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back to article THE DEATH OF ECONOMICS: Aircraft design vs flat-lining financial models

John Watkinson continues his series of essays for El Reg in which he examines failures in society from banking and education to transport and IT. Here, with a critical eye on our economic plight, he looks at the methods employed by those doing the sums and their consequences. Here we are, several years into the aftermath of …

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  1. Anonymous Coward
    Anonymous Coward

    "This is a sentence not taught in the schools" - T S Eliot

    It is no good teaching economics in schools, because the profession of economist, having been politicised for much of the 20th century, has now been farmed out to the same banks that drive the system. Economists are not supposed to analyse and criticise the "free market economy", they are supposed to cheerlead it, in exchange for which they get paid multiples of academic salaries. It is no good learning sound economic facts at school if, the moment they get to university, would be economists start training to be PR consultants for the status quo.

    As for the little Eliot quote in my title, the sentence referred to is "Kings are sent by God, chancellor richly rules." And that is part of the problem. Politicians depend on income from donations, and can also pass laws that enrich themselves (like buy for let legislation, from which a number of them like Blair and Blunkett have profited.) They don't care if the system is broken so long as they are all right,and they can load the dice so that they are.

    In corrupt Russia, the Duma is currently reviewing a law which will fund political parties based on their votes, and ban donations and lobbying. It may be complete window dressing, but the idea is sound.

    21 2 Reply
    1. JeffyPoooh
      Reply Icon
      Pint

      Corporations paying zero tax, a solution?

      When corporations export their profits, they import (not really) something to balance their books. Typically they import (not really) Intellectual Property such as rights to use a trademark, or they import (not really) Management Services.

      Track down these imports (not really), and slap an Import Duty on them (really!).

      Start slow, maybe 1%, so nobody panics. Ramp it up to the Corporate income tax rate.

      Seems like a solution to exported profits with zero tax.

      A billion here and a billion there might help to solve a few problems.

      12 4 Reply
      1. Zolko Silver badge
        Reply Icon

        Re: Corporations paying zero tax, a solution?

        "Track down these imports (not really), and slap an Import Duty on them (really!)"

        it's actually very easy: a tax on financial transactions. Make this tax tiny when the transaction is with a "friendly" partner, make it HUGE when dealing with a tax heaven.

        The problem you're mentioning is not technical, it's political: the overlords (= banks) don't want this, therefore the politicians and journalists (= the mercenaries) don't do it, only talk and talk and talk about it.

        3 4 Reply
        1. LucreLout
          Reply Icon

          Re: Corporations paying zero tax, a solution?

          "it's actually very easy: a tax on financial transactions"

          Actually, it isn't very easy at all.

          You might capture a tax on a transaction between the UK and say, Delaware, but once that money has left the UK, it will never return. Why would it? It's now free to be used for transactions, legitimate or otherwise, entirely unfettered by the dead hand of the state or further taxation.

          In reality, your proposal just beggars the nation that introduces it first, and as such is wholly unworkable. It might appeal to those such as the author, who by parroting the lie that "banks exist to increase debt" ad nauseam, is looking for just such support for his barmy ideas about how economies work or what they exist to achieve.

          10 5 Reply
          1. Zolko Silver badge
            Reply Icon

            Re: Corporations paying zero tax, a solution?

            "once that money has left the UK, it will never return. Why would it?"

            you're talking about a different problem: multinational corporations can avoid paying taxes on real and legitimate businesses by artificially locating the profits in tax heavens. What's happening is that in the real place real people are paid with real money doing real stuff, that stuff is sold at 0 profit to a sister corporation located in a tax heaven, which resells said stuff to the real place with a huge margin, and that stuff is then sold to real people in the real world for real money with 0 profit: all the profit is made in the tax heaven, but absolutely no real work is done there.

            But since the real business is still done in real places, the real money is still needed in the real place. So the money would return to the UK to pay people doing the job and to buy stuff. And as soon as the money leaves the tax-heaven to be used for something (like buying a Porsche or a Rolex) it's taxed.

