Tuesday, 23 August 2011

ECONOMICS FOR REAL PEOPLE: Great Myths of the FIRST Great Depression [updated]

276464_137539366339987_1226509_nHere’s what’s being presented at tonight’s UoA Economics Group meeting. It could hardly be more topical:

Hello all,
The history of The Great Depression grows more relevant by the day, yet very little is known about it today--at least, very little that is true.
Tonight, we look at a few of the many myths around the Great Depression: was the Depression a Crisis of Capitalism; did margin trading bring on the Crash; did the Fed do too little to help; did Herbert Hoover sit back and do nothing; did Franklin Roosevelt and Michael Savage set everything on the right track; did World War II bring on the Recovery?
Join us tonight as we examine these stories and many more about The FIRST Great Depression.
Date: Tonight, Tuesday, August 23
Venue: Case Room One, Level Zero, University of Auckland Business School
Time: 6pm

UPDATE: For those who are interested, who couldn’t make it last night, here are the Recommended Readings—all of them (relatively) short and pithy. Since there were six phase to the (First) Great Depression, there is at least one reading on each:

And here, hopefully, is a copy of the Lecture Guide:

LECTURE-Great Myths of the First Great Depression

Polls, uugh

I don’t usually comment on polls, the mainstay of political blogs and commentators who have nothing much to say.  So I don’t know why I’m bothering now—unless it’s because I hate stupidity as much as I loath the errant certainty that folk always feel about their favourite polls.

Anyway, for all the triumphalism and rending of both garments and alliances over recent polls (the reaction depending entirely on your party perspective, of course), few seem to have observed that even if Phil Goff’s own party does as poorly in this Election as the pollsters expect—as poorly even as Bill English’s did a few years back—the Red Team as a coalition is only a dozen or so seats away from the Blue Team, which has fewer and lesser partners.  And there has never been a time under MMP when a party has scored more than fifty per cent of the vote on election night.

I’m just sayin’…

Google, Motorola Mobility and the Patent Wars

Guest post by patent specialist Dale Halling

Google agreed to acquire Motorola Mobility for $12.5 billion.  Most people believe the main motivation for Google was to acquire Motorola’s patent portfolio of over 17,000 patents and patent applications.  The comments on this deal encompass all the insanity around the  Patent Wars.  Below I will discuss some of these issues

Business Deal
Is this a good deal for Google?  Does it make economic sense?  In buying Motorola, Google gets a company that has been in the forefront of mobile communications since its inception. 
    The biggest risk is that Motorola is a bit bureaucratic.  They were slow to develop CDMA phones in the 90s and never completely recovered.  Motorola has been hardware focused, when the industry is clearly being driven by software advances now. 
    The main reason for acquiring Motorola is to get their patents and leverage them into freedom of action in the Android market space.

Innovation and Paying for Patents
There are numerous people complaining that Google’s $12.5 billion is being spent on patents instead of being spent on engineers and products.  Actually, spending money on patents IS spending money on engineers.  Engineers created the inventions and the patents just provide legal title to the inventions.  When companies spend money acquiring patents they are spending money for the development of inventions and therefore engineers. 
    If inventions are not protectable, companies do not spend more on engineers they spend less.  They just take other people’s inventions, rather than paying for internal or external development. 
   In fact, you can trace engineering salaries and employment to strong patent laws.  Countries with weak patent laws either have very few engineers or their salaries are fairly low or both.
    New products are the result of inventions.  Increases in our level of technology are what make us wealthy.  When people pay for patents (inventions) it does not discourage innovation, instead it encourages other people to innovate.

Too Many Overly Broad Patents being Issued?
There has been a lot of wailing about too many over broad patents being issued.  This whining is coming from the same people who complained about Amazon’s one click patent, which was upheld after numerous challenges.  Why did Barnes and Noble get a 10x increase in online sales (after copying Amazon’s one-click technology) if the one click patent was not innovative?
    All objective measures of patent quality have been increasing for years.  For instance, the metrics of GDP-per-patent, R&D-dollars-per-patent, and number-of-citations-per-patent have all been on the increase.  For more information see my post Patent Quality Nonsense.
    Do some bad patents get issued?  Absolutely and some of my clients have been affected by this.  However, most people making the claim that there are too many bad or overly broad patents do not even know that the scope of a patent is determined by its claims.  They do not know that claims cannot be read like prose, they have to be read like an equation where every word has to be given meaning.

Litigation Explosion
Many people see this acquisition as just another outgrowth of the numerous frivolous patent cases being filed.  However, the facts do not support this point of view.  Judge Michel, former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based, $14.5 trillion economy with over 300 million people and 1 million active patents- THIS IS A TRIVIAL NUMBER.

Are there any problems with our patent system?  Absolutely.  The underfunding of the patent office causes inventors to wait years and even up to a decade to receive their patent
    But, more specifically to the Google/Motorola case, the wireless smart phone space needs a more efficient method of clearing patent rights.  I suggest a non-profit entity similar to ASCAP, which clears copyrights for musicians and composers.  For more information see my post Patent Wars a Market Solution.
    Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.

Dale Halling is an American patent attorney and entrepreneur, and the author of the book The Decline and Fall of the American Entrepreneur: How Little Known Laws are Killing Innovation.
Read his regular thoughts at his
State of Innovation blog, and his other Guest Posts here.

Quote of the Morning: On Libya [updated]

Picture from http://blogs.aljazeera.net/liveblog/Libya

Few will mourn the passing of Muammar Qaddafi, but does that mean we should already be celebrating the winners? I don't often agree with him, but I'm with Matt Yglesias when he says:

"...let’s wish the best of luck to people of Libya. Part of the problem with this intervention has always been that the fall of a dictator seems to me just as likely to lead to a bloody civil war or a new dictatorship as the emergence of a humane and stable regime. The effort to build a better future really only starts today."

So it does. And for many rebels, that future seems to hold sharia...

UPDATE 1: And, like Perry de Havilland at Samizdata, now that Qaddafi is on the skids “I cannot help but hope the dirty secrets now emerge of how overseas politicians aided and abetted Qadaffi over the years, in particularly the disgusting deal over [Pan Am bomber Abdelbaset al Megrahi. It would be wonderful to see the polities in England and Scotland take one in the face if the unlovely details eventually come out.”

