I've been having a long running debate on this blog with some from secrecy jurisdictions. One of the regular commentators (from the Isle of man) concluded:
Given that [Richard] is, basically, a Marxist you (and I) and he are never going to see eye to eye. Marxists are well known for being possessed of fanatical devotion so their (so-called) ideals and with that goes an inability (or is it a conscious determination) not to see common sense. We just have to put our logical point of view across, not for Richard's benefit, but so that the impartial observer can see where the sense lies.
Interesting. Have you noted my CV guys? It says:
Richard is a chartered accountant and graduate economist. He trained with KPMG in London before setting up his own firm of chartered accountants in 1985 in London. He and his partners sold the firm in 2000 when it had 800 clients.
Richard is a serial entrepreneur, having directed more than 10 SMEs in sectors as diverse as IT, the toy industry and environmental auditing in both the UK and overseas.
Senior partner of a firm of chartered accountants? Serial entrepreneur? And a Marxist? Come on, pull the other one. I'm no such thing (as my Marxist friends are wont to tell me - and yes I know some - and neoliberals too!).
As my Green New Deal colleague Larry Elliott wrote in the Guardian yesterday:
Schopenhauer was bang on the money when he said that truth goes through three stages. In the first stage, it is ridiculed. In the second stage, it is violently opposed. And in the third stage, which of course is where we are now, it is accepted as self-evident.
Actually, I thought there was a fourth stage, which is initial denial, but the point is well made.
Those commenting have said I do not know what I am talking about (despite which they still engage); they have offered abuse (that's why they describe me as a Marxist: they think it a derogatory term), and they admit they are very angry with me.
That's OK. They're getting into stage 2. More evolved beings are in stage three. Some won't get there. Those that matter are. That's fine. I can live with that.
But let's be clear. Five years ago there was denial amongst many that there was a continuing problem with tax havens. That stage is history. Stage 2 (ridicule) is over for most. Stage 3 (anger) is very obvious right now. And some now see that it is self-evident that change must happen. The trajectory of progress is now apparent, and I'd like to think pretty much unstoppable.
Time to smell the coffee guys: and Marx didn't make it. The real issue is just a commitment to honesty in business. Not too much to ask for, I'd have thought. But apparently beyond your comprehension, as yet. Self-evidence will arrive though, don't worry.
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I’d like to say something about Marx. When he wrote Das capital in the 1840s, what he said was highly relevant and it could reasonably appear that his prophecies might come true. Over the next hundred years, Western governments changed the rules, though. By means of Health & safety legislation, state funded healthcare and pensions, welfare state etc, they changed society so that Marx’s prophecies could not be fulfilled. Marx apparently became irrelevant. The neoliberals would like to reverse all this. The obvious consequence is that Marx would become highly relevant again. Richard is on the side of those of us who want to make sure that Marx stays in the history books and doesn’t go back out on the streets. If anyone is working to make Marx’s prophecies come true, it’s the neoliberals who are doing far more recruiting for Marx now than any of those little Marxist/Maoist/Trotskyist cells.
No Richard – what your CV suggests is that you weren’t Marxist in those former days. It doesn’t mean that you aren’t Marxist now. Some people do change their beliefs once they have made their money. On the other hand you might just be a hypocrite.
I don’t think that anybody really believes that tax havens won’t have to change. Many of them already have, and substantially too. Others have adopted an ostrich approach, to what will prove to be their great cost. I don’t disagree with you at all when you say that tax evasion must be stamped out, but I do disagree with you in relation to the extent to which change could/should be necessary. Where we disagree in particular is whether there is still room for respectable offshore finance centres who will play to the new rules. I say yes and you say no, because you believe that currently legitimate tax avoidance is immoral and should be made illegal. That’s the big fundamental difference between our views, and that’s what takes us back full circle to the Marxist point.
Why deny it? I know that labels are a pain, but Marxism seems to be central to much that you post. Did you study Marxist Economics as part of your degree?
James – true
David – no change of heart: I’ve always known tax avoidance is morally reprehensible. It’s prima facie obvious: avoiding the law is clearly abusive
Alsatair: of course I know some Marx. That’s why I know I’m not a Marxist.
If you want a label why not try social democrat? Right there in the middle of political spectrum: one nation Tory of old, much of Labour, most Lib Dems: most of the country when it comes down to it, believing (as is obviously logical) in the value of a mixed economy.
It’s just those on the Right like straw men: it’s all they can argue with.
Richard, your detractors obviously know nothing about Marx. I have only recently become acquainted with his works and still have a lot to learn. It’s a great pity that he is not more widely read since his insights were quite remarkable .. and relevant today.
One thing I do know is that Marx showed how capitalists appropriate surplus labour (work done over and above that needed to fund imediate needs). I don’t think I have seen one thing that leads me to believe that you accept this theory.
So far as I know, Marx did not actually define specific policies to ensure that ‘workers reap the full fruit of their own labour and an equal share in the bounties of nature’. This has been left to later generations – so far unsuccessfully, but we keep trying.
Richard
You say “avoiding the law is clearly abusive”. But the courts and HMRC themselves accept that tax mitigation is legal. The English law courts have consistently applied this principle, within certain parameters. So how can you say that the courts are wrong ? Case law precedence is a vital part of the law. Unless there is a general anti-avoidance law (as Canada used to have, which proved ineffective), then tax avoidance is legal until the tax planning in question is deemed illegal.