            3 3 Reply
            1. LucreLout
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              Re: Corporations paying zero tax, a solution?

              "you're talking about a different problem"

              No I'm not. The situation you describe being transfer pricing, which is nought to do with capital flight, which is what will happen with any tobin tax.

              "And as soon as the money leaves the tax-heaven to be used for something (like buying a Porsche or a Rolex) it's taxed."

              It isn't. It really isn't.

              You get one hit of the tax bong when the capital leaves. Let's call it a £1M transaction to keep the numbers small and easy. You tax that at 1% so you get £10k, and the transaction stands are a net £990k.

              The capital from the transaction is now offshore and away from your sticky mits. You now get £0 on the £100M+ of transactions I use it for. You never get to tax any of those transactions or the vast bulk of the profits.

              If I repatriate a small slice of the profit, you might get to tax that.... then again, you might not. I'd just buy the Rolex abroad and wear it home.

              All you've really achieved is to drive the vast bulk of financial transactions offshore, driven taxes on profits and dividends through the floor, and offshored a lot of bank workers job. As a spite tax, it works very well indeed, but economically, it is nothing short of an absolute disaaster.

              4 1 Reply
              1. Zolko Silver badge
                Reply Icon

                Re: Corporations paying zero tax, a solution?

                "Let's call it a £1M transaction to keep the numbers small and easy. You tax that at 1%."

                ok, lets. Why would I tax it to 1% ? If this money goes to a "friendly" place, I might indeed tax it at 1%, or even 0.1%, but if it's going to a place where I know you're going to leverage 100:1 and do HFT that destroys my economy, you can bet I won't let you get away that cheap. Let's rather talk about a 30% tax here.

                "If I repatriate a small slice of the profit, you might get to tax that.... then again, you might not. I'd just buy the Rolex abroad and wear it home.

                sure. Then I'll see you travelling, and my custom agents might ask you to open your bag. And how are you going to transport that Porsche, that Bose home-cinema, those boxes of fine Champagne, that private jet ... that you want to buy with your hard earned money ? Because they are manufactured by people living here and thanks to good infrastructure and education, all paid-for by taxes.

                "All you've really achieved is to drive the vast bulk of financial transactions offshore"

                no, I have effectively made them unprofitable, but not only here, in many places. Because even if the financial world pretends to have its own life, at some point there is collateral, and a financial transaction tax is effective when you need that collateral, so it will, in effect, starve the financial world of real-world collateral. Especially as most collateral is government bonds, which are geographically bound.

                offshored a lot of bank workers job

                good riddance. But it's also funny in a historic perspective.

                3 2 Reply
                1. LucreLout
                  Reply Icon

                  Re: Corporations paying zero tax, a solution?

                  "ok, lets. Why would I tax it to 1% ? If this money goes to a "friendly" place, I might indeed tax it at 1%, or even 0.1%, but if it's going to a place where I know you're going to leverage 100:1 and do HFT that destroys my economy, you can bet I won't let you get away that cheap. Let's rather talk about a 30% tax here."

                  LOL! Good luck with that. At best, at very best, you'll see firms taking out loans abroad to fund their transactions well away from your spite tax (See Apple for details). You'll simply get £0 with a rate anywhere north of 0.1%. I used 1% only to keep the numbers simple for you in the forlorn hope you might follow what was written.

                  "Then I'll see you travelling, and my custom agents might ask you to open your bag. And how are you going to transport that Porsche, that Bose home-cinema, those boxes of fine Champagne, that private jet ... that you want to buy with your hard earned money ? Because they are manufactured by people living here and thanks to good infrastructure and education, all paid-for by taxes."