It will also be interesting  to watch details emerge about all the nasty little deals done by businesses seeking favour from the corrupt thug. For instance, a friend in Uganda tells me this morning about a juice processing plant in Kampala owned by Qaddafi and sons, which is happily churning out juice for Coca Cola. Perhaps, wonders my friend, Qaddafi is already holed up in the five-star hotel in Entebbe he also owns with his sons…

UPDATE 2: Steve Negus at The Arabist has been watching how the rebels established their authority in Benghazi over recent months, and has some pluses and minuses about what we might expect to see in the wider Libya. Meanwhile, former Aussie diplomat Philip Eliason sees dark days ahead for Libya. “He is not optimistic — the rebel movement is not coherent (expect fighting to continue even after Qadhafi escapes, is captured or killed) and has shown worrying signs that it will seek retribution against its enemies.”  [Hat tip Macrobusiness.com.au]

Monday, 22 August 2011

Help harried home-buyers! [update 2]

Residents of Kaiapoi and Canterbury contemplating taking the government's payout face the dire prospect of paying far more for a new home than the payout for their old damaged one, even with the inflated 2008 prices residents are being offered.

There is a reason for that, and not a good one. At a time when building new houses has never been more important, the cost of building a new home has never been so high.

There was once a successful model by which New Zealand builders built thousands of speculative homes--"spec homes"--at a small profit to themselves, yet cheaply enough to be bought by thousands of New Zealanders. They bought land cheaply, built a house inexpensively, which was bought gratefully by a New Zealand family eager to move in.

Everyone was happy.

But that model is now broken.  The price (land + building cost) has exploded because of planners and regulators. The cost of building sites has gone through the roof because planners have been restricting the supply of land, and hitting developers with ever-increasing development levies . The cost of building has gone through the roof because government has whacked builders with gold-plated building regulation, and council’s have whacked them with ever-increasing fees and building levies. Meaning that the small profit that once existed for those former builders of spec homes has long since disappeared—as have many thousands of builders themselves, many of them to Queensland. The result, all round this country, is that new homes are simply not being built in the numbers needed.

And the result in in Kaiapoi and Canterbury is that residents facing forced eviction from their damaged homes face paying much more for a new one--even with the payout for their old home at the inflated 2008 prices. The model for building spec homes is broken. And the supply of affordable homes won't be fixed until that model is fixed. Hugh Pavletich expands the point:

Offer to Christchurch earthquake red zone owners a disgrace: The sad reality is that the Christchurch City Council has DELIBERATELY NOT ALLOWED new fringe lots / sections at $50,000, to be put in place for years.
Christchurch housing is currently “severely unaffordable” at 6 times annual household incomes. It should not exceed 3 times – refer 2011 Demographia International Housing Affordability Survey and extensive other material on this issue at Performance Urban Planning.
Due to the incompetent governance of the Christchurch City Council over many years (refer recent Pavletich interview “Christchurch earthquakes: Council stalled recovery” ), the earthquake events costs are likely $8 - $10 billion more than they should be. The problems of the displaced people from the “red zones” are part of these massive and unnecessary costs.
House and land packages of $200,000 ($50,000 lot / section - $150,000 house construction) should have been available on the fringes for these people well before now – near 12 months following the first major earthquake event on 4 September 2010.
Politicians don’t give a toss – as they are more interested in protecting the interests of Bankers (PM Key’s mates), so that these people from the “red zones” are conned in to excessive mortgages, or forced financially to relocate from Christchurch. As though they haven’t suffered enough.
The recovery cannot start until these issues are dealt with. Why are we STILL waiting Gerry and Bob?

‘Public sector land use’ ... turns out to be barracks, canals, railway sidings, and turf owned by the National Health Service (NHS) or by local councils. Here we are asked to scrape the bottom of a very small barrel. In effect, the [government] searches for the public sector bits of the 5.5 per cent of England’s surface that is brownfield land.

In effect, as Woudhuysen says, this amounts to little more than a little massaging of existing "ultra-restrictive land provisions" in the addled expectation it will have some effect. It won't.

The hope is that a tiny relaxation of planning constraints will encourage the private sector ... and numerous hybrid housing vehicles, state monoliths and quangos to build more homes, especially homes that are ‘affordable.’
    That approach won’t work. It will mean some extra homes are built, but it will not make proper home ownership cheap.

No, it won’t. It won’t bring New Zealand builders home from Queensland, and it won’t do enough to lower land to Hugh Pavletich’s $50,000 per site.  Something more radical is needed.  Woudhuysen has such a proposal, one on which both Gerry and John boy should sit up and take note.  I paraphrase his proposal for a New Zealand audience:

Real homes will only become affordable if, in principle, everyone can go to a farmer, buy an acre of land for $30,000, and freely build a house there at a cost, perhaps, of just $100,000. That kind of transaction would lead to significantly lower prices than the $414,261 average asked for a home in NZ today.
    The state should stop preventing deals like this from being done. It should step back, and instead provide the infrastructure to let that house-on-a-freely-bought-hectare thrive.
    That such deals can't be done, and won't be done as a result of either Clark's or Key's announcements is a measure of the overbearing powers of the state in relation to the land.
    Ever since the Town and Country Planning Act of 1927, to buy that $30,000 hectare of land and build on it has been illegal. The nanny state, not the popular will, determines who may build where. The state essentially retains a complete monopoly over what land can be developed for housing and what cannot. To end house price inflation therefore, Britain must end its state-imposed scarcity of land.
    The lack of affordability that characterises Britain’s housing market is not about too many people – single-person households, divorced families, immigrants and their children – chasing too few homes. It is not simply an economic question of supply and demand. The housing market is profoundly distorted by the political intervention of the state, which imposes drastic limits on land that can be developed upon.
    Only a similarly drastic counter-attack on state controls, amounting to a veritable bonfire of National's Resource Management Act and the country's forty-odd District Plans will allow housing in NZ to acquire a semblance of either rationality or efficiency.

What's needed in other words is neither massage nor spin, but the full-blooded planning revolution the destruction of NZ’s second-largest city should have encouraged; one that sees the country's planners joining the growing queues of the unemployed—and by their inclusion, shorten them.

UPDATE 2: I can already hear the whining of anti-development zealots that such a common-sense dispensation as Woudhuysen proposes would see the whole country blanketed in houses.  Bullshit.

As a simple back-of-the-envelope calculation would tells you, there would be no problem with sprawl if the ring-fencing were relaxed: New Zealand's existing urban areas account for less than 1 percent of the total country, one quarter of that in the Auckland region. Even if all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land -- which was the sort of thing proposed by Frank Lloyd Wright in his Broadacre project (right)—we'd all of us fit in an area less than one-quarter the size of the Waikato.  (And just think how easy it'd be to thumb a lift out to Raglan!). 

There’s more than enough room to go around. Especially out there on the Canterbury Plains.

Sunday, 21 August 2011

Thought for the day: On suffering…

‎"Men have been taught that their first concern is to relieve the suffering
of others. But suffering is a disease. Should one come upon it, one tries
to give relief and assistance. To make that the highest test
of virtue is to make suffering the most important part of life…
The creator is not concerned with disease, but with life. Yet
the work of the creators have eliminated one form of disease after
another, in man’s body and spirit, and brought more relief from
suffering than any altruist could ever conceive…"

            - Ayn Rand, The Fountainhead

Friday, 19 August 2011

DOWN TO THE DOCTOR’S: Those Great Pretenders

_richardmcgrathGuest post by Libertarianz leader Dr Richard McGrath

The 2011 Libertarianz conference and AGM was held last Saturday, at Mac’s Brewbar in Wellington. This is the speech he delivered to the assembled throng.