You seem to think that your version of the law overrides the law of the land. What gives you that power ? By all means lobby to change it, as is your right, but until and unless it does change, by definition you must be wrong.
You miss the point entirely re. your CV. You claim say that you cannot be Marxist because of your career in business, as if its impossible to be both. My point is that you could have become Marxist after that episode of your business career. You cannot say that you cannot be Marxist now just because you clearly weren’t Marxist then. Of course that’s possible. People can and do change their beliefs.
David
1) I haven’t changed; my opinions on this have been pretty consistent for 20 years
2) Of course I can say tax avoidance is abusive. Whoever said the law was the arbiter of ethics?
Richard
I’m a sucker for analogies.
Plenty of criminals get off on technicalities. Does that mean that their behaviour is acceptable?
I wholly support the contention that we require a high standard of proof to avoid any prospect of punishing the innocent. This means almost inevitably that guilty people can exploit loopholes in the law and escape a successful prosecution. Burglars do it, car thieves do it, muggers do it, rapists do it, killers do it. As the law has failed to criminalise them does that make their behaviour acceptable?
Richard clearly isn’t a Marxist. He has some perfectly valid capitalist concerns about theft from the third world and corporations paying their fair, and due, share of tax.
Having said that he does speak with great confidence on the subject of the world economy without fully understanding all issues and the balance that needs to be struck. As far as I can make sense of the opinions offered here he believes in a low interest rate, cheap credit economic system in which the inflationary heat (tendency toward credit based asset bubbles and gambling) is entirely eradicated by regulation.
This is a system which very obviously cannot exist. If you regulate the housing market cheap credit will head into the stock market, currency speculation, commodities market… they are so many options you simply cannot regulate the gambling Richard actually disapproves of out of existance.
Added to that he never addresses the issue of an economy in which no personal saving takes place. This is not a model even the most rabid supply-siders believe in. Both standard bearers of the current argument, Greenspan and Buffett, have recently publicly reiterated the urgent need for more saving. Greenspan could not have been clearer in saying that without saving there will be no future.
Richard believes in a system in which people are fiscally responsible yet there are no rewards for the fiscally responsible, because savings are always taxed, and inflation always underestimated, in such a way that any capital not invested in the hope of another asset bubble is whittled away.
Richard’s vision of a system which favour the gamblers, with cheap credit, yet regulates their excesses out of existence, and then taxes the responsible’s savings out of existence yet has no pensioner savings crisis is inconsistent, irrational, half-baked and totally unworkable.
Much though I laud his efforts to bring third world embezzlers and their facilitators to book, and for transparent accounting, I sincerely hope that he soon sees the need for a more balanced approach to capital oversight by governments and the need to wean them of the easy money, pilfering of savings on which income tax has already been paid. Saving account interest does not produce real returns when adjusted for inflation.
In the current situation Richard’s strident statements about tax avoidance by savers in the channel isles on accounts earning 1% p.a. scandalously avoiding paying an effective 0.02% tax due to their piffling interest payments, while real inflation is about to shoot through the roof as a result of quantitative easing and lay waste to that capital value at perhaps 15% p.a., are now sounding surreal.
1) And what about prior to 20 years ago. ? The precise point that I am making.
2) Words almost fail me. The law of the land is the land unless Richard Murphy says otherwise. What arrogance ! Are there any elements of the road traffic laws that you choose to disregard on Planet Murphy ?
Thank you for your response, “My del.icio.us bookmarks for December 17th (Permalink)” Mr. Murphy! You are a gentleman and a scholar!
Mr. Murphy’s answer to Capt. A., “ … You just need a little time. You’re clearly on the cusp of stages 1 and 2 right now. You’ll get to three…. (You citing to Schopenhauer)
Not likely at my age of 75, my dear man! Please Mr. Murphy, incessant patronizing is a character flaw. I’m already where I want to be both in life and thought. I’m a critical-thinking, retired, rugged individualist, sans government. (That’s why I’m here in Monaco! No conformist here, Mr. Murphy.
As for your citing of Schopenhauer, a pathetic (some say pathalogical) little German philosopher, who, along with Nietzsche, Kant, Hegel et al., are doing well at eternal rest. Requiescat in pace. My college days revealed a preference for: Johann Wolfgang von G??ethe. If one is to spend a lifetime indulging in historical individuals, I’d have to say I’m guilty of a life spent indulging G??ethe! The breadth of his influence far exceeds others mentioned above and overall. Pathological (Schopenhauer) to a degree, the “pessemistic philosopher” doesn’t merit (as you seem to think) citing qualities of real truth as does G??ethe! (Incontrovertible) Only the addlepated argue otherwise.
Unless one is bien-pensant, holding the state’s view that redistribution of wealth, disisseminated through “entitlements” is acceptable and fasionable, protection at some point becomes necessary to preserve wealth from the gluttonous hands of the state. The casual affect of government sanction of force is terribly distructive in the end. Proof? Look at the UK and America now… Involuntary servitude of the masses to more debt and redistribution. Enter… Tax havens. To serve and protect. Government is nothing if not pure unmitigated force. Enough is never enough. Government pelf through “taxes,” bread and cirsuses in the making.