                  But you won't. Firstly you're assuming all my property is in the UK, when at the level we're talking about, it won't be. Secondly you can't tax EU registered vehicles entering the UK. And lastly, pay attention now because this point it critical, you're talking about at best being able to tax a very small percentage of the profits I repatriate after indulging in unlimited financial transactions offshore. So that 0.1% you might have hoped for is now looking like 0.0000000000000001%

                  See any premiership footballer for details.

                  "I have effectively made them unprofitable, but not only here, in many places. "

                  No, you've made them expensive here theoretically, because they'll all still take place, just offshore and away from you.

                  See what happened to New York when they upped tax on Wall Street (hint, big hint, it moved to the City)

                  "Because even if the financial world pretends to have its own life, at some point there is collateral, and a financial transaction tax is effective when you need that collateral, so it will, in effect, starve the financial world of real-world collateral. "

                  You obviously don't understand what collateral is. See any decent book on finance.

                  "Especially as most collateral is government bonds, which are geographically bound."

                  Erm, no, they aren't. They might be geographically issued, but that is all. Or do you mistakenly believe all T-Bills are held within the US, and all Gilts within the UK? What about derivatives of these?

                  See any central bank for details.

                  "good riddance. But it's also funny in a historic perspective."

                  Ahh, the old socialist spite & envy. It never takes long to bubble to the surface.

                  1 0 Reply
              2. Marshalltown
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                Re: Corporations paying zero tax, a solution?

                The situation is far too complex to depend on taxes as a solution. Besides which, as the author pointed out, governments are hopeful monsters. They tax in hopes of scrambling back into a tenable situation which remains a hope on the horizon. If you are going to try using taxes as a solution, you need to tax even "off-shored" business as if it were on shore. If a multinational doesn't like that, tough. They can do business somewhere else. That would at least open the domestic market to domestic producers. The real problem however is the consumer-based model which, as the author pointed out, requires "consumers" to be idiots who buy stuff to ship to the dump/land fill/tip. The reason that "luxury" goods are expensive is that they arrive at the landfill at much lower rates proportionate to the annual numbers produced. The primary buyers include a disproportionate number who simply want to buy a single item that will last a very long time. Quality goods are excellent drivers of customer loyalty but very hard on profits. Crap goods on the other hand are first class sources of profit but draw very little loyalty. They require monopoly markets before they can be really big.

                0 0 Reply
  2. Anonymous Coward
    FAIL

    One factor left out - The System

    > it doesn’t matter who wins the next election

    The reason why it doesn't matter who wins the next election, and why economic issues are not going to be any different, is that we are now cottoning on to the fact that it doesn't matter what colour is in charge, because their ideologies are exactly the same. The king is dead, long live the king. What's worse. the article left out one significant positive feedback loop - that the gap between rich and poor is growing and that more of us are on the poor side of that gap.

    Over the past 30 years, those in government have shown they have a scant understanding of international law, let alone the complexities of the economy, and every hue of government has simply delivered more of the same. Douglas Adams was right - those who want to govern are the least capable of doing so. Maybe it's time we stopped playing their game, take our ball away (it is our ball after all) and played a game to our rules.

    Anyone know of a political party with differing ideologies these days?

    17 4 Reply
    1. Christoph
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      Re: One factor left out - The System

      "Anyone know of a political party with differing ideologies these days?"

      The nearest to it is the Greens. They're a long way from perfect, but they are trying. And they definitely want to get away from the current system while we still have a planet we can live on!

      24 9 Reply
      1. Anonymous Coward
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        Anonymous Coward

        Re: One factor left out - The System

        I want to like the Greens, I really do. But without the list voting systems as used in the EU parliament, voting green in Parliamentary elections is basically a vote for UKIP/conservatives, because it is one vote fewer for the other parties. (And if you happen to have one of the remaining sensible Conservative candidates, why not vote for him or her? If you are a Green who lives in Richmond, your rational vote would seem to be Goldsmith.)

        I think the mistake the Greens have made is that they should not form a single party, but rather form green wings in the other parties, based on which one in a given area might get elected. This is basically what happens in some constituencies with large Asian communities, where the Asians tend to join whichever party looks most likely to gain seats. It is a rational strategy.

