rather the money was simply left in taxpayer’s pockets. But I do think the author does have a good point when he says “onerous taxes are not the reason businesses are not investing”. It is regulation, rather than taxation, that is strangling the economy.
A better attempt to jump-start the economy would begin with pinning up a list of regulatory agencies on the wall, and shutting down the first fifty you hit with a dart thrown in the general direction of the wall – with your back turned.
If a government had the guts to do that, I’d put up with quite a few potential white elephant vanity projects in the name of “investment”.
Let us revert to reality for a moment:
“Governments” don’t do anything.
Motivated humans do things using the mechanisms of governments (as well as other organizations) to do things.
Look to what those humans are seeking to do; which, as most here know, is not always what they purport, or are purported, to be seeking. AND, always consider the motivations.
Libertarians supposedly favor limiting the uses of the functions of governments. Expanding those uses exposes them to to the expressions of more and differing motivations. The resulting conflicts can be, and are, a deterrent to advancement and improvements in the conditions of mankind.
Laird, how can you read you read “In fact, in todayâs circumstances, low-business taxation undermines innovation investment because it operates as a form of state subsidy that helps British companies keep going” other than as a call for higher taxes? The only charitable interpretation I can think of is that he means that low taxes combined with subsidies, etc., is what undermines innovation – in which case his point was very poorly formulated.
I remember, as a sixteen-year-old reading Rand, thinking that her “Anti-Dog-Eat-Dog Rule” was the height of lurid exaggeration – an over-the-top satire too easily parsed to its absurd and obvious conclusions to be taken as serious warning.
She’s only seemed more prescient with the passage of time.
Plamus, I think that sentence isn’t so much a call for higher taxes as a continuation of his earlier assertion that reducing business taxes at this point wouldn’t much matter, as they’re already fairly low in relative terms. He’s right about that latter point, but whether the tax burden nonetheless inhibits economic activity, at least at the margins (even if it doesn’t overtly drive such activity to other countries) is certainly open to debate. Nonetheless, I still think he’s right that reducing the regulatory burden should be higher on the UK’s priorities list than cutting taxes.
But the sentence you quoted does expose Mullan’s essential statist bias. The assertion that low (or even lower) taxes constitutes “a form of state subsidy” shows that he implicitly accepts the “tax expenditure” fallacy: that any money which the government, in its beneficence, chooses to permit you to keep constitutes some sort of “payment” by the state. In other words, that the state has a legitimate claim on everything you earn or own. Obviously I reject that assertion, as does probably everybody on this site (and, perhaps, as would Mullan himself when the proposition is stated that baldly). But this sentence, coupled with many of his other prescriptions (some of which I addressed in my earlier post) suggests to me that Mullan is not a true free market advocate, or an Austrian economist, and certainly not remotely libertarian in his outlook, but is rather a statist pragmatist. He recognizes that serious change is needed, and that Schumpeter’s “creative destruction” plays an important role in that, but he cannot wean himself from the idea that the state must be in the middle directing things, rather than merely creating an environment in which economic actors can flourish. As I said before, he’s on the right track, but I’m not sure it’s entirely for the right reasons, and he certainly has a long way to go.
Laird, you should probably leave that comment under the article in question đ
Actually, in some cases, that is not a fallacy. If the government offers a tax exemption for the expense of painting your living room lime green (but no other color) that is no different from the government offering you a grant for painting your living room lime green. (Except for people who do not earn enough money to paint their living rooms, of course.)
In fact, the whole racket of exemptions reminds me of Soviet-style central planning.
Our democrats -the left- often despectively call low taxes a subsidy, but they’re also always calling for subsidies for their favorite industries of the moment. The right response is to call for equality of subsidies (i.e., lower taxes across the board and no explicit subsidies), then watch their heads explode. If only a govt actually tried this!
(Explode in anger, that is. They’re so dumb as to be unable to compute the idea. They just wouldn’t like their rhetoric used against them.)
Thanks for the suggestion, Perry, but for it to make any sense I’d have to somehow combine both of my already-long posts. That’s more effort than I’m willing to expend on Spiked’s readership. But you’re welcome to purloin them if you’d like! đ
Snorri, I will concede that it is theoretically possible to construct a tax credit that looks and smells just like a subsidy, but that’s not what is generally meant by the concept of “tax expenditure.” Which I’m sure you know.
No, Laird: as long as i have to lift a finger to get a tax credit — that is, as long as i have to tick a box in a tax return — it is a subsidy as far as i am concerned. The issue is not whether tax credits are always bad: the issue is that we should stop being in denial about the identity of tax credits and subsidies.
Tax cuts are an entirely different matter, of course.