As you point out in other follow-ups, others tend to “label” you. (Marxist, socialist, etc.) You claim otherwise again citing your laudable “business references” and experiences. I haven’t personally talked to you at length so specifically labeling you as appearing to side with company in the name of collectivism and/or statism might be a bit fairer. Merely based on ideas you illicit on your blog, it is difficult to believe that you “haven’t changed” as one commenter suggested. Anyway…
And as for “smelling the coffee,” allow me to suggest that individuals of any means of wealth, discovering the “truth,” do take substantial measures to protect assets, whether “lawful or unlwful” is not the argument here and now. You are, as you have indicated against tax “avoidence, etc.” Tax evasion in most cases might be illegal as well, though not all. Avoidence or evasion … really makes little difference if laws by State are passed to tax (steal, pilfer, loot, plunder, defraud; you get the point!) and transfer capital in the interest that the State somehow “knows” how best to spend other peoples money! Yet, Mr. Murphy, you fail to allow for individuals, the Voluntarily gaining of wealth in the marketplace and protecting it, WITHOUT the use of “force or fraud,” to avail themselves of the full right of their effort and innovation. How cheeky of you sir!
I pose no argument yet, to suggest citing as you say, “prima fascie” necessarily, tax avoidence should be stopped. (Abusive) It is apparent to the vigilent reader that reads your blog that you infer explicitly, tax avoiders and evaders will be delt with (or should be), the circular summation appearing under “Adult Supervision,” 19 Dec. ’08,: You state, “Tax havens will not survive in that environment. They only exist to undermine regulation. As such their raison d’?â„¢tre is contrary to the public good. They have no future.” To that Mr. Murphy I say, “Poppycock!”
Public good? Society? Professor Thomas Sowell, of Stanford U., California, states, “Mystical references to ‘society’ and its programs to ‘help’ may warm the hearts of the gullible but what it really means is putting more power in the hands of bureaucrats.” Amen to the “truth.”
Was that a serious joke on your behalf about public good, Mr. Murphy? And if you aren’t joking here’s a proposition: Are you a wagering man Mr. Murphy? A sizable friendly wager? Oh, let us say, £50,000? (Or is it “illegal” to wager where you reside? Not here in Monaco, where “liberty, freedom, private property and privacy” and yes, wagering reign!) I love it when individuals make assertions of “fact,” as you have above, based on their “beliefs or faith!” As the American author and lawyer Charles Adams has explicated in his many, many books, writings and lectures, “Wealth will create its own “tax havens” if states fail to do so.” He might just be considerably further ahead in this subject matter than you are. I make no claim to be a “legend in my own mind” as some erudites and pundits who seemingly feel free to advocate proselytizing scruples. You did say, “I haven’t changed; my opinions on this have been pretty consistent for 20 years,” didn’t you? (Pretty consistent?) I’m way too old and smart to deal with such nonsense Mr. Murphy.
That is the “practicing moral turpitude,” as I’ve mentioned elsewhere in the previous note to you. I really don’t think it necessary, however a quick review of Marx and Engel’s 10-planks (Manifesto) might render why so many stiff comments are directed toward you.
As for Schopenhauer and his ilk, I’d merely cite Shakespeare’s Scottish Play: “Nothing in his life became him like the leaving it.”
Finally, I’d like to leave you with the age-old venerable thought that G??ethe offered so long ago:
“None are more hopelessly enslaved than those who believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. They feed them on falsehoods till wrongs look like right in their eyes.” ~ Johann Wolfgang von G??ethe
Again, thank you for your courtesy.
I bid you a good day, as for me, not being a “citizen” here; it’s off to the Monte Carlo Casino for a pleasant evening. C’est la guerre.
Capt. A.
Principality of Monaco
it is a principle consistently accepted by the Courts of this country that it is not against the law to arrange your affairs so as to minimise your tax bill – they call it tax avoidance. To continually state that this is abusive shows an utter contemt for those laws.
Marx’s insights were interesting, but for the most part wholly qualitative. It is unfortunate that most people tend to interpret these insights from a political perspective.
Of course, economics has nothing to say about politics per se
David
1) More than 20 years ago I did offshore stuff – and realised then how corrosive it was, since when my experience has been unravelling offshore stuff. The politics did not change: the realisation that you could not hold your head up high in society and be tainted by offshore dawned on me: they are incompatible
2) I am not disregarding the law: I am saying you should operate to a higher standard.
Richard
Mark
Appreciated
Richard
Alasatair
The principle was set in the 1930s
At the time women had just got the vote. Sex discrimination was legal. Race discrimination rampant and condoned. Hanging was normal. I could go on, and on. The point is this: what society accepts changes. What was legal is seen as an abuse. Tax avoidance is an abuse. The fact that it is still legal does not stop it being so. To say so is to say the law is wrong. All progress is dependent on people saying that. I will continue to do so.
But your really fatuous comment (and I mean that) is that economics has nothing to say about politics per se. Economics (as you see it) is in its entirety a faith system: faith in markets. It is wholly and completely political. Northing more, or less.
Large parts of it are wrong too.
Richard
Keep digging Richard.
Why should anyone be required to operate to a higher standard than the law ? That’s rubbish. If the speed limit is 70mph are you saying that one should unilaterally ignore that and consider 50mph to be a “higher standard than the law” ?
Maybe the offshore stuff that you were doing 20 years ago was of the type that quite rightly shouldn’t (and largely doesn’t) still exist today. The world of offshore finance has moved on since 20 years ago (thank goodness).