        There is only one political party which is explicitly anti-Green, and that is UKIP. (To be fair, parts of Scottish Labour are also very anti-Green, because they want traditional jobs.) Zac Goldsmith isn't, admittedly, popular with his own party, but that's because he makes good points about democracy rather than because of his green credentials.

        7 0 Reply
      2. h4rm0ny
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        Re: One factor left out - The System

        The Greens have one especial glaring fault - an obsession with wind power and a conditioned rejection of nuclear power. Energy is one of the few fundamentals in our society - if you have cheap and plentiful energy much of the rest follows.

        But the Green Party keep turning their backs on tme best source of it in favour of massive and detrimental subsidies for one of the least effective sources. If they'd make an evidence-based decision on it, they'd have removed the biggest reason not to vote for them as far as I'm concerned.

        24 1 Reply
        1. Waspy
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          Re: One factor left out - The System

          I completely agree. It's a matter of pragmatism, a question of degree. I live with a fervent greens supporter who keeps quoting mark Thomas and other such people with investigations into how bad nuclear companies are, how toxic soil is in the surrounding area and how unhealthy it is for locals. Well yes, it isn't great, but when people like my housemate also concede that carbon buildup in the atmosphere is a pretty big fucking problem and you are relying on half baked solutions using wind power to mitigate this problem (without any way to continuously generate power or store excess energy when not being used and for which sites are continually NIMBY blocked) then which is the biggest threat? You are effectively turning your back on a readily made solution to preserve the health of a tiny minority. Surely it would make more sense to simply rehouse these people and go all out with nuclear?

          Ah but then that would go against the dogma that organisations like greenpeace have been preaching for decades and whose supporters are also green voters. Greenpeace is a despicable organisation that engages in knee-jerk, heart-wrenching campaigns like ripping up and vandalising scientific studies into more disease resistant crops (to help feed the hungry) and successfully lobbying the eu government to ban aspects of stem cell research because some idiots in greenpeace felt it was 'morally wrong' (despite it having fuck all to do with climate change and thus needlessly extending the suffering of people with mnd, parkinsons, ms etc). You want to know why the greens haven't engaged in evidence based policy? Look no further than greenpeace.

          12 1 Reply
      3. Anonymous Coward
        Reply Icon
        Anonymous Coward

        Re: One factor left out - The System

        No, not the greens, they are just that same idiocy marketed to fools of a green persuasion.

        You only need look to see how much EU money and government grants they get to see they are fully bought and paid for members of the same establishment.

        Actually UKIP is the party which is different, because its understands this article. And hasn't been bought yet.

        The clue is in the article...banks that see their purpose as the creation of debt, not the processing of transactions and the supply of capital. Governments that see their purpose as winning elections, not actually moderating the social and international tensions of societies and delivering a stable environment in which commerce can take place and lives be led.

        The key principle is that both banks and governments have utterly lost any sense of social responsibility.

        There is no noblesse oblige any more. Actions are taken for narrow short term political or financial gain with no thought as to the impact that these actions will actually have ten, 20, 100 years from now.

        And that is most true of those who lay the most claim to social responsibility. Marketing yourself as socially responsible is just the fashionable way to sell your product.

        8 5 Reply
        1. Anonymous Coward
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          Anonymous Coward

          Re: One factor left out - The System

          >> Actually UKIP is the party which is different, because its understands this article. And hasn't been bought yet

          um Mr Farrage seems to be meeting Mr Murdoch and his minions fairly frequently. See recent Private Eye for details.

          4 0 Reply
        2. Anonymous Coward
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          Anonymous Coward

          Re: One factor left out - The System

          As I understand it, UKIP is basically funded by one man, plus the expenses they can get out of the European Parliament. They've already been bought by their donor, and if Britain does leave the EU they will suddenly have a funding gap. They are actually parasitic on the EU.