Not buying it, Snorri. If the government permits me to keep more of my money than it permit you to keep of yours, you can (with reason) argue the it’s inequitable, but it’s not a “subsidy” to me. It’s simply a (greater) theft from you.
And of course we were talking about tax cuts anyway. You’re the one who brought up credits.
Phil Mullan: “Depressed economies need disrupting, not preserving”
As part and parcel of a depressed economy too, the financial sector. Which is largely the cause of our current prolonged depression. We probably don’t need twenty banks for an economy the size of the UK, we certainly don’t need a government bank like RBS.
Germany too would be well rid of Deutschebank, it’s profits dived 98% and is angling for a bail out. Again! Commerzebank too is in dire straights, as are more than a few Italian banks ( plus ça change, plus c’est la mĂȘme chose ).
Yet, strangely, the financial sector is given special treatment.
Laird: perhaps i misunderstand. When i hear “tax expenditure” i understand it to mean “tax credit”. I assumed that that is what you meant, at least “in some cases” as i said in my first comment.
I am discussing the case in which the government permits you to “keep” more of your money because you actually already spent that money on painting your living room lime green, and i didn’t. If you were going to paint your room lime green anyway, then you get to keep more of your money at no extra cost to you; but even in this case, i fail to understand the difference between your getting a tax credit and your getting the same amount of money in the form of a subsidy. At most, one can argue that a subsidy would require filing another form in addition to the tax return, which is more of a hassle.
If it were possible to “stabilise” an economy, we’d still have the Babylonian economy. Or the Periclean one. Or the Roman one. Or the medieval one. Or the caste system Indian one. Or the Louis XVI one. Or the Corn Law one. Or the 1911 Lloyd George one. Or the Lenin one. Or the Mussolini one. Or the FDR one. Or the Attlee one. Or the Nixon one. Or the Brezhnev one.
Or, now, the current free worthless money crony capital unlimited credit rent seeking bureaucratic one which is apparently the apogee of human economic progress. Lock it in quickly!
Our Masters have been trying to “stabilise economies” as long as there have been people. It’s what the winners do like cows eat grass, trade the possibilities of our future for their own continued power.
Fortunately, all these “stabilisation” efforts do is impoverish, enslave, or kill people. They don’t actually succeed.
The “stabilising” efforts are specifically about saving the “Financial System” – the banks and so on.
And the collapse of this “financial system” would indeed be terrible.
But no true progress can be made till this bankrupt (in fact if not on law) Capital Structure is allowed to go.
In Japan, in America – and here in the United Kingdom also.
If stability is an issue in the economic (generally, exchange) relationships of a society, perhaps we should look at what is DE-stablizing; how and why that comes about:
Departures from, or the lack of standards of, consistent measurements, particularly for comparative purposes, deserve prime consideration.
If the medium of exchange and units of account (money functions), basically measurements, are not “stable,” or at are prevented from adjusting or changing in an observable, orderly pattern (with some degree of predictability), an exchange economy usually incurs instabilities.
If an economic obligation is measured in “feet traversed,”
changing (politically, socially or militarily) a foot from 12 inches to 10 inches (for some obligations) will destabilize the exchanges based upon that obligation.
Reading economic history reaching back over long periods seems to indicate, that apart from catastrophes and periods of violence, there is a high correlation of disruptions of measurements with “economic stability.”
In current periods the changes to measurements (monetary in particular) made for political purposes of fiscal objectives of politically directed governmental activities have been, and are, observable disrupters; keeping in mind that most monetary systems consist of credit.
“And the collapse of this âfinancial systemâ would indeed be terrible.”
Why? Why is the failure of a bank worse than the failure of a florist?
Or more accurately, why is protecting the owners of a bank from their bad decisions more important than protecting a florist from his?
Staghounds, the failure of a single bank would indeed be irrelevant. When speaking about “collapse of the financial system”, however, we are speaking about the entire system: all (or nearly all) banks and other major financial institutions, worldwide. Given the complete interconnectedness of the banking system, where information travels nearly instantaneously, and the fact that for the first time in human history the entire world is on a fiat money basis, to some of us its ultimate collapse seems inevitable. But the effects on those unfortunate enough to be living through it would be catastrophic.
When the Bank of England stuck to a gold standard, for centuries, the world also had its’ first age of Globalisation, and trade. This was also the age when governments did very little ‘for’ the citizens, but left them to do their own things. Is this just a co-incidence, or would a functioning gold standard bring stability back into economics?
Nicholas,
At the end of that period of expansion (fueled by exploitation of new territories and of populations and therefore ended by conflicts over territory between those expanding and by the assertion of the populations’ rights in the exploiting countries) there was a rather large crash in financial systems. This was partially caused by the inflexibility of currencies that were dependent on the price of gold rather than free floating – and outside the US was basically rectified by modifying the relationship of gold to the currency (as well as local measures).