In your comment to Alastair you say that the principle of tax avoidance being legal was set in the 1930s and is therefore outdated, as if that is at all relevant. What’s many times more relevant is that over the past 80 years the courts of the laws of the land have continuously and consistently maintained and reinforced that principle.
Sebastian, there is a simple way to regulate the housing market. The speculative element is land. Land is not just any old asset – it is part of the real, productive economy. The whole land market is totally dysfunctional; it does not allocate to best use. Land is special, it cannot be manufactured and therefore came cost free. Values are created by natural attributes and human activity and investment.
Tax land values at full potential rental value and you permanently end land speculation. Planned infrastructure expenditure will be recouped by increased land values (see Jubilee Line Extension).
You should be aware that the banks have been receiving economic rent in the form of mortgages.
I remember having many undergraduate, and somewhat fatuous arguments, over whether economics is a science or an art, and what that means.
having studied it I feel justified in stating that economics is a science, and as such does not concern itself with politics. The fact that politicians might abuse economics does not change that – same goes for statistics.
the law is continually changing – as a result of new laws, and as a result of courts interpreting laws, but tax avoidance is still legal. That you might not like it does not stop it being so
David
You ask why anyone should operate to a higher standard than the law. And then use a road traffic act analogy.
Let me ask you this. Do you never exercise judgement? If the speed limit is 70 do you drive at that speed irrespective? In my opinion only a fool does so. There are plenty of fools – as I frequently witness in fog. But of course I drive more slowly then the law requires when it is appropriate.
The same option exists with tax law – most people do not want to avoid tax (which means abusing the law). They are of course happy to comply with the alw and claim the allowances it intends they enjoy – something quite different altogether.
And as for your claim offshore has moved on – I agree – it is more abusive now. The simple evasion is less signifixant. You now have abusive forms of trust, redomiciliation, cell companies and the like to help you. So much more convenient.
And as a senior tax official in the UK has said to me ‘ If we could bury the Duke we would – just tell us how’. I have no doubt we need a General Anti Avoidance Principle.
I have no doubt we will get one.
Richard
Alastair
If economics is a science it is a very poor one. Let’s look at some of the assumptions it requires to ensure it works as one:
1) Perfect knowledge of the future
2) Certain knowledge of current preferences which will never change
3) Mindless pursuit of self interest in the face of conflicting goals
4) No externalities i.e. everything of value can be priced, with certainty
That’s not science: that’s mumbo jumbo.
It always amazes me that people say religion is a myth and economics (of the sort you describe) is science. Of the two (and I’m fairly well versed in both) religion asks much less of the believer in terms of credibility.
Richard
Notwithstanding my earlier comment on this thread I must question this statement Richard:
“most people do not want to avoid tax”
On what do you base this premise?
I accept that many people do not want to ‘abuse the law’ which you suggest is the definition of tax avoidance. Although it’s not a definition I recognise.
However I think that most people DO want to keep their tax liabilities to a minimum. They ask their accountants (and their friends) “What can I do to pay less tax?” “How can I pay less tax?” “How can I avoid having to pay all this tax?”
And of course the weekend papers are full of ads for guides as to how to AVOID IHT.
To me this all indicates a desire amongst the general public to AVOID paying more tax than necessary.
“If economics is a science it is a very poor one. Let’s look at some of the assumptions it requires to ensure it works as one:
1) Perfect knowledge of the future
2) Certain knowledge of current preferences which will never change
3) Mindless pursuit of self interest in the face of conflicting goals
4) No externalities i.e. everything of value can be priced, with certainty
That’s not science: that’s mumbo jumbo. ”
I agree that what you’ve laid out there is mumbo jumbo. But that’s because what you’ve laid out is not “economics”. It’s a desperate misunderstanding of a certain sect.
1) I can’t think that there’s any economist at all who claims that the subject rests upon perfect knowledge of the future. Good grief, there are few enough who argue that it rests upon perfect knowledge of the present. For example, Akerloff got the Nobel for studying asymmetrical information…if one group has more knowledge than another (which is what that phrase means) we’re pretty clearly not talking about everyone having perfect information, are we?
2) Certain knowledge of preferences? Well, yes, most economists do argue that both individuals know what their own preferences are better than others do for them and that preferences are consistent. That if you prefer A to B and B to C then you prefer A to C. But no one at all insists that these are unchanging over time. Appetites for (the same as a preference) for risk for example are known to change: it’s one of the ideas that underpins a certain set of business cycle theories. Savings and consumption preferences are known to change over time: Modigliani’s lifetime savings hypothesis for instance.
3) Mindless pursuit of self interest? Umm, no, not even Adam Smith said that. Pursuit of enlightened self interest, yes, but if you actually bother to read him he talked a great deal about sympathy for one’s fellow man, just as an example. The current phrase used is that we all attempt to maximise our utility. And yes, the warm glow that comes from doing the morally right thing is indeed included in the definition of utility (as is of course the warm glow from doing things that aren’t morally OK, say, adultery).
4) No externalities. Umm, Richard, have you even bothered to crack open an economics text book in recent decades? Externalities are taught at A level economics these days. Absolutely every single damn economist looking even vaguely at climate change is arguing not about whether they exist but how do we deal with them? The cap and trade systems have been designed by economists, the proposals for carbon taxes (one creates a market in what was formerly an externality, the other brings it into the current market pricing structure)….good grief, the entirety of environmental economics is based on Garrett Hardin’s analysis of the Tragedy of the Commons, simply another name for a certain type of externality.