          1 1 Reply
          1. codejunky Silver badge
            Reply Icon

            Re: One factor left out - The System

            @ Arnaut the less

            "They are actually parasitic on the EU"

            While that comment made me laugh quite a bit on its own I must point out that UKIP gets funds from the EU based on the rules of the EU to provide such funds for the democratically elected representatives. If UKIP is a parasite (on the larger parasite I will point out) then so are the other little parasites.

            1 0 Reply
        3. Anonymous Coward
          Reply Icon
          Anonymous Coward

          Re: One factor left out - The System

          Yes, but you are assuming that, not having been bought, UKIP have anything remotely sensible to offer. A lot of us don't accept that assumption ...

          1 0 Reply
      4. Tom 13
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        Re: The nearest to it is the Greens

        Yeah, the Greens aren't another log on the fire, they're a tanker truck of gasoline.

        This is the real reason we can't fix the economy. Too damn many people are too stupid about what to do to fix it. Especially amongst the educated classes.

        2 1 Reply
      5. P. Lee
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        Re: One factor left out - The System

        >The nearest to it is the Greens.

        At this point it doesn't matter who the third party is. Just vote for them to break up the duopoly.

        But the article author is correct: interest rates can't be raised without instantly bankrupting everyone, but soon the government will no longer be able to borrow due to unattractive interest rates and excessive risk. Either the public or the government must collapse. I think Money magazine covered this over a year ago, surmising that the UK is doomed to certain financial collapse. The borrowing figures are sky-rocketing irrespective of "austerity" talk.

        0 1 Reply
    2. Anonymous Coward
      Reply Icon
      Anonymous Coward

      Re: One factor left out - The System

      "What's worse. the article left out one significant positive feedback loop - that the gap between rich and poor is growing and that more of us are on the poor side of that gap."

      It gets worse. It used to be that the rich always had some unfulfilled needs that required the work of artisans, specialists, and so on to fill, so the poor could train in those services and start drawing money from the rich to sustain themselves.

      The problem is that the list of services the rich need but only the poor can deliver is short and getting shorter—to the point of threatening to become blank. Think increasing automation and smarter computers. It's getting dangerously close to the point where if a rich person needs a service, they can consult an expert system, enlist a machine, or hire the same from a fellow rich man. It can lead to a dangerous situation: the rich not only drawing more from the poor but the rich becoming self-supporting, a closed society: forever sealing the gates into the chosen fraternity. I'm imagining a world where a small number of mutually-supporting rich people could ignore the wholesale death and destruction of everyone else in the world because they simply don't need them anymore. I doubt it's anything anyone but a panic-monger would espouse since it's basically a checkmate declaration.

      15 6 Reply
    3. Graham Marsden
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      @ql - Re: One factor left out - The System

      > Anyone know of a political party with differing ideologies these days?

      "Why 73% of UKIP supporters should actually vote Green"

      3 6 Reply
      1. Anonymous Coward
        Reply Icon
        Anonymous Coward

        Re: @ql - One factor left out - The System

        Why 73% of greens should actually vote UKIP.

        Rather.

        4 4 Reply
  3. Financegozu

    If you give a politician 1£ ...

    ... he will spend 1.5£. That's why here in Switzerland, we have control over what our government is spending and can even vote down a project (via a referendum) if enough people consider it inappropriate/too expensive.

    24 1 Reply
    1. Frankee Llonnygog
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      Re: If you give a politician 1£ ...

      Well, you'll never be blessed with a Universal Credits system if you carry on like that.

      Lucky buggars!

      6 0 Reply
    2. baseh
      Reply Icon

      Re: If you give a politician 1£ ...

      Basically referendums will be probably be the way of the future, the technology (internet/social nets) even today is easily able to support popular voting on everything, even on the most trivial subjects.

      However there is a very dark side to that: the ease of voting can lead to short term, populist and shallow decisions.

      This comes back to one of the points of the post: education, education, education; without having a very good knowledge of the subject to be voted upon, how can you choose the optimal option???