The 2011 general election is now a little over three months away. As of 24 June, there were 15 political parties registered in New Zealand. Since I’ve heard it said that several of these parties claim to hold principles similar to those of the Libertarianz Party, I checked out the websites of these Pretenders to find out more. Here’s what I discovered:

  • There is the National Party, whose stated values include individual freedom and choice, personal responsibility, competitive enterprise and limited government.
  • The ACT Party describes individuals as owners of their lives, with rights and responsibilities—and the purpose of government is to protect these rights and not to assume the responsibilities.
  • The Kiwi Party supports freedom of association, speech, assembly and religious belief.
  • The Aotearoa Legalise Cannabis Party, whose candidate in a recent by-election promised to put the toke back in Tai Tokerau, believes adults have the right to exercise freedom of choice, unless that choice harms other people.
  • New Zealand First’s policies include cutting government advisers and consultancies by 50%, lowering taxes and eliminating corruption within the state sector.
  • The Democrats for Social Credit say the individual is more important than the state, that co-operative enterprise should be the basis of economic organisation, and that the current monetary system is the major cause of war, poverty, inflation and other social problems.
  • The Maori Party’s policies include stopping Maori-owned land being confiscated under the Public Works Act, making the first $25k of income exempt from income tax, dropping the GST on food, dropping company tax and stopping any rise in compliance costs for businesses.
  • Not yet registered as a political party is the NZ (Taxpayers) Tea Party, who wants smaller government with lower taxes, less regulation, and less borrowing.

The remaining seven parties don’t even pretend to be interested in freedom, or in protecting the rights of New Zealanders.

  • United Future mentions, in passing, self-reliance.
  • The New Citizen Party appears to be a race-based party, along the lines of the Maori and Mana Parties, aiming to represent Chinese New Zealanders. No values or policies are available as yet and as the party did not apply for broadcasting funding for the 2011 election, we are unlikely to learn much more about them before November.
  • The Mana Party has no stated values and one policy, wanting more money from Treaty of Waitangi settlements.
  • As of 28 July, the NZ Labour Party had no values or principles it was willing to share on its website. There is a link to a 2-minute video with Phil Goff and others talking platitudes about people caring for each other, teachers being the best they can, owning our own future, a land of our own, development of the community, obligations to provide for others, a no-nonsense attitude,  a steak on every plate, a car in every house, and to every young girl a new pony. (At least one of these I have made up.) 
    There were brief glimpses of sanity on the Labour Party website with mention of ‘focusing on achievement’ and ‘people taking responsibility for their families,’ but nowhere could I find principles or policies by which these goals could be achieved. (But high up on the Labour Party plans for that would be, I’d wager, a need for oodles of taxpayers’ money.)
  • The Green Party's values are said to be: engaging respectfully, supporting ideas on their merit, challenging oppression, and fostering compassion, a sense of humour and enjoyment in the workplace.
  • The Alliance Party believes the dreams and aspirations of individual, identifiable New Zealanders should be sacrificed to the needs of anonymous, non-identifiable New Zealanders.
  • The website for Jim Anderton’s Progressives is rather quaint, with just 3 policies mentioned – free dental care, partial alcohol prohibition and increased levels of taxpayer-sourced superannuation. Like the Labour Party, it appears devoid of principle or – more likely – too afraid to make any principles available for private consumption. (Scary things, principles.)

Thus there are, on the one hand, at least seven registered political parties, plus two as yet unregistered with one or more policies said to be underpinned by the sort of values shared by libertarians everywhere.

There are also six registered political parties in this country that fail to acknowledge in any way at all the concept of inalienable personal rights—the protection of which is the single most important (in fact, only) job of government.

And then there is the Libertarianz Party – a party that has unequivocally held to the same principles and policies for the entire 15 years of its existence.  In summary those principles are:

  • individual sovereignty & tolerance for the choices of others
  • the right to create, acquire and control private property
  • voluntary interaction & the non-initiation of force
  • limited government
  • the rule of law
  • capitalism

In essence, these are corollaries of that one single principle: the non-aggression or non-bullying principle.

Simply put it is wrong for one person to bully another, and for governments to bully their citizens. Physical violence, and the threat of it, is immoral regardless of who is threatening who.

Unlike several parties in parliament whom I could mention, the Libertarianz is a party that does not merely pay lip service to the principles of small government while daily effecting their betrayal.  Unlike them, we have an unswerving commitment to expanding the freedom of every New Zealander by rolling back the gargantuan, bloated and overbearing Nanny State.

So what distinguishes the Libertarianz Party from the pretenders, from the others who smile and say nice things about freedom—which incidentally even the most diehard socialist wants for themselves, but not for others?

Well, clearly enough we are not in parliament while they are.  But to be there while doing over and daily voting against the principles on which you claim to stand neither advances your cause, nor your principles.

The one characteristic that sets Libertarianz apart from these pretenders is: INTEGRITY. Integrity is a wholeness, a consistency, an adherence to moral and ethical principles. A virtue, in other words, that is wholly and utterly alien to every single one of our elected representatives.

  • The problem with the National Party is that despite throwing about words like freedom, choice, responsibility and limited government, it does nothing in government to uphold them. Meanwhile, it shoots itself in the foot by throwing into the mix other values such as Queen-worship, caring communities, security and capitulation to Greenwash.
  • The ACT Party has allowed itself to be distracted from promoting classical liberal values by the antics of its former leader Rodney Hide and the resulting power struggle within the party, its increasing obsession with race, and the bizarre candidacy of John Banks in Epsom.
  • The Kiwi Party wants to nationalise native animals and plants and have government interference in the media, and restrictions on freedom of speech.
  • ALCP oppose the prohibition of their favoured substance, but favour the prohibition of those they don’t favour—like alcohol.
  • NZ First, as their name suggests, want a Fortress NZ, an expansion of the welfare state (especially for over-65s) and a knighthood for Garth George.
  • The Democrats for Social Credit would promote wasteful biofuels, the downside of which includes human starvation; would ban foreign investment in farm land, which would reduce local capital; would promote a state broadcasting arm to spread government propaganda; would subsidise the disabled at the expense of the able-bodied; introduce new taxes; would tolerate a central bank; would allow a government monopoly on energy sales; ‘free’ health care; subsidy of the performing arts. The few policies that are good, such as armed neutrality and restorative justice are outweighed by multiple Nanny State policies.
  • The Maori and Mana Parties promote special rights for racial groups, thus judging people by the colour of their skin and not by the content of their character.
  • United Future believe that adults who self-medicate without harming other people should be arrested, and that people who sell medication to others should be jailed without the option of home detention.