I never understand why people who would have been opposed (I assume) to the ERM and Euro are happy to consider linking a currency to metal holdings. It’s not as if gold has any more real value than a free-floating currency – it’s value is determined by what people are prepared to accept it being worth (OK there is a base value for gold as something pretty and conductive, but it’s not the value it has due to investment). Gold is simply another form of currency, albeit a fairly illiquid one (below 1,064 degrees Centigrade anyway), so the gold standard is simply another form of currency union.
I’d suggest you’d be better promoting multiple currencies – a market in currencies would work as well as anything else in terms of providing dynamism and creative ruin to the economy.
@watchman
Does gold (or any other particular rare metal)have a “price,” or a is it a “value” which may be used as a determinant for the relative utility of a “currency” (monetary unit) within any (non-domestic -closed) exchange system where that currency is deployed?
Another way to study the same question is through the comparative usefulness of a monetary unit from one system for exchanges within another; Pounds Sterling for U S soybeans; Euros or Yen for those of Brazil.
With no standard of measurements for relative “values” internally within a non-domestic (closed) exchange system there will be no comparative “prices.”
Example: Purchasing Power
Equivalences – “The Big Mac Index”
One of my enlightening experiences was trying to arrange a back-to-back loan using a very large amount of the then Irish Punts; to which the Scot banker responded, “Counsellor, what the hell would I do with that much in Irish Punts?”
RRS,
You could express value or price of currency in gold should you wish (and to be honest it would be more meaningful to have a single point of comparison than using an actual currency exchange), but the issue is that gold is not liquid, so would not be an ideal measure of value, if such a thing exists.
I would not agree there is no price – US soybeans, should I wish to buy them, can be brought through a broker (or through a US seller willing to convert money) for a price agreed in pound sterling, so there is a price outside of US dollars. This price in pound stirling may not (and indeed should not) equate to the price in US dollars converted at the current exchange rate, as the utility of the currency used is a consideration in the transaction and so may raise or lower the price compared to the value in the unit of currency in which the seller is working. That is to say the pound, or gold, might be so attractive or so useless as to lower or raise the value of the soybeans to the seller because the presence of the currency in the transaction is an incentive to set a different price (the final price being the mutually agreed value to the seller and buyer, but here we are assuming the buyer is able to pay whatever the seller is valuing it appears – the buyer is almost certainly a government agent…).
Watchman, it is a truism that a currency has value only to the extent that people perceive it as having such. Gold (and silver) have been accepted as storehouses of value (i.e., as “money”) throughout human history, for a variety of legitimate reasons which I won’t rehearse here. And, equally importantly, it has never been thought to have no value at all, which is more than can be said for fiat currencies. Every one of them, sooner later throughout history, has eventually collapsed and lost all its value (i.e., its convertibility into useful goods). The same will eventually happen to all modern currencies.
A commodity-based system simply specifies that the nation’s currency is exchangeable on demand for a specified amount of that commodity. (It needn’t be gold; any commodity will do, although gold has history on its side. But a “basket” of fiat currencies will not do.) As such, it serves as a check on the spending ability of the government; if the government starts printing too much currency its gold reserves will become depleted and no one will accept the currency. That is its inherent virtue, and is also the reason why governments hate it; it ties their hands. The “rather large crash in financial systems” following the Age of Empire was not due (in any rational sense) to “inflexibility of currencies”; it was due to governments continuing to spend more than they legitimately should have and printing currency to cover the shortfall. Stated differently, that crash was simply the commodity standard doing its job, holding profligate governments in check. A sound government has no need for “flexibility” in its currency.
Incidentally, gold is not “simply another form of currency.” Gold is money. Currency and money are not synonymous.
I believe that the only reason Fiat currencies have any value is that you have to accumulate the “money” to pay your taxes.
The fact that gold has no industrial uses is a good point. Oil-backed currencies would be a waste of time, when the oil runs out.
Are humans the only beings that like gold and silver? Perhaps ornamentation is the defining essence of humanity.
Gold is not just another form of backing for currency, but is the preferred option throughout the world, and historically. The nearest rival has been silver, but, over time, people prefer gold to silver. Probably because silver has some commercial uses, but gold has less.
It’s an interesting point that the motto ‘Treat others as you would like to be treated’ is also called the golden rule. If I had the money to start a new creed or movement, I would call it Aurarchy, meaning gold-rule, and the motto would be ‘For Gold and the Golden Rule!’ It would stand for gold-backed money, and free trade between consenting capitalists.
If….