      And that leads to another facet of the popular vote, maybe the hardest of all: you should learn all you can about the subject before voting and if you feel that you do not know enough d o n o t vote!!

      Each one of the steps above is fraught with dangers and potential misuse, so making it viable is a real challenge.

      Is it realistic?

      8 1 Reply
      1. Financegozu
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        Re: If you give a politician 1£ ...

        Look, it's very simple: Those who voted (= those who decided) are also the ones to bear the consequences. What consequences does a politician have to bear for his decisions? (Hint: hardly any as long as they are not illegal)

        1 1 Reply
      2. veti Silver badge
        Reply Icon
        Facepalm

        Re: If you give a politician 1£ ...

        Budgeting by referendum is certainly one way of ... hurtling to disaster faster than the current trajectory.

        If "the people" could be trusted to manage their collective finances, they wouldn't have got into this mess in the first place. Politicians have bought popularity, because that's what people voted for. What makes anyone think they'd vote differently, if they had direct control of the budget?

        9 0 Reply
      3. Charles 9
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        Re: If you give a politician 1£ ...

        "And that leads to another facet of the popular vote, maybe the hardest of all: you should learn all you can about the subject before voting and if you feel that you do not know enough d o n o t vote!!"

        But then you run into the problem of "blissful ignorance." Everyone who goes to vote believes in his or her mind that they DO know all they can about whoever they want to vote. And there's no way to objectively test this because ANY test is a product of man (even a computer program must be programmed by a man at some point), which means SOME form of bias creeps in. And even if we make the test standard the same as for naturalization I would bet people are willing to screw both parties over. IOW, the potential for self-sustaining corruption is endemic to the human condition. There's just no way to escape it long-term, and even correcting their appearances short-term are difficult.

        1 0 Reply
        1. h4rm0ny
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          Re: If you give a politician 1£ ...

          >>"even a computer program must be programmed by a man at some point)"

          Actually, some very good ones have been written by women, thankyouverymuch. Perhaps you meant person. Though even that will change with time - I will certainly live to see computers become better programmers than people in the majority of scenarios, barring personal misfortune.

          3 10 Reply
          1. itzman
            Reply Icon
            Facepalm

            Re: If you give a politician 1£ ...

            A computer was asked to write a bug free program.

            Let X=X;

            .........

            Definitely bug free.

            If the caffeine hasn't yet kicked in, the point is that computers may well be able to write better programs than humans, in a narrow technical sense: the problem is deciding which programs to write...

            1 0 Reply
            1. h4rm0ny
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              Re: If you give a politician 1£ ...

              >>"the problem is deciding which programs to write..."

              No, the problem is specifying your use case in precise enough terms that automated tools can take over. And that not only will happen, but is happening. The nature of programming will increasingly shift from writing the software, to writing the tools to specify that software. And once that second part is done to a sufficient degree, it starts to turn on itself and reduce the total amount of programming that is done by people. Barring accident, I should be able to see out another forty years.

              Forty years ago C had just been invented and people were arguing fiercely over whether programming without GoTo was wasteful. You honestly think now that we have the tools to automate much of code production we wont? From the point of view of someone forty years ago, we've already done that with all our compilers and high level languages and we're just specifying how the computer should write the code. From our point of view, the future will look the same and in the same terms.

              2 3 Reply
          2. h4rm0ny
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            Re: If you give a politician 1£ ...

            Wow. That's a lot of downvotes in a short amount of time. I'm going to hope that's people objecting to the idea that automated code production will eventually supercede most cases of human code production, rather than objecting to the idea that women can write good software.

            1 5 Reply
      4. tfewster
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        Thumb Up

        Re: If you give a politician 1£ ...

        @ baseh and followups

        You are not alone! Look up Deliberative Democracy: It addresses the question of professional "elite"* politicians v. "naive" masses, and I agree that education and good, balanced briefings on the topic to be debated are essential. We already use the technology, but petitions and Facebook groups tend to be very one sided at present.

