Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes

Friday, 26 March 2021

An Austrian view of the Fiscal Multiplier

 Evaluation (at A level); it is up to you how you view this later in life:

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Home | Wire | If Deficits Don't Matter, Why Bother with Taxes?

If Deficits Don't Matter, Why Bother with Taxes?

TAGS Taxes and Spending

03/25/2021

On March 18, Joe Wiesenthal of Bloomberg Markets had MMT economist Stephanie Kelton on the show. If you’re not familiar with modern monetary theory, they think governments should print more money because deficits aren’t a big deal. At one point in the show, Wiesenthal asked, “If we don’t need to worry about deficits, why do we have taxes?” Kelton’s response was illuminating.

Now, the traditional excuse for taxes is, paraphrasing Oliver Wendell Holmes, that they are the “price of civilization.” Skeptics point out that, historically, societies with very low taxes were often far more civilized—think the Dutch Golden AgeIslamic Golden AgeVictorian England, the pejoratively named “Gilded Age” in American history—that thirty-year golden age when almost everything useful was invented. And, yet, throughout that period, federal receipts were one-fifth what they are today.

Why so much civilization? Because much of what governments do today was done by charities or businesses competing for customer dollars instead of seizing their budget in taxes. When doctors, firefighters, and schools have to satisfy customers, things get quite civilized.

Still, even if we accept a “night-watchman state” argument for, say, national defense or salaries for Supreme Court justices, it gets tricky if government can simply print up the fresh money to pay for all that civilization.

Kelton’s answer? Taxes would still be needed, because they make us poor. And because they can punish people she doesn’t like.

Specifically, Kelton likes that taxes “remove dollars from our hands, so we can’t spend them,” leaving more purchasing power for the government. So taxes make the people poor, and that’s a selling point to her, presumably because she thinks governments are really good at lifting people out of poverty. Anybody who’s spent time in America’s inner cities, where government money is pretty much the only money, might disagree.

Ah, but it’s not just about spending our money more wisely than we ever could, Kelton adds two secondary reasons she loves taxes: to punish particular people by redistributing their money, and to punish people for doing things she doesn’t like. Such as failing to buy energy-efficient appliances (no, really). In other words, social engineering with carrots for your friends, sticks for your not-so-friends.

Aside from the morality of preying on our neighbors, demanding they pay an ever-growing “fair share” that invariably exceeds what, say, a journalist or professor pays, using taxes for redistribution and punishing—“nudging,” in the fashionable parlance—carries enormous collateral damage. Because redistribution arranges society into hostile factions either trying to violently dispossess one another or defending against that dispossession. Moreover, redistribution isn’t simply innocently shuffling the chips; it is wholesale destruction. A paper coauthored by Christina Romer, former chair of Obama’s Council of Economic Advisors, found that each dollar in government spending leads to between $2 and $3 in lost economic activity. A separate study by Harvard economist Martin Feldstein came to similar deadweight estimates that “may exceed $2 per $1 of revenue.” In other words, in order to move a dollar, you have to destroy at least two to three dollars.

There is a similar mix of moral and practical costs to using predatory taxes for social engineering. It also breaks the social compact to live and let live, rendering our every decision subject to public vote, from what we eat, to where we vacation, to what kind of bag we use to carry our groceries. There is nothing outside the realm of the nudgers, no detail too small.

Moreover, by mass imposition of what are effectively judicial fines for noncrimes, such taxes can achieve a level of control that would never be constitutional if written as law. For example, today in the United States, 90 percent of students attend public schools, despite the terrible quality of education. Why do they stay? Because each voter must pay for public schools whether or not they use them, but would have to shoulder $11,200 per child per year for opting out of the public system, while continuing to pay that $12,600 per year in taxes for the “free” public system. Especially for the working class, this penalty becomes prohibitive for all but the most committed.

Pair these facts—no detail too small for the social engineers and their ability to achieve near-universal obedience via fines and subsidies—and we risk a totalitarian “permissioned” society where we are free on paper, but using that freedom comes with ruinous fines.

If, indeed, the only remaining justification for taxes in an inflationary regime is to redistribute and punish—to erode social harmony in a fiscal war of all against all while impoverishing society and enabling a creeping totalitarianism—then it is much closer to the mark that modern taxes have become not the price of civilization, but the predator of civilization.

Author:

Peter St. Onge

Peter St. Onge blogs on economics at Profits of Chaos.

Tuesday, 23 March 2021

Does shifting public jobs to the regions work? Good analysis

 

Forcing BBC and Treasury staff north won't break London's hold on Britain

Previous relocations show a limited impact on regions despite the Government's latest decision to up sticks

Civil servants accustomed to the elegance of Horse Guards’ Parade are unlikely to have heard of Feethams House, but hundreds of their number will be discovering its delights before long.

The Darlington office block is likely to be the first port of call for 750 officials from the Treasury and other departments, before a permanent Northern campus is established under efforts to move 22,000 civil servants out of London by 2030.