There is thus a tendency for New Zealand political parties to promote one or two token libertarian values, but you don’t have to dig far to discover they are all closet statists. It seems clear then that at this election, as in every other, you really only have two choices: either vote for one of the statists (with whichever favoured face of authoritarianism you choose) or you vote for the Libertarianz Party, the only party whose policies are compatible with freedom, with tolerance, and with deregulating every facet of human activity while outlawing every new form of coercion.

If you are looking for a registered political party advocating limited government and maximal personal freedom with consistency and integrity, then look no further then the Libertarianz Party of New Zealand—the party I am proud to lead.

Thank you.

Thursday, 18 August 2011

"...my purpose holds to sail beyond the sunset..."


The great benefit of living in society is the enormous boon we all enjoy in a free society from the Division of Labour: the multiplication of knowledge; the benefits from genius; concentration on individual advantage and geographical specialisation; the productive machinery and the economies of learning and motion that emerge from that specialisation—in short, what George Reisman describes as “the general gain from the existence of others.”

Given these enormous benefits, so great that they built the civilisation we now enjoy, why would you want to leave all of that behind and "Go Galt" unless the world is in a dire state?

Every few years, a different group of libertarians will emerge with a new proposal for setting up "outside the grid," either by buying an island, or starting a new country, or by sea-steading. All of them wanting to “Go Galt.”  The weakness every time has been that whatever might be gained by moving away from the grey ones is lost by also moving away from the productive geniuses and putting behind you the benefits of Division of Labour. The world would have to be in a very bad state indeed for such a proposal to make sense.

The world is in that state today.

Which is why the proposal by PayPal and Facebook billionaire and self-described enthusiast for New Zealand Peter Thiel for a new form of sea-steading might be attracting so much interest. Here for example is a recent feature write-up in Details [Hat tip Eric Crampton]:

Despite the innovations of the past quarter century, some of which have made him very, very wealthy, Thiel is unimpressed by how far we've come—technologically, politically, socially, financially, the works. The last successful American car company, he likes to note, was Jeep, founded in 1941. "And our cars aren't moving any faster," he says. The space-age future, as giddily envisioned in the fifties and sixties, has yet to arrive.

Perhaps on the micro level—as in microprocessors—but not in the macro realm of big, audacious, and outlandish ideas where Thiel prefers to operate. He gets less satisfaction out of conventional investments in "cloud music" (Spotify) and Hollywood films (Thank You for Smoking) than he does in pursuing big ideas, which is why Thiel—along with an all-star cast of venture capitalists, including former PayPal cohorts Ken Howery and Luke Nosek, and Sean Parker, the Napster cofounder and onetime Facebook president—established the Founders Fund. Among its quixotic but potentially highly profitable investments are SpaceX, a space-transport company, and Halcyon Molecular, which aspires to use DNA sequencing to extend human life.

Privately, however, Thiel is the primary backer for an idea that takes big, audacious, and outlandish to a whole other level. Two hundred miles west of the Golden Gate Bridge, past that hazy-blue horizon where the Pacific meets the sky, is where Thiel foresees his boldest venture of all. Forget start-up companies. The next frontier is start-up countries.

"Big ideas start as weird ideas." That's Patri Friedman, a former Google engineer, the grandson of the Nobel Prize-winning economist Milton Friedman, and, as of 2008, when Thiel seeded him with the same initial investment sum he'd given Mark Zuckerberg four years earlier, the world's most prominent micro-nation entrepreneur. Friedman, a short, kinetic 35-year-old with a wife and two children, maintains an energetic online presence that ranges from blogging about libertarian theory to tweeted dispatches such as "Explored BDSM in SF w/big group of friends tonight." Four years ago, a Clarium Capital employee came across a piece Friedman had written about an idea he called "seasteading." Friedman was soon pitching to Thiel, a staunch libertarian himself, the big, weird idea...

Here’s Thiel laying out the idea at a Seasteading conference back in ‘09:

Peter Thiel - The Seasteading Institute Conference 2009 from The Seasteading Institute on Vimeo.

Thatcher on European Monetary Union

As Angela Merkel and Nicholas Sarkozy cobble together a deal that no-one believes to save a currency union that no-one respects, I figured I’d see what one of modern Europe’s great statesmen thought about the European monetary experiment at its inception.

Writing in 1989 about the prospect which now beckons of a “two-tier” Europe (PIIGS to the south, producers to the north) she asked,

“What’s wrong with that if the other tier is going in the wrong direction?”

As they have been.

    And on Britain being left out of the monetary union?

“So be it. Germany and France would have to pay for all the regional subventions.”

As they will keep doing, as long as the currency union remains.

    And on the dangers of the currency union, the idea of which was then only in its infancy:

“The Germans .. [sh]ould be worried about the weakening of anti-inflationary policies, and the poorer countries … must be told they would not be bailed out of the consequences of a single currency, which would therefore devastate their inefficient economies.”

Prescient stuff.

    Writing much later, in her memoirs, she reflects

“there is one lesson to be learnt from the economic development of the period of 1987 to 1990 [when the European currency union was being constructed], it is that that contained in the phrase I used in the House of Commons … : “there is no way in which you can buck the market.” I might add that if you try to do so, the market will buck you. The belief that the laws of economics and the judgement of markets can be suspended by clever people … is a perpetual temptation to folly.”

The lesson is being learnt again.

Wednesday, 17 August 2011

Making shit up for fun and profit

Yet more numbers emerges from the Making-Shit-Up file, this time from a report on “fast broadband” written by BERL at the instruction of the Auckland and Bay of Plenty Councils. 

The report purports to show that “early roll-out, adoption and uptake” of “fast broadband” will make us all rich. But as Eric Crampton points out, this is based on some heroic, not to say nonsensical, assumptions about the sort of productivity increased by filing reports at 10 mbps rather than 500 kpbs.

Read A number I don't believe  - O F F S E T T I N G   B E H A V I O U R

Watch What the Rich Do, Not What They Say

_Kris_Sayce_headshot_thumb[2]Guest post by Kris Sayce of Money Morning Australia

“Back in the 1980s and 1990s, tax rates for the rich were far higher, and
my percentage rate was in the middle of the pack. According to a theory
I sometimes hear, I should have thrown a fit and refused to invest
because of the elevated tax rates on capital gains and dividends.”

– Warren Buffett, op-ed, New York Times

Mr. Buffett says the U.S. Congress should raise taxes on the rich.

He says he’s so rich he should pay more tax.

Then why doesn’t he?