        We don't need a referendum on everything (See "The Rise and Rise of Michael Rimmer"), but I'd be willing to give up a few Bank Holidays to do "citizens" duty as needed.

        My wife has just written her MA dissertation on Deliberative Democracy, and as chief proofreader, I've absorbed a little knowledge** ;-)

        * See also the Dunning-Kruger effect

        ** Just enough to be dangerous. Disclaimer: My wife wouldn't necessarily agree with this post

        3 0 Reply
      5. John Smith 19 Gold badge
        Reply Icon

        Re: If you give a politician 1£ ...

        "And that leads to another facet of the popular vote, maybe the hardest of all: you should learn all you can about the subject before voting and if you feel that you do not know enough d o n o t vote!!"

        Possibly leaving you with this result?

        0 0 Reply
      6. Tom 13
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        Re: This comes back to one of the points of the post:

        Education can't help when it is the primary source of the cancer.

        0 0 Reply
      7. Loud Speaker
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        Re: If you give a politician 1£ ...

        The problem with a referendum is that the average level of intelligence is not very high, and half the people are below it.

        0 0 Reply
    3. LucreLout
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      Re: If you give a politician 1£ ...

      "we have control over what our government is spending and can even vote down a project (via a referendum) if enough people consider it inappropriate/too expensive."

      The only problem with that is that people without knowledge of the issue being debated, and those bought & paid for by the government, such as public servants, also get to vote.

      2 0 Reply
  4. Novex

    To add to the government getting us deeper into the shit, they are also subsidizing low pay and self-employment through in-work benefits, which causes an increase in government expenditure while reducing the tax income*. This seems to have also had the 'unintended' consequence of making at least some employers think that they don't have to pay a living wage out of their profits and can just pay minimum and the government will always make up the difference.

    As an aside, has anyone actually stopped to think why suddenly so many people decided to become self-employed? I have an idea, maybe it's because the private Work Programme providers (and by extension the public Job Centres) kept banging on at the unemployed to become self-employed as a way to trick the figures so they could get their WP pay-off from the government, because they sure weren't getting it from getting anyone into actual jobs (and unfortunately for me, I know this from being on the receiving end of such advice). So that increases the debt even more.

    *technically, if all those people who are in low pay were on full unemployment benefits, then the government expenditure would be higher, true. But the effect in the long term is that low pay carries on for far longer and therefore over time the benefit expenditure is higher and the tax income lower.

    14 0 Reply
    1. Anonymous Coward
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      Anonymous Coward

      " subsidizing low pay and self-employment"

      Exactly this. Not only do large companies get tax exemptions, taxpayers subsidise them by providing benefits to their underpaid workforces and "contractors".

      Fair is fair. Rather than setting arbitrary minimum wages, perhaps one option is to fine companies by the amount of benefits paid to their workforces, plus an uplift. Enforce the HMRC rules on when a subcontractor is actually an employee, which are being flouted every day. Make it pay for them to provide adequate wages. And if some of these companies go bust, well, that's creative destruction. At the moment the socialism goes to the people who have the most money. That's where we should dismantle it first.

      10 3 Reply
      1. Tom 13
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        Re: them to provide adequate wages.

        The "adequate wage" is a myth must like the average person. And adequate wage for a teenager living at home with his parents is different from an adequate wage for a just graduated college student is different from an adequate wage for a married father with two children supporting a stay at home wife is different that a two parents working family is different from an elderly person with a paid off house.

        I get that some small number of people in the past figured out ways to abuse their privately held companies to fund jet-setting life styles without paying taxes. But this solution of taxing corporation so they can't do that is a cure that is worse than the original disease. Make corporation zero tax entities and then either tax only income made by people OR sales taxes on goods sold. Write the income tax laws in such a way that if the corporation is effectively paying a person's salary without paying it, the corporation has to pay the taxes on that person's benefits.