Ironically enough, the building reportedly earmarked to help reintroduce metropolitan mandarins to the country that voted to Brexit was completed last year with a helping £2m hand from the European Regional Development Fund.

But these are mere details. As the Chancellor slightly hyperbolically put it in the Budget: “Our future economy demands a different economic geography. If we are serious about wanting to level up, that starts with the institutions of economic power.”

Feethams House in Darlington will house thousands of civil servants moving up North from London
Feethams House in Darlington will house thousands of civil servants moving up North from London CREDIT: Ian Forsyth/Getty Images

It isn’t just the Treasury on the move. The UK’s new national infrastructure bank is heading to Leeds, and the BBC is moving up to 400 jobs away from the capital, scattering the media mavens away from urban enclaves in an attempt to look more like the country it represents. 

Some perspective is needed on the numbers. Cabinet Office minister Michael Gove talked last summer of “bringing government closer to people” and a “wider spread of decision-making across the country”. But even if 22,000 staff are eventually moved, that still represents fewer than one in four of the capital’s civil service workforce.

Decamping civil servants around the country is also by no means a new idea. Such drives have been periodic since the 1960s, with Sir Michael Lyons’ review in 2004 the most recent effort. The latest push may be in keeping with the cultural mood of the times, but the key question is how much economic good the new arrivals will do for the places where the new jobs land. Here the evidence is decidedly mixed, and in some cases downright damaging.

Take the BBC, and its move to Salford’s MediaCityUK complex in 2011 following the Lyons Review. The Centre for Cities examined the wider effect of the move between 2011 and 2016 in a study and concluded that for the most part, the relocation was simply sucking in media jobs from elsewhere, rather than creating new ones.

Excluding the BBC staff, there were 1,400 extra jobs, but only 370 of them in new businesses. Meanwhile the number of media jobs in Greater Manchester declined over the five-year period.

Thousands of BBC jobs moved from London to the broadcaster's MediaCity complex in 2011, but the shift did not spur local job creation
Thousands of BBC jobs moved from London to the broadcaster's MediaCity complex in Salford in 2011, but the shift did not spur local job creation CREDIT: PAUL ELLIS/AFP/Getty Images 

The overall impact on employment on the local economy was “fairly small”, prompting the thinktank to warn that local authorities should consider the “opportunity cost” of trying to attract the public sector: “Cities should be wary of deploying disproportionate resources that could be more effectively utilised to improve the fundamentals of the local economy such as skills and transport.”

Economist Giulia Faggio, who studied the wider moves under the Lyons Review, found signs of a short-term Keynesian kick to local job markets. But she also recorded evidence of displacement as companies move towards the new arrivals, and little longer-term effect on employment.

She says: “They seem to spur the creation of new jobs in services in the short-run resulting in higher overall employment. In the long-run, they seem to change the sectoral composition of local jobs towards services and away from manufacturing with no clear impact on total employment.”

Get it wrong meanwhile, and the results can be an unmitigated disaster. When the Office for National Statistics moved 1,000 of its London staff to Newport in Wales in 2005, the result was a catastrophic brain drain as just one in 10 staff opted to make the trip. That left the ONS with an inexperienced staff and prompted a slew of data errors for which the organisation was panned by the media and - privately - by central bankers.

Meanwhile for Newport, the move wasn’t exactly an economic boon. The ONS’s out-of-town campus meant there was less trade to be had for local restaurants and cafes, for example, while the often sensitive work it carried out limits its interaction with other local businesses. With the best will in the world, Newport’s pool of skilled statisticians is slim, so recruitment opportunities for locals were thin as well. 

The ONS’s difficulties underline the need to properly consider the effect of relocations for there to be any point to them beyond gesture. The Institute for Government, for example, cautions that the local labour market needs to be suited to the incoming department. Unless there is a long term plan to integrate the new outpost, as well as backing from the minister, the effective working of government could be compromised.

Who moves is also key. London is the home of 20pc of all civil servants, but 68pc of senior officials. Compare that with the North-East, which has just 2pc of the senior civil service. In London, just 14pc of staff are at the lowest administrative assistant or admin officer level, whereas more than a third of all civil servant jobs across the rest of the country are at these two grades. The types of civil service jobs done in the capital are also different, such as 75pc of economics roles, 71pc in international trade and nearly two-thirds of policy jobs.

Unless senior jobs are shifted as well to create a critical mass and demonstrate opportunities for career progression, new locations risk becoming ghettoised backwaters of lower-skilled staff. It would be a cruel irony indeed if an attempt to “level up” and create a “new economic geography” actually left the regions more exposed to job culls in future civil service prunings, because more those junior roles would almost certainly bear the brunt. 

The evidence suggests that if ministers are truly looking to “level up”, there are better ways to do it than sprinkling public employees around the country to uncertain effect. The UK is one of the most regionally unequal economies in the developed world: more useful would be devolving real power and funding to the regions to allow local governments to spend on their priorities.