I’m afraid that you’ve betrayed the fact that you really do not understand economics at all. Something I have to admit I’ve suspected for some time now but at least now I know.
“Ecnomics” is, like “science” itself, best understood as a toolbox to be used in attempting to make sense of the world around us.
[…] Murphy in his comments section. "If economics is a science it is a very poor one. Let’s look at some of the assumptions […]
“I have no doubt we need a General Anti Avoidance Principle.
I have no doubt we will get one.”
Not while we’re signed up to the ECHR we won’t: the convention requires that everyone can know the law and gets a fair trial. Having people like you make up the law as you go along is incompatible with the convention.
Hi Carol, thanks for the comment. I cannot see land tax would work. The South East has supply led prices for any property. Immigration continues at a pace while cities are prevented from growing upward or outward. The value of land does explain a good chunk of the cost of a property but not all of it. Builders in the UK earn far higher profits than they do in the US… I’ve seen it calculated at 400% more. If land were at such a premium they would struggle to make a living.
Even so, land is not the issue here because even if the problem were simply land value taxing land would simple redistribute the price of a property. In a demand led market it would remain just as much as the buyers can possible afford/borrow. What is needed for the British economy to recover is to reduce middle class costs so that they start investing in their education and own business ideas again: raising tax take and reducing social service costs which the middle class are efficient at claiming.
To reduce the price of property one needs to reduce demand per property. That is done by stopping net immigration (endless immigration to pay social security is a pyramid scheme that must be stopped) and constructing more dwellings. That can be done by raising density or building on the greenbelt. I favour raising density, but not in the way that it has been tried in the UK. In the 70’s councils allowed themselves to build terrible blocks which have ruined British perception of high rise living. Now the government talks of building affordable housing… but because demand was so high nothing was affordable. In Denmark in the 90s students could buy a studio flat to study from for £7000. Nothing like that has been produced in the UK.
Building affordable housing is always mistake: it means building junk housing stock on good land. What the UK needs is high density housing to accommodate the 20 million new inhabitants the country has gained since the war. High density housing on the cheap does not work (70s slums; fire control problems – it’s expensive to do well; the amenities that make apartments realistic – gyms, bars – cannot be afforded). High density for the rich does work (think Dubai/ Hong Kong/Singapore). One must build well for the rich and encourage them to move into luxury apartments near work. You build and displace. In the end Enfield and Clapham become working class as rich families move up in the world.
There is another need for this: transport. The effect of London’s low density housing, apart from over demand and threat to the greenbelt, is a concertina effect. Millions of people moving in and out of the city. The City of London, and Tower Hamlets and Bermondsey, must be forced to allow high rise apartments only. To provide accommodation a walking distance to work for people in the City. That will displace commuters from Chelsea up to Holland Park. The UK has been segregating work places from homes since the dirty industry made it apparent that that was desirable. There is no need to segregate the City of London from people’s homes. The City of London does it to remain rich on business rates and it should be forced to allow planning permission based on a certain mix of housing to office space.
One more thing. The apartments in the City would need to have cinemas, restaurants and supermarkets on their ground floors. The City does not well supplied with these things and an evening commute for groceries would defeat the attempt at reducing travel. All of this is achieved using only building standards regulation and planning approval. Greater supply will cause prices to drop and people will use the extra liquidity they used to anxiously throw at their mortgage to invest in themselves.
Incidentally, UK housing stock is often in terrible condition compared to the continent because the British throw so much at owning the shell they have nothing left to sort the place out. In 2000 I noted that a £250,000 flat in terrible condition in North London would be worth £270,000 redecorated. In Berlin a 270,000 house in poor condition is worth £100,000. The expectation is that the interior is fixed up well at a cost of £100,000 and £70,000 is profit. That’s what the British don’t benefit from because they will not balance immigration with emigration rate and accommodate all those they’ve alreadly let in by increasing city density.
Kay Tie
GANTIPs are certain.
Take the TAAR (targeted anti-avoidance rule) on PAYE announced in December 2004. The profession protested, said it was retrospective and a lot else. The reality was that everyone knew where they stood.
It’s completely untrue GANTIPs create uncertainty
Richard
Hi Richard. I think Tim said it very well. The economics I know and love is somewhat different to yours!
Sebastian, you need to do your homework on land. Take a look at labourland.org and landvaluetax.org or wikipedia to start with. Unfortunately even those who should know better are totally ignorant of the role that land plays in the economy.
[…] time, both professionally and just because he seems to me a very decent human being. So, when he challenges one of my assumptions on this web site I need to […]
Theres been a lot of talk on this one and I looked really hard to find the neoliberals explanation of how their ideas would improve things for the poor and for sub-saharan Africa. Strangely, I didn’t find any. I did find a lot of talk about economics and philosophy, which is all very entertaining.
Maybe Richard Murphy and everyone on the centre left is mistaken in their opinions. However, they are participating in the important conversation. It seems to me that those on the right are doing a lot of talking but not really saying anything about the issues that really matter.
And does anyone on the right have anything to say about the environmental challenges facing the world? It may (or may not) be moot whenthre man has caused global warming, but what is not moot is that it is happening and we need to respond.