According to the U.S. Treasury, during the 2010 financial year $2.8 million was donated as “Gifts to reduce debt held by the public.”

That’s right. Americans who choose to can make voluntary contributions to the U.S. Treasury to cut the national debt.

Trouble is the U.S. has a national debt over USD$14 trillion.

That meant, in 2010 the U.S. Treasury’s interest expense was a whopping USD$413.9 billion.

Put another way, the $2.8 million donated reduced the national debt for…3.5 minutes… before interest costs wiped it out!

This financial year the donation wipe-out will take even less time. The interest expense is already at USD$412.5 billion… and will likely increase by another USD$50 billion over the next two months of the fiscal year.

It’s no wonder so little is raised through donations.

Buy an investment or pay more tax?

Certainly Mr. Buffett and his rich pals see little point. With all their wealth, they’d surely donate more than USD$2.8 million.

After all, Mr. Buffett could double the amount donated to the U.S. Treasury each year by handing over just 0.007% of his personal wealth.

Or, if he’d prefer, he could get his listed firm, Berkshire Hathaway [NYSE: BRK-A] to make the donation. It’s not as though his firm is short of a few bob. According to Bloomberg News, Berkshire Hathaway has “$47.9 billion of cash”.

Or, he could have donated to the Treasury rather than buying 1.5 million shares of U.S. listed firm, Dollar General [NYSE: DG]. A stake that would have cost his firm over USD$40 million – 14-times the sum donated each year to the U.S. Treasury.

What point are we making?

First, it gives you another example of how stuffed the U.S. economy is. And why you should be wary about getting suckered into this one-week suckers’ rally.

For all the talk overnight about markets rallying on the back of takeover activity, the U.S. economy is just as stuffed today as it was two weeks ago.

But second, it highlights how you should pay more attention to what big investors do rather than what they say.

If Buffett’s real concern was paying more money to the federal government then he’d just do it. Making a gift to the U.S. Treasury to pay down the debt is simple: write a cheque and send it off to Parkersburg, West Virginia. (Amusingly, the Treasury also accepts credit card donations!)

But helping out the federal government isn’t his real concern. Bloomberg News gives away what’s really on Mr. Buffett’s mind:

“Berkshire’s equity portfolio was valued at $67.6 billion as of June 30, with 40 percent in consumer products firms and 37 percent in financial firms such as banks and insurers. The rest of the portfolio was in a group Berkshire labels ‘commercial, industrial and other.’”

In other words, you’re looking at a portfolio of economically sensitive stocks. Stocks that rely on an economy not going into recession.

Why higher taxes won’t help

But here’s the biggest flaw in Mr. Buffett’s plan. In his op-ed for the New York Times (where else, it’s like expecting the Age to print an op-ed calling for tax and spending cuts) he makes the point that the income of “the highest 400 [wealthiest people] had soared to $90.9 billion.”

Of this – he calculates – USD$19.5 billion was paid in taxes.

But here’s the thing, Mr. Buffett doesn’t reveal how much more taxes these people should pay. Think about it, an increase in taxes to USD$30 billion would mean an extra $10.5 billion and cover just 2.3% of the interest cost of outstanding U.S. debt…

Or wipe just 0.00007% off the federal debt.

Perhaps he thinks his rich pals should be taxed at 100% of their income? But even so, it would cover just 20% of the interest expense or wipe a measly 0.0006% off the federal debt.

Now, we can’t speak for the rich, but we’re pretty sure a tax burden of 100% would cause them – in Mr. Buffett’s words – to throw a fit and refuse to invest.

If you’re taxed 100% of your salary this year, what are the odds on you bothering to earn anything next year?

The simple reason more people don’t donate money to governments is because they know it’s not an effective use of capital. Mr. Buffett and his rich pals know for a fact if they invest money rather than donate it to government, everyone’s a winner.

The rich guys hopefully get a return on their money… the people the rich guys bought the investment from make money… the people that work for the firm they bought get to keep their jobs and perhaps more people will be given jobs… and consumers who use the goods or services produced by the company continue to get the goods or services they want.

Contrast that to government services which are things people either don’t want, or want but don’t want to pay for.

The fact is – and Mr. Buffett of all people should know this – government is a handbrake on any economy. It’s not the throttle.

Creating innovation from destruction

Economies are built on innovation and individual entrepreneurial spirit. An economy isn’t built on a democratically elected dictator swiping wealth from individuals to use as bargaining chips to secure election or re-election.

If Mr. Buffett was concerned about the future of the American economy he should call for a wind-back of the state. And with it, lowering the tax burden on entrepreneurs and successful businesspeople. That’s a simple way to increase wealth for everyone.

Instead, like all people in powerful positions and influence the goal isn’t to spread the wealth – it’s to keep theirs and make sure others spread their wealth.

Because winding back the tax burden and cutting regulations is the last thing an existing businessman or woman wants. Companies that are brand leaders and market dominators (the kind of firm Mr. Buffett invests in) also happen to be the direct enemy of the entrepreneur.

Entrepreneurialism and creative destruction are the true drivers of economic progress. But they can only drive progress if given the chance. Wealthy people calling for higher taxation on other wealthy people won’t do a darn thing to help.

All that will happen is the Feds will keep spending while the wealthy find new ways of avoiding a higher tax bill… and that means a bigger burden on the middle classes, more debt, bigger government and less innovation.

But don’t expect anyone in a position of influence to figure this out anytime soon.


Kris Sayce
Money Morning Australia

The “first casualty” was truth

As much of the country lies blanketed in several inches of global warming, the result of the coldest day ever recorded in these parts (with snow even on the hills of Dargaville!), it’s worth noting that among the “first casualties” of global warming have been truth and scientific integrity.

Not to mention reports of the imminent extinction of the polar bears, of Himalayan glaciers and of coral reefs—and Tuvalu’s ten-thousand climate refugees.  You can’t mention them, because they’re not there. The extinctions, that is. These are just a few of the many “first casualties” of global warming that weren’t.

Read A short history of climate science hysteria -  A S I A   C O R R E S P O N D E N T . C O M

Tuesday, 16 August 2011

Quote of the Evening: Sun Tzu refutes Keynes (& Krugman) [updated]

"What is essential in war is victory, not prolonged operations. No nation has ever benefited from a prolonged war." - Sun Tzu

UPDATE: Let's compare and contrast the common sense and sound reason of Ludwig von Mises to the dangerous hyperbolic fantasies of the Super-Krugman and his mentor Keynes (to whose intellectual influence virtually every politician and every mainstream journalist are slaves, whether they know it or not).