Moving civil servants, by contrast, feels like a tokenistic gesture. Sir Humphrey has doubtlessly noted that Feethams House is a seven-minute walk to the station, and a two-hour fast train to King’s Cross. 

Thursday, 11 March 2021

Very topical after yesterday’s class discussion

Ex-steelworks to make wind farm parts in plan for 6,000 green jobs

Britain has only two blade factories at present, with some blades and other turbine parts imported
Britain has only two blade factories at present, with some blades and other turbine parts imported
ASHLEY COOPER/BARCROFT MEDIA/GETTY IMAGES
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The government will invest almost £100 million creating new wind turbine ports in northeast England, with a big renewables company announcing plans to make crucial parts in Teesside.

Two new wind ports, one in Teesside and another in north Lincolnshire, will create capacity for seven companies to make parts for the offshore wind industry, whose capacity the government has vowed to quadruple by 2030. The projects are set to create 6,000 new jobs.

As part of the announcement the government said that GE Renewable Energy, a multi-billion pound manufacturer, will build a new wind blade factory at the Teesside site, which is a former steelworks. The factory is due to open and start production in 2023.

Its blades will be supplied to the Dogger Bank wind farm off the northeast coast, which is set to become the largest offshore wind farm in UK waters, and will power up to six million homes.

The government is investing £20 million in the Teesworks Offshore Manufacturing Centre, and £75 million in the Able Marine Energy Park on the south bank of the Humber. The investments comprise more than half of a £160 million fund announced last year.

“During the Industrial Revolution over 200 years ago, wind powered the sails of ships from the Humber and Teesside trading goods around the world,” Boris Johnson said. “Now the Humber and Teesside will put the wind in the sails of our new green industrial revolution, building the next generation of offshore wind turbines while creating 6,000 new green jobs.

“Our multimillion-pound investment in these historic coastal communities is a major step towards producing the clean, cheap energy we need to power our homes and economy without damaging the environment.” The government is determined to demonstrate its commitment to green energy before hosting the COP26 climate change summit in Glasgow in November. This week John Kerry, President Biden’s climate envoy, held talks with Johnson, Rishi Sunak and Alok Sharma, the summit’s president.

Johnson has adopted the language of a “green industrial revolution”, a phrase that played a large role in Jeremy Corbyn’s 2019 election campaign, since November when he unveiled a ten-point plan to create 250,000 new green jobs with £12 billion of government money.

Yet despite Britain having more offshore wind farms than anywhere else in the world, ministers fear the benefits of increased capacity will go to other countries, which build more parts.

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Britain has only two blade factories already, one in Hull and another on the Isle of Wight, with some blades and other turbine parts imported. Nacelles, which house turbines’ generators, are often made in Europe, especially Denmark and Germany. Foundations are frequently imported from China and other countries with cheap labour.

Sources said that the government investment was designed to increase capacity for manufacturing those parts in the hope that private sector investment will soon follow.

Kwasi Kwarteng, the business secretary, said: “To ensure our businesses, supply chain and high-skilled workforce can fully share in the sector’s success, today’s investment in the Humber region and Teesside will put the UK in pole position to land new offshore wind investors.”

Hugh McNeal, chief executive of the RenewableUK trade association, said the GE Renewable Energy plant would transform the former steelworks site, adding: “This announcement marks the start of the next generation of offshore wind manufacturing.”

Tuesday, 2 March 2021

Short article on the economic contribution of the arts

The Times view on support for the arts: Golden Goose

The remarkable success of Britain’s creative industries needs to be nurtured

The Times
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It was a spectacular night for the British television and film industry — and not just because of the efforts that some of the country’s biggest stars had made to dress for the occasion, even while participating remotely from their homes via Zoom. Not for the first time, British talent scooped many of the biggest prizes at the Golden Globes ceremony, the first of the major industry awards of the year. The Crown won four gongs, including best actress for Emma Corrin for her portrayal of Princess Diana and best actor for Josh O’Connor, who played Prince Charles in the Netflix drama. Other British winners included Sacha Baron Cohen, Rosamund Pike and John Boyega.

It’s a reminder, if one were needed, of not only the extraordinary vibrancy of Britain’s creative industries but the remarkable contribution that they make to the economy. This is a sector that broadly defined employs more than two million people across film, television, music, theatre and galleries and which, before the pandemic, was growing five times faster than the wider economy. In 2018 it contributed more than £100 billion to GDP and generated £35 billion of exports. In recent years it has drawn substantial investment, not least from studios looking to tap British skills and talent.

Nurturing this sector should be a priority for the government. It is right, therefore, that Rishi Sunak, the chancellor, is to provide a further £400 million on top of last year’s £1.5 billion lockdown support package for the arts in this week’s budget. This will go some way to sustain the rich cultural ecosystem that includes grassroots music and theatre upon which Britain’s global creative success depends. But the sector must also now contend with a post-Brexit trade deal that makes it harder for British artists to work on the Continent. Ministers must help the industry to overcome these obstacles too if the golden goose is to continue to lay its eggs