[…] made the observation a few days ago on this blog that economics is not a science. Some from the right have, predictably, argued to the […]
James. Given that I’m a Fellow at the Adam Smith Institute I think that in this context I am from the right (that I regard myself as a classical liberal and am therefore of the left we can leave for another day).
I would have to say that you don’t seem to have looked very hard for people on the “right” with solutions to the problems you mention.
1) Sub-saharan Africa. I, as with the ASI itself, constantly and consistently argue that the best thing we can do for the medium and long term is to trade more (the short term clearly requires charity as well). We should buy more of the things that they produce making both them and ourselves richer. As they should also be able to buy our produce free from restraints like tariffs as this makes both us and them richer again. Remember, both participants in a voluntary transaction benefit….otherwise the transaction doesn’t take place, does it? We should thus abolish CAP and the EU’s trade barriers and adopt unilaterial free trade at the very minimum.
2) I write often on environmental problems. Almost all are from a combination of the Commons Problem and externalities. Different such problems require, dependent upon specific circumstances, different solutions. The Commons Problem of fisheries can be solved via the proper allocation of property rights as has been shown in various parts of the world. Climate change probably cannot be solved via that method which is why I advocate the imposition of a carbon tax. Just as the Stern Review advises with their recommendation of Pigou Taxation.
Tim
1) We cannot forever consume ourselves out of problems. It creates environmental problems.
2) Tariffs are the most efficient taxes to collect in Africa – why undermine effective government in these places by destroying their tax base?
3) No country has ever developed a successful industrial base without protectionism.
Your ideology conveniently condemns Africa to poverty and aid dependency plus environmental degradation.
Some of us think that deliberate. You might just call it an externality.
Either way it’s undesirable.
Richard
[…] time, both professionally and just because he seems to me a very decent human being. So, when he challenges one of my assumptions on this web site I need to […]
[…] I made the observation a few days ago on this blog that economics is not a science. Some from the right have, predictably, argued to the contrary. […]
Tim Worstall wrote:
“Akerloff got the Nobel for studying asymmetrical information”
The funny thing is that there is no Nobel-prize in economics. The so called Nobel-prize is given by the Swedish central bank and not by the Nobel prize comity. It´s not a part of the Nobel prize. So the “Nobel prize” in economics is a fake.
I accept that economic is a science but it has wrongly placed itself among “natural” sciences instead of being one of the social sciences.
Economics deals with human interactions, preferences, behavior and so on and should belong to the other social sciences dealing with these issues.
The good thing with social science is that it’s not stucked with rigid ideas but accept that humans are more then the total of his/hers parts — human activity can’t be reduced by the reductionist models that natural science use.
Pretending that economics not is a social science and hence “reduced” to a natural science is very bothering in my point of view. It makes economics a very flawed science in my perspective. Other social sciences accept that there are different points of views and no particular view give the hole picture of human activity or behavior. Pretending theres a “meta”understanding of human behavior, activities, interaction and so on requires a reductionist model building distancing economics from the social sciences it properly belongs to.
How the economic belief system is built should be a part of a democratic process where people are able to change the rules and the social contract under pragmatic and democratic forms. By stating that economic is a ruled by “natural laws” and that we shouldn’t interfere with “nature” we close these democratic doors and let the same group as before rule behind those closed doors.
“The funny thing is that there is no Nobel-prize in economics.”
Yes, we know. We even make jokes about it.
http://adamsmith.org/blog/misc/blog-review-825-200812302695/
“instead of being one of the social sciences.”
Economics is often referred to as “The Queen of the social sciences”. I’ve yet to find (and most certainly do not believe myself) anyone who says that it is a hard science, only that it is indeed a science.
Here’s the nub though.
“How the economic belief system is built should be a part of a democratic process where people are able to change the rules and the social contract under pragmatic and democratic forms. By stating that economic is a ruled by “natural laws” and that we shouldn’t interfere with “nature” we close these democratic doors and let the same group as before rule behind those closed doors.”
Sure, you can change the economic systems of incentives by democratic means. But you’re not going to change, by doing so, the urges to which human beings are prone. So what you end up with is economics saying that “if you do this, then this will result. If you do that, then that”.
If you intend “this or that” as your final result then everyone thinks that economics is wonderful. It’s only when that same set of tools says, “Umm, well, you can’t have both this and that, you can only have this or that” that people tend to get upset.
But people getting upset doesn’t change the fact that sometimes you really only can have the either, not the and.
For example, in the Green New Deal, they argue that you can have both lower interest rates and more capital to invest. Sorry, but not even Keynes believed that. And to insist that having capital controls will engender this in a country that has been importing capital for decades…well, words fail me.
Tim
I’ll quote this from a review of On Kindness by Adam Philips & Barbara Taylor, Hamish Hamilton, £14.99 in the Guardian today:
“Kindness was mankind’s “greatest delight”, the Roman philosopher-emperor Marcus Aurelius declared, and thinkers and writers have echoed him down the centuries. But today many people find these pleasures literally incredible, or at least highly suspect. An image of the self has been created that is utterly lacking in natural generosity. Most people appear to believe that deep down they (and other people) are mad, bad and dangerous to know; that as a species – apparently unlike other species of animal – we are deeply and fundamentally antagonistic to each other, that our motives are utterly self-seeking and that our sympathies are forms of self-protectiveness.