"In proportion as armaments increased the sales of munitions plants, they reduced the sales of all other industries.” [writing in Omnipotent Government]
"All the materials needed for the conduct of a war must be provided by restriction of civilian consumption, by using up a part of the capital available and by working harder. The whole burden of warring falls upon the living generation.” [writing in Human Action]
"At the breakfast table of every citizen sits in wartime an invisible guest, as it were, a G.I. who shares the meal. In the citizen’s garage stays not only the family car but besides, invisibly, a tank or a plane. The important fact is that this G.I. needs more in food, clothing, and other things than he used to consume as a civilian and that military equipment wears out much quicker than civilian equipment. The costs of a modern war are enormous." [Writing in Defense, Controls, and Inflation]

Krugman, on CNN this week:

"I mean, probably because you want to put these things together, if we say, 'Look, we could use some inflation,’ … which is, of course, anathema to a lot of people in Washington but is, in fact, what the basic logic says. It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal.
If we discovered that, you know, space aliens were planning to attack and we needed a massive build-up to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better." (http://bit.ly/nqrXjO)

Keynes, in his General Theory:

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."

Buffett goes gaga

Even the front page of the Royal NZ Herald’s Business section went gaga this morning over Warren Buffett. Why? Because the billionaire is calling for bigger taxes on billionaires like him and Bill Gates.  Tim Carney reminds us however:

As most of the media goes gaga over Billionaire Obama fundraiser Warren Buffett calling for tax hikes, (like he did in 2001, and 2004, and plenty of times in between), let’s remember a few things. 

Buffett Profits from Taxes He Supports
Buffett regularly lobbies for higher estate taxes. He also has repeatedly bought up family businesses forced to sell because the heirs’ death-tax bill exceeded the business’s liquid assets. He owns life insurance companies that rely on the death tax in order to sell their estate-planning businesses.

Buffett Profits from Government Spending
Buffett made about a billion dollars off of the Wall Street bailout by investing in Goldman Sachs on the assumption Uncle Sam would bail it out. He also is planning investments in ethanol giant ADM and government-contracting leviathan General Dynamics.

If your businesses’ revenue comes from the U.S. Treasury, of course you want more wealth.

Buffett can give great advice on how to make money. His advice on how to steal it should be put where the sun doesn’t shine.

[Hat tip Economic Policy Journal]

ECONOMICS FOR REAL PEOPLE: “Democracy & the Tragedy of the Commons”


Here’s the note from our friends at the UoA Economic Group about tonight’s seminar, featuring another guest speaker:

Hello Everyone.

Hope you’re surviving the wintery blast.  Speaking tonight we have David Seymour, a Senior Policy Analyst and Director of the Saskatchewan Office of the Frontier Centre for Public Policy.  He will be talking about think-tanks and examining the claims that “Capitalism has failed”—and (as a former resident of one of the coldest places in Canada) answering timely questions on how to survive when the snow is thigh-deep.  Here’s what he plans to cover:

"Two years ago we were told again and again that capitalism had failed.
    “Now it seems that the welfare state is failing in a much more profound way. In the United States, Italy, Greece, and to a lesser extent New Zealand, the political systems produce expectations around taxes and entitlements that do not balance, leading to deficits, debts, and disruption.
    “I will argue that these expectations are the logical consequence of leaving too many decisions up to political process. Drawing on public choice economics, ecology, and the history of collapsed societies, I'll argue that our current democratic process is a case of the tragedy of the commons. Like environmental commons tragedies, the solution is to return more decision making to the private realm."

Sound interesting?  Come along and find out.

Date: Tuesday August 16th
Time: 6pm
Location: UOA Business School.  Case Room 1, Level 0

Check us out on the web at http://uoaecongroup.wordpress.com/.

Riots on the streets of London [updated]

I’ve read a lot of cant about the “riots” in the UK [and Philadelphia and Washington DC and…]. So I had to post a comment of my own.

The most apposite comment I’ve seen however came from one of the rioters themselves, a young woman who said they’d all seen everyone getting their bail-outs from someone, so why shouldn’t they get out and take theirs.

It’s not about “poverty,” as the bank accounts of many of those arrested goes to show. Instead it’s a very simple equation: it’s the moral hazard of bankers’ bailouts times the entitlement-culture squared, which equals everyone taking from everyone else, forever.

It’s the fag-end of sixty-five years of welfare, in which everybody’s property is fair game.

The rioting, thieving and looting was carried out by a generation who has seen and endured and been “given” by government more than any other. Govt housing, govt welfare, govt projects, govt handouts, govt schools. Govt, govt, govt. The result, here and elsewhere, has been more dependence, less responsibility and  increasing illiteracy. And min the last few years, what they’ve watched and seen has been more govt bailouts for more and more failures—all of them“too big to fail.'”  Society’s biggest failures being rewarded for stuffing up big time, and taking us all down with them.

They’ve seen everyone getting something for nothing; they’ve seen government steal from one group to give to another; they’ve seen everyone say that’s okay … so why wouldn’t the governments’ biggest failures not want to “get theirs” in the same way when they see their opportunity? And break as many windows as they need to in the process.

It’s not like they’ve seen the moral lessons anywhere to tell them it’s wrong. Or the education to enable them to articulate their rage in any other way.

Just over thirty years ago teenagers saw the mess their parents had made of the world and, made just as inarticulate by public education to clearly voice their rage, called incoherently and in three chords for “anarchy,” “destruction” and chaos.

It’s not so very different now, is it. Only this time, instead of safety pins and bondage trousers the villains are all wearing brand-name hoodies.

Here’s The Clash:

White Riot by The Clash Lyrics: White riot - I wanna riot White riot - a riot of my own White riot - I wanna riot White riot - a riot of my own Black people gotta lot a problems But they don’t mind throwing a brick White people go to school Where they teach you how to be thick An everybody’s doing Just what they’re told to An nobody wants To go to jail! All the powers in the hands Of people rich enough to buy it While we walk the street Too chicken to even try it Everybody’s doing Just what they’re told to Nobody wants To go to jail! Are you taking over Or are you taking orders? Are you going backwards Or are you going forwards?

UPDATE: One commentator who’s been making sense on the riots is old friend Liberty- Scott, who points out the rioters are simply “engaging in socialism - without the middle man of the state.”

Read his recent posts here.

Image over reality

From a government that increasingly believes in style over substance comes two announcements making clear that image is more important, to them, than reality. At least in their minds.

We have the report from the Gnats’ weekend conference that—at a time when around 450,000 adult NZers are on welfare—the Tories plan only to get “tough” on around 1600 16- and 17 year-old beneficiaries too young to vote; on young folk who were first made unemployable by government schools, and then priced out of the market by this government having removed Youth Rates.

And we had the report yesterday that despite the inept Judith “Crusher” Collins’s grandstanding about getting “tough” on street racing by crushing cars, not one car has yet been crushed. (Asked to comment on this failure, the Non-Crusher points to a 15% drop in street racing, apparently oblivious to the fact that way more than 50% of the Christchurch streets where most racing was done are now impassable.)

