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Comment reviews:An Alternative Hypothesis
1 May 2018
The recent case of a girl expelled from a British Film Institute cinema for laughing too much at the instigation of a stranger who was reported on the BBC to have used abusive language to her is an example of a trait that we would do well to attempt to eliminate in Britain: busybodying at an individual level.
Willingness to come to the help of strangers in difficulty or distress, asking for nothing in return and instantly enjoying the new friendship or comradeship, is a trait of public spiritedness in Britain that should never go but busybodying under the pretence of being public spirited is reprehensible.
6 May 2018
The potential political reward of raising the inheritance tax allowance, lowering the rate or replacing it with a gifts receipt tax is great. When David Cameron's opposition proposed raising the inheritance tax limit to £1 million per person the Conservatives gained 10 percentage points in the polls and never really lost most of the uplift.
When Labour's secretary of state for health proposed an additional death tax, wise Tories knew that Labour could not get a majority at the upcoming general election.
Conservatism has always been about individuals. Listening to treasury gurus on how to raise tax never won elections.
Time to honour the promise. If we got David Cameron's referendum promise we need to get the inheritance tax one.
The local elections show that Labour is not on the march. Peak socialism has been past.
It is time to get a North-South Crossrail approved, too, to match the East-West one, in time for a new Conservative mayor in London.
15 February 2018
Running a country according to an economic theory is a distinctly tricky business as no economic theory particularly holds true in practice.
So it is often best to rely on rule of thumb observations drawn from the country's past economic history.
No industrial policy adopted and publicly announced - and there have been a lot announced - in Britain since 1965 has worked. There are only three times I can recall industrial intervention by the government having worked. They are as follows:
- Edward Heath's government's rescuing Rolls-Royce in 1973;
- John Major's government's encouragement of Japanese manufacturers, particulary car manufacturers, to come to Britain;
- Some discreet help to the car industry after the 2007-8 financial collapses, under Peter Mandelson's auspices.
Light, high-tech industry has, however, flourished west of Heathrow and in the Cambridge area quite well in the same period, perhaps because government has stayed at arm's length.
Other areas might have done a little better if industrial funding had been devolved regionally without central control.
Long term 'support', however, just produces flabby, greedy, oligarchical groupings with internationally uncompetitive players within them.
The idea of clusters is that there are many competitive players within a cluster who stimulate one another to do better. Industrially, they do not need directing by government. Government can help by preventing oligarchies developing.
In some cases private monopolies are proving better than private oligarchies because they have an interest in sidelining oligarchies in their quest of monopoly and as they do so the smaller, innovative companies find themselves freed from gatekeeping oligarchs.
Quantitative easing is monetising government deficit spending by another name. This does not mean it is undesirable but it does mean that inflation will come through somehow. It has come through only gently in the price of goods, services and labour but it has found expression in rising global residential land prices in nearly all major cities.
There is no point in blaming the owners of residential property for rising prices. There is no point in taxing them either. It is axiomatic that you cannot really spend the aggregate capital in this case. When a government borrows from its country's population in wartime it is reducing the latter's current consumption. When you tax a home that will not be sold you are reducing the occupants' potential for current consumption. Only when you restrain quantitative easing and other monetary creation and - very important - release more land for building will you readily restrain property price inflation. If you only build higher buildings you must face the probability that you are only raising the cost of all neighbouring residential land because the plots become more valuable.
If you reduce government expenditure to reduce personal tax you usually get increased GDP and the tax take then recovers.
If you increase personal tax to fund increased government expenditure the reverse is likely because of the inefficiencies of government spending - increasingly typical is the feather-bedding of oligarchical companies like Carillion or spending more on initiatives to devise industrial policies that will not work, neither of which does much to increase output.
In Britain currently, though, the option is not going to be a real terms reduction in government spending that permits personal tax reductions yet because some cost overruns are already in the pipeline - on HS2, on defence, on the NHS and, possibly, on exiting the EU.
So what choices are to be made? Deferring reductions in corporation tax to the end of the parliament might be one. However, if it is a choice between personal taxation and deficit financing, the second should be the choice despite the risks. Too little of GDP is staying with the household sector and as a result, though families are the best venture capitalists, business recovery, as opposed to specifically industrial recovery, is not being adequately generated from below, from individuals through to small companies through to medium-sized companies and beyond. Insipid growth in the economy may be more due to this than to Brexit factors.
Of well-known companies that have made it through from medium-sized to international stature in the past decade I can only readily think of a few - ARM, Ineos, Dyson and Virgin.
Los Angeles or San Francisco probably each have more.
Regulatory restrictions in the U.S. in the sixties and seventies led to the growth of the Eurodollar market in London. This was one of the innovations that propelled London into the top two financial centres in the world.
If the EU becomes determined to repatriate regulated business away from the City of London to the Continent after Brexit even a non-financier can conceive of innovations that could take place in London equivalent to the Eurodollar market. Does the EU want the City in its camp or not? The rest of the EU has a large surplus with the U.K. in traded goods. The U.K. has a smaller surplus in services. For both parties the logic is no tariffs, no barriers. Britain's industrial sector has its dynamism but its makeup suggests it is going nowhere hurriedly .... except perhaps behind a temporary tariff barrier that allows small companies to become medium sized with the government restraining oligarchies.
18 May 2018
It is time to abandon the attempt to balance the budget.
When an economy is overheating or there has been an unrestrained splurge in government spending there is a case for it but not for over a decade.
Economies need some modest inflation and monetary creation to function at their best and this is best delivered by government deficit.
This is especially so in Britain where 80% of its economy is services, most of them traded domestically. Without a little monetary fuel to keep the wheels turning the whole vehicle can easily slow down.
The budget deficit is well within the 3% limit recommended by the EU and might temporarily disappear of its own accord if years of economic growth are maintained going forward. If it stays within this limit there is little cause for concern.
It is mythical that future generations of taxpayers will have to pay off the budget deficit.
Purchasers of government stock know the deal. For many years, even decades, they get a guaranteed income. Then a year or two of high inflation comes along and the value of the stock they hold is devalued in real terms.
In the game of musical chairs, if they are holding the stock in that year or two it is they that pay off the deficit, not taxpayers.
In financial markets you cannot eliminate risk nor should you attempt it.
At the heart of conservatism is that you do not penalize individuals for what they own. You let people keep their wealth, especially because most people make it themselves. The corollary that justifies conservatism is that you do not insulate them unduly from losing it themselves, only from sharp practice.
Opportunity gives rise to change and change should not be seen as bad.
That is why the failure of Northern Rock was handled right - the shareholders and bondholders took the hit but the depositors and borrowers did not - but the near failure of, say, HBOS was not. Its shareholders and bondholders were saved and its dodgy loanbook saddled a more viable bank with problems that required it to accept state assistance.
Had change happened, in most likelihood, we would have had a greater number of internet banks by now, robustly capitalised, competing with the bricks and mortar variety.