Kindness – not sexuality, not violence, not money – has become our forbidden pleasure. In one sense kindness is always hazardous because it is based on a susceptibility to others, a capacity to identify with their pleasures and sufferings. Putting oneself in someone else’s shoes, as the saying goes, can be very uncomfortable. But if the pleasures of kindness – like all the greatest human pleasures – are inherently perilous, they are none the less some of the most satisfying we possess.
In 1741 the Scottish philosopher David Hume, confronted by a school of philosophy that held mankind to be irredeemably selfish, lost patience. Any person foolish enough to deny the existence of human kindness had simply lost touch with emotional reality, Hume insisted: “He has forgotten the movements of his heart.”
For nearly all of human history – up to and beyond Hume’s day, the so-called dawn of modernity – people have perceived themselves as naturally kind. In giving up on kindness – and especially our own acts of kindness – we deprive ourselves of a pleasure that is fundamental to our sense of well-being.”
Your argument that economics follows immutable laws of human nature is simply wrong. The current view of that nature has been perverted, not least by economists, and libertarians in particular, as the article goes on to note. Hobbes has a lot to answer for, but the fact is that for a great many people in the world the maxim that a person should love their neighbour as themselves (found in all the major world religions) holds true. Your view of economics and the inevitability of human nature is wrong Tim, because it is built on sand.
Richard
Review link:
http://www.guardian.co.uk/books/2009/jan/03/society-politics
Umm. Richard, at the risk of being banned from the comments here again.
You do know that David Hume was the best (philosophic) friend of Adam Smith, don’t you? You do know that Adam Smith wrote “The Theory of Moral Sentiments”? You do know that Smith wrote about “sympathy ” (what we would probably these days call empathy)?
I am, as a Fellow at the Adam Smith Institute, a follower of Smithian (and by implications, Humean) philosophic thought. I am not a Hobbesian. I’m afraid that you are once again betraying your paucity of knowledge about such matters.
Both Smith and Hume pointed out that “sympathy” (as they called it) was indeed entirely human and entirely admirable. But that it wasn’t unlimited. There’s a passage in Wealth of Nations where Smith points out that what happens to Chinamen (his phrase, not mine) is of less import than what happens to our neighbours.
This is indeed a “law of human nature”. What happens to those socially or societally close to us is more important to us (whether it should be or not) than what happens to those who are not so. This is a simple observation of human nature. One made by Smith with the aid of Hume.
Indeed, those who worry about inequality within a society, as opposed to those worrying about global inequality, are making the same argument. When people say that “relative poverty” in the UK is a problem, they are stating that inequality here is of more import than inequality between, say Britons and Ugandans. For that inequality is happening close to us and as Smith and Hume said, empathy (or sympathy) seem to work harder the closer we are to each other.
You’re going to have to do much better than this to prove that I’m some sort of heartless bastard, sorry. In fact, you’re going to have to get a rather greater education than you seem to have in either economics or the philosophy that underlies the major economic schools before you can even critique, let alone criticise, my opinions.
As I’ve said before, you just don’t know what you’re talking about as yet.
[…] Sorry, more Ritchie. His comment at his place. […]
Tim Worsall wrote:
“But you’re not going to change, by doing so, the urges to which human beings are prone.”
Well, that’s what I meant when I wrote that economics claims to be have social “meta” understanding of human behavior.
Is this “prone” based on Freudian psychology? Jungs teaching? Skinners behaviorism? Cognitive psychology? Reich orgasm theory (that’s a funny perspective 🙂 ), Mahlers Object Relations Theory? Maslow? Leontjevs? Could go on for with more psykological theories! But that’s just psykological aspects – there are philosophical vies also messing thins up (you know Socrates, Plato and the others wondering what life is all about). Guess you could neurological perspective to (you know the thing with primitive inpulses and emotions come from the limbistic system and so on).
Besides that, are there any possibilities that this “prone” varies with culture or even geological differences? Is there’s a possibility that what “prones” one person doesn’t “prones” another person?
If you asked other social sciences what your “prone” i based on and how it manifests you would probably get many answers that you could combine into even more variants. But economists just tend to put it all into one big “the urges to which human beings are prone”. You don’t see that this is a very, very reductionistic approach?
I can’t but agree with Richard. Humans are complexed being that can’t be reduced into one “prone”.
Michael,
OK, let’s look at something that human beings are indeed “prone” to do. Smith remarked upon it. The propensity to truck and barter. By which he pretty much meant trade. And with trade comes the division of labour and specialisation of it.
Are humans “prone” to this? Yes. Every human society we’ve ever seen or studied does this to at least some extent. Even if it is only within the family unit and concerning gender roles We can also see from anthropologists and archaeologists and their various studies of, say, flint knapping, that this propensity predates Homo sapiens altogether. Olduvai Gorge, where they found Lucy, was a form of factory for the production of stone tools.
I don’t think it unfair to thus proceed with the working assumption that human beings do indeed have a propensity to, or are “prone” to, dividing labour, specialising in it and swapping the output from such. At least, until someone comes up with evidence to the contrary.
I actually don’t agree!
Specialization as a part of a Darwinian evolution (if that’s the road your picking?) is often seriously misunderstood among those studying social sciences. There’s this belief that evolution is is a mechanism where the strongest, fastest and so on survive and the mediocre dies out. Actually it’s, in many senses, the other way around.
Darwian evolution is a two step process — theres the pool of multitude in for instance an animal population thats driven by mutations. From this variety the natural selection take place.