What we have here is a reliance on image (getting “tough”) over the disastrous reality the Gnats refuse to either confront or acknowledge. Add to that their insistence on continuing to borrow $300 million per week rather than confront the reality of their over-spending, and you have a recipe for a government who prefers doing headlines to doing the hard stuff.

That they think they can get away with it is due only to a media and opposition who are as inept as each other in being able to hold them to account.

Economics in snow-time

Expat Canadian Eric Crampton—from a place where they get real snow—muses on supply and demand in a time of snow.  Where are all the rosy-cheeked youngsters when you need them to shovel the stuff?

Read “Snow pro tips for Kiwis” – O F F S E T T I N G   B E H A V I O U R

“Roll out the bunting. Tomorrow is the 40th anniversary of the modern global economy.” [updated]

“That's right: come Monday morning we will have managed to survive four decades of fiat money – though, given the chaos in markets in recent weeks, it is anyone's guess how much longer it will last…”

Read: “Abandoning the gold standard was a seminal moment, and one we're now all paying for.” 
            – T E L E G R A P H

UPDATE:  I give you the man who gave us our modern crises economy, Richard Nixon, the man who was forced to divorce the US dollar from gold back when it was tied at $40/ounce. Who forced him? It was those speculators, you know.

Bring on the Space Alien Stimulus, says Nobel Stimulunatic [updated]

As the world's economies slip into the Greater Recession from which they had “emerged” only by massaging their numbers, the man who called for a housing bubble to "fix" the American economy during its last Recession  in 2001 demonstrates that mainstream economics has learned nothing since--has not learned that it is not credit creation and mindless consumption that drives economic activity, but genuine savings and real production!

Speaking not on The Onion but on CNN,' Krugman calls for space aliens to attack earth requiring massive defence build-up to stimulate economy. Yes, really:
"If we discovered that, you know, space aliens were planning to attack and we needed a massive build-up to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –"
Is this the dead end for mainstream economic “fixes” for the crisis their failed theories have caused, exacerbated and extended?

[Hat tip Liberty Watch]

UPDATE: Any Keynesians reading this will snicker quietly to themselves and say things like “But didn’t World War II rescue America from the Great Depression? No, schmucks, it didn’t.

As Dr. Robert Higgs has more than ably shown, the Great Depression continued, and deepened, throughout the New Deal and throughout World War II. The World War II years were a time of shared privation, with virtually every item that we take for granted today either rationed: e.g., meat, gasoline, sugar, clothing; or not available at any cost: e.g., new cars, appliances, etc. The American standard of living throughout World War II remained at an excruciatingly low level that no 21st century American would accept. Meanwhile, unemployment disappeared simply because 16 million able-bodied people were sent to war, paid below-market rates and subject to danger, death, and maiming they may not have preferred to unemployment.
  As [Mary Theroux] earlier detailed in “One More Time: World War II Did Not Bring Us Out of the Depression,” the Great Depression ended in 1946, when 10 million individuals were returned to the ranks of the unemployed, and federal spending plunged 40% in the aftermath of FDR’s death and the abandonment of the New Deal.
If Dr. Krugman would quit reading Keynesian theory and start reading history, he could earn his Nobel and look for salvation not from aliens but from the creative engine fueled by free individuals unencumbered by regime uncertainty and widespread diversion of productive resources to government programs.

'Stopping By Woods On a Snowy Evening,' by Robert Frost

Whose woods these are I think I know.
His house is in the village though;
He will not see me stopping here
To watch his woods fill up with snow.

My little horse must think it queer
To stop without a farmhouse near
Between the woods and frozen lake
The darkest evening of the year.

He gives his harness bells a shake
To ask if there is some mistake.
The only other sound's the sweep Of easy wind and downy flake.

The woods are lovely, dark and deep.
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.

- Robert Frost, New Hampshire, 1923

Watch a video of Robert Frost reciting his poem. - Posted by PC

Friday, 12 August 2011

Guest Post: The Credit Downgrade That Didn't Happen

Following is a post by Dr. Burt Folsom, author of New Deal or Raw Deal?* and professor of history at Hillsdale College. It is reprinted in its entirety from Prof. Folsom's blog by his kind permission.
The Credit Downgrade That Didn’t Happen

by Dr. Burt Folsom

Ninety years ago, in 1921, the U. S. was poised for a recession, high unemployment, and a possible credit downgrade.


Because World War I had ended, the troops had come home, but 11.7% unemployment darkened the country. Our veterans could not find work. To solve these problems, some leaders recommended, in effect, a stimulus package–give the veterans jobs to build roads, bridges, and some buildings.

But President Harding (who died in office) and President Coolidge said no. Instead, these two presidents recommended cutting federal spending and cutting tax rates.

The cutting of federal spending was critical because the U. S. national debt had increased from $1.2 billion to $24.3 billion from 1916 to 1920.

We complain today about 9.1% unemployment and a doubling of our national debt in the last eight years; from 1916 to 1920, however, we had a 20-fold increase in the national debt and 11.7% unemployment.

But in early 1920s, the U.S. never had a credit downgrade or a prolonged recession because the cutting of federal spending and of tax rates jump-started the economy and produced budget surpluses every year during the 1920s.

During that decade we slashed more than one-fourth of our entire national debt, and increased GDP by almost 25%. American entrepreneurs eagerly began producing radios, talking movies, and air conditioning–three inventions, among others, that changed our nation and the world.

What is encouraging here is that Americans can still chart their own future. We did that in 1921, and we can do so today. We are not pre-destined to be a declining nation–we have a choice in that and we will help make that choice as a nation when we vote next year for the leaders who will shape public policy.

If we select someone with Coolidge’s free-market philosophy, then the freedom that comes with that will allow Americans to invent and create more goods and services to provide the jobs and prosperity to get America moving again.

Woodrow Wilson, the president who Harding and Coolidge replaced, promoted the first income tax and under Wilson the top rates went from 7% to 15% to 65%, and finally to 73%.

Under those rates, we were making the decision to chase wealth out of the country and stagnate as a nation. Harding and Coolidge reversed that decision and sent tax rates tumbling to 25% on top incomes.

American entrepreneurs arose and dominated the world. Revenue actually increased and budget surpluses became the hallmark of the 1920s. What choices will we make ninety years later?

*Dr. Folsom is also the author of The Myth of the Robber Barons and has a new book on FDR during WWII coming out in October!

Posted by Jeff Perren

Monday, 8 August 2011

ECONOMICS FOR REAL PEOPLE: Reserve Bank, cause or cure … ?