        The real problem isn't that governments aren't getting enough income, it's that they spend too much. This is compounded by the fact that they get to play smoke and mirrors with their budgets and shift the blame to places where it doesn't belong. It belongs on the POLITICIANS and nowhere else. Because even the politicians put into office by people who are too short-sighted to see the dangers of overspending are still served best by not overspending.

        2 0 Reply
    2. Anonymous Coward
      Reply Icon
      Anonymous Coward

      So those self-employed people came off benefits? Where did their money come from after that? I'm not being narky - just trying to understand the logic.

      0 0 Reply
      1. dogged
        Reply Icon

        Tax credits. It's not getting off benefits, it's merely changing the name of the benefit.

        13 0 Reply
  5. G R Goslin

    All been done before

    Not in reality, perhaps, but Frederick Pohl and Cyril Kornbluth wrote a book, in 1955, called Gladiator at Law, which exactly spelled out the process of Sub Prime mortgages., and the subsequent collapse of the economy, to the point of bread and circuses. So fifty, odd, years on we are nowhere towards a 'fix'

    8 0 Reply
    1. Tom 7
      Reply Icon

      Re: All been done before

      The big assumption you are making here is that 'they' want the economy fixed. Its a bit like asking an undertaker to look for the water of eternal life. You dont look for solutions to the 'problems' you make a living from. In fact its even worth your while to ensure that people who supposedly teach economics continue to sell the old lies that maintain inaccurate economic theories and prevent the 'truth' coming out.

      I've got a £200 computer here that can do 32Billion floating point operations a second. I'd say that can model a whole years economic activity in the UK in less than a minute. In a month it could test and forecast and improve more economic models that you can shake a stick at.

      Economics remains guesswork because you wouldn't want it any other way apparently.

      7 8 Reply
      1. Anonymous Coward
        Reply Icon
        Anonymous Coward

        Re: All been done before

        "I've got a £200 computer here that can do 32Billion floating point operations a second. I'd say that can model a whole years economic activity in the UK in less than a minute. In a month it could test and forecast and improve more economic models that you can shake a stick at."

        Well, what's stopping you?

        8 0 Reply
        1. itzman
          Reply Icon
          Paris Hilton

          Re: All been done before

          The problem is that economics doesn't actually conform to any models that actually seem to work.

          And the way economics has been run since WWII is by using debt to kick start investment into a bigger and better tomorrow. On the basis that growth solves the debt problem. More weath tomorrow repays the debts of today.

          That fell apart when it became fairly obvious* that other constraints than money supply were limiting growth, and banks and governments turned to funding consumption, not capital plant and infrastructure, sometime in the late 90's.

          *except to banks, politicians and economists.

          0 0 Reply
          1. Tom 13
            Reply Icon

            Re: run since WWII is by using debt to kick start investment

            That's what they want you to believe but it's not actually true. There have been a couple of instances in which lowering taxes was used to kick start the economy and they've worked pretty well. Kennedy in 64 and Reagan in 80-83 are the two most obvious.

            0 1 Reply
        2. Alan Johnson
          Reply Icon

          Economics cannot be modelled

          Economics cannot be modelled in this sense:

          1. Any economic theory that works reasonably well is then used by financial organisations to calculate the consequnces of their own behaviour and 'optimise' for profit. This is a form of feedback that continues until the model fails which it inevitably will.

          2. Economic theory is almost entirely based on the idea of a large collection of 'rational' agents acting in their best interest. This does not reflect reality where the psychology of people comes into play. In order to have an accurate model of economies we need an accurate model of people.

          This does not mean that useful quantative and qualtative economic theories cannot be developed but economics as some sort of engineering disciplince is not possible.

          The article itself seems written by someone devoid of significant knowledge about economics. The idea that GDP growth is tied to increased resource consumption is paticualarily bizarre for someone writing for a magazine read by software developers. The clus is that Software development and sales add to GDP.

          1 0 Reply

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