If a animal population are many (hence reproduce fast) the mutation pool is large and the chance
of surviving changed circumstances are higher then among those with a low reproducing capacity.
Hence: in the ecological pyramid, the predators at the top are most specialized and have lesser offspring and hence a smaller chance of survival then those in a lower position in the ecological pyramid. Meaning that the jeopard might be the fastest and highly specialized animal but due to it’s inability to produce many offspring makes them very vulnerable and on the edge of existinction. The rats, on the other hand, not being specilized, reproduce fast and can produce a lot of genetically “misstakes” where some will be beneficial in the natural selection .
From this we can learn that specialization tend to make species go extinct and a pool of mistakes always needs to be present and accepted in order for the Darwinian evolution to proceed. Hence: the Darwinian evolution is not a linear road to perfecton. The one who survive survive — it’s as simple as that.
So lets take a look at humans. Do we reproduce fast? No, we are rather extreme compared to for instance rats (or the extreme: bacterias) . So genetically we are apable of making offspring that will adopt the way rats do. And we are also rather mediocre physically compared to for instance the lion or jeopard.
But I think we have put our abilty to create the pool of mistakes needed for Darwinian evolution in our brains instead. So we can adopt by using this pool of “mental mistakes” and come up with solutions that favor our survival. By accepting differences and tolerate mistakes we get a pool from which we can choose the way we want to go (in a sense we have become Lamarckistic beings).
I think thie is true for society as well. A laissez fair society built on competing, specialization and not accepting mistakes (you know the “sink or swim” thinking) is doomed to go extinct. A society without compassion and ability to preserve differences and accepting mistakes will go under.
But that’s my interpretation and there are probably other way of seeing it. The social sciences are great in that they accept and preserve this huge pool of alternate views. Which I think is critical for our survival as a specie. And I think economic should join in this vital role — not stand aside, pretending being a natural science and actually blocking new ideas.
Mr. Murphy,
In one of your replies to Mr. Worstall you say this:
“1) We cannot forever consume ourselves out of problems. It creates environmental problems.
2) Tariffs are the most efficient taxes to collect in Africa – why undermine effective government in these places by destroying their tax base?
3) No country has ever developed a successful industrial base without protectionism.”
1) You use the West’s consumer society as a reason to deny Africa free trade? That’s not very nice. If someone else can produce stuff cheaper than we can, both we and they get richer by trading. They get our money, we spend less than a home grown version would cost. Making trade more costly is regressive for both parties.
2) Because they are regressive. Remove trade restrictions and pick up the difference with income and sales taxes. You are putting the needs of the Government before the needs of the people. How jolly statist of you.
3) This is the 21st Century. No country needs to nurture an industrial base when one can be imported wholesale from the developed world by dint of cheaper labour and material costs. Tariffs negate what few advantages the developing world has.
Someone mildly well known once said “We do these things not because they are easy but because they are hard.” Shouldn’t we be encouraging African nations to shoot for the moon with our full weight, and free-er trade policies, backing them up?
It would improve their lot by miles and our consumption could be moderated with better thought out sales taxes. The increase in African wealth would allow them to take leaps forward in technology and efficiency where we have previously only taken steps.(Eg the setting up of mobile phone networks without the intermediate step of a copper wire network into every home.) We should not seek to perpetuate their poverty for protectionist reasons. To mash up an analogy, we should sacrifice our statist little fingers for the sake of the trade earthquake victims.
Tim
Oh yes, I know all this:
” You do know that David Hume was the best (philosophic) friend of Adam Smith, don’t you? You do know that Adam Smith wrote “The Theory of Moral Sentiments”? You do know that Smith wrote about “sympathy ” (what we would probably these days call empathy)?”
And I know this too:
“I am, as a Fellow at the Adam Smith Institute, a follower of Smithian (and by implications, Humean) philosophic thought.”
But you see Tim, over the last few weeks I’ve seen rather a lot of your so called arguments, and this one is typical of them.
First of all you, quite amazingly, think that the Adam Smith Institute are the heirs to the spirt of Adam Smith. Indeed, you imply that he and David Hume would condone all you do and say because of your ASI fellowship. This is, very politely, absurd. You must surely be aware that a great many somewhat more familiar than me with Smith disagree fundamentally with the ASI’s interpretation of his work. In that case I think you’re relying on a standard approach of yours which is based on the fact that I’m aware that you think the power of language quite strong. Indeed, you’re obviously quite convinced that if you repeat the fact that I am dim (or worse) often enough the world will believe you without considering the actual evidence. And here you are doing exactly the same. By using the name of Adam Smith you assume that whatever merit he had descends on you.
There’s just one problem. It is impossible to suppose that a man who can argue (as you did in the Guardian, very recently) that “Things in markets are worth what the markets say they are worth” is a true heir of Smith, for Smith also noted, as I presume you are well aware, that business people always conspire to alter prices; that is, they seek to ensure that the price in the market is precisely not what a thing is worth. Now which would you have us believe you think Tim? It’s one or the other; you can’t have both. Or would you really rather us believe that whatever you last said is what you really think, for this seems to be your way?
An illustration of the same point: if we are to believe that same statement from you noted in the preceding paragraph to be true then it would be necessary for us to also believe that you think the market allocates resources “efficiently”. And yet when I noted just some of the necessary conditions for this to happen on this blog recently, such as perfect information, free access to capital, an absence