Here’s the note from our friends at the UoA Economics Group for their talk tomorrow evening:

Hello Everyone
This week we have Rodney Dickens coming to speak to us further about the role the Central Bank plays in the Business Cycle.  Rodney Dickens is the former head of Research at ASB Bank and has been a member of the RBNZs Monetary Policy Committee.  He is now the Managing Director of Strategic Research Analysis and brings a unique perspective on how the market operates from his 25 years experience working as as an Economist. 
In a recent media release he showed how lowering the OCR during the early 2000's created the boom bust property cycle.  [Some reaction to his media release here.] While this created short-term employment for those in the building industry, it ultimately left many people out of pocket, as over 50 different finance companies collapsed and billions of dollars in investments were lost.  As markets around the world continue to struggle, come and hear an interesting perspective on how this story began.

    Date: Tuesday 9th August
    Time: 7pm
    Location: Case Room One, Level 0, UOA Business School

Please note the change of time for this week to 7pm.  Look forward to seeing you there

DOWN TO THE DOCTOR’S: Why Labour should support tax cuts for the rich

_richardmcgrathLibertarianz leader Dr Richard McGrath invites you down to his surgery for an inoculation against this week’s stories and headlines on issues affecting our freedom.
This week: Why Labour should support tax cuts for the rich

DOMPOST: “Inequality report ignores tax cuts for the rich: Goff” - John Key appears to think income inequality is a bad thing. Phil Goff slaps him with a wet bus ticket for not taking into account the cuts to income tax enacted by National since their election in 2008…

This is much ado about nothing, a phony war over a non-issue. Apparently the gap between top and bottom incomes hasn't widened recently. That's probably not a good sign, as it means industrialists and entrepreneurs possibly aren't making bigger profits, and therefore are less likely to employ more people.

It's no secret that Labour and Bill English like the idea of a capital gains tax. Labour also wants to reinstate the Cullen Envy Tax (i.e. raise the top tax rate back to 39%). But why would on earth would Goff want to decrease government revenue? Doesn't he realise that hiking income tax rates leads to less, not more, tax taken by govt?

Daniel Hannan, member of the European Parliament, points out in his blog that in order to make the rich pay more, governments should tax them less. He links to an interesting article by the Adam Smith Institute (whose publications I strongly recommend) that quotes example after example of how tax reductions for the wealthy encourages them to stick around, keep making profits and thus fall prey to tax collectors.

Even that darling of statists everywhere, John Maynard Keynes, stated: "[T]axation may be so high as to defeat its object, [and] a reduction of taxation will run a better chance than an increase of balancing the budget."

Don’t believe me? Here’s some examples:

  • UK, 1979: Chancellor Geoffrey Howe cuts marginal tax rate from 83% (!) to 60%. Before the cuts, the top 1% of taxpayers were paying 11% of total income tax received. Nine years later, despite the hefty cuts, they were paying 14% of total income tax.
  • UK, 1980s: Chancellor Nigel Lawson cuts marginal rate further, to 40%. By 1997, the top 1% of taxpayers are paying 21% of income tax received. Thus halving the marginal tax rate doubled the income tax receipts from the wealthiest 1%.
  • US, 1920s: Presidents Coolidge and Harding reduced the top tax rate from 73% to 25%. The share of tax paid by earners making over $100,000 nearly doubled between 1921 and 1925, from 28% to 51%.
  • US, 1961: The top tax rate under Eisenhower had crept up to a staggering 91%. The Democrats supported by Kennedy dropped this to 70%. He stated, a few months before a sniper removed the occipital lobes of his cerebral hemispheres: "[T]ax rates are too high today and tax revenues are too low, and the soundest way to riase revenues in the long run is to cut the tax rates..." As a result of the Kennedy tax cuts, those earning over $50,000 increased the amount of tax paid by 40%, and paid 15% of income tax received in 1966, as opposed to 12% in 1963. Total income tax received went up from $69b in 1964 to $96b in 1968.
  • US, 1981: Under President Reagan, Congress reduced the top tax rate from 70% to 50%. Between 1981 and 1988 the top 1% of tax earners increased their share of tax received from 18 to 28%, while the bottom 50% of taxpayers decreased their contribution to income tax received from 7.5% to 5.7% over this same period.
  • US, 1991: George H W Bush, elected on a platform of "no new taxes", supported the introduction of new taxes including raising the top tax rate from 21 to 31%. The net result was that the wealthiest Americans paid $6.5b less in 1991 than they had the previous year before the tax was introduced. Federal tax results as a proportion of GDP dropped too.  
  • US, 2003: George W Bush reduced the top tax rate from nearly 40% to 35%. Between 2004 and 2007 federal tax receipts increased by $785b, mainly from the wealthy.
  • In 2000, the top 60% of US taxpayers paid all the income tax. The bottom 40% paid no net tax.
  • Canada, 1990: Top federal tax rate cut from 45% to 29%; share of tax paid by top 10% of taxpayers increases from 29% to 45%.
  • France, 1996: Gradual decrease in top income tax rate from 48% to 40%; result: higher tax receipts.
  • Hong Kong: Low flat income tax rate of 16% (or choice of graduated rates up to 17% maximum). Result: purchasing power parity 7th highest in the world and closing in on the US.
  • India, 1985: Top tax rate reduced from 65% to 50%; tax revenue the following year rises by 20%.
  • India, 1997: Tax rates reduced across the board; result: no drop in revenues but increase in number of taxpayers over following year, with rise in tax revenue over following 6 years and 50% increase in compliance.
  • Russia, 2001: Flat tax of 13% introduced. Result: 25% increase in personal income tax receipts the following year.

So, Mr Goff:

There is ample evidence that decreasing the top tax rates increases government revenue. So why are you advocating a rise in the marginal tax rate?

Are you so consumed by hatred of the successful for being successful that you would incur a drop in government revenues in order to drive these people offshore, which, of course, is what the wealthy do when grasping parasites like you try to steal larger amounts of their income than they are willing to hand over for redistribution?

Pray tell, Mr Goff.

See y'all next week!
Doc McGrath

Garden of Eden

I don’t know about you, but we had a ball at Eden Park on Saturday night. It wasn’t the MCG—we sat on scaffolding five miles in the air whose shaking quelled the staunchest stamping—and instead of built-in facilities we had portaloos and hot-dog caravans down several miles of stairs—but once installed up in the nosebleed section the atmosphere was fantastic. 

And if you had parking close (as some of us were lucky enough to enjoy) transport there and back was easy, and partying afterwards painless.

And there was a lot to celebrate, wasn’t there. Unless you are Australian. Or Robbie Deans.


This was pretty much our possie (above), which you might think would feel a little out of the atmosphere. But it wasn’t. Despite being behind the scoreboard at this end, the one at the other end was huge—and “spidercam” showed us anything we’d missed. And there was no chance of feeling out of it: with a crowd of 52,000, it was easy to feel part of it. I’d happily sit there again.  And might, in coming weeks.

Q: So how was your Eden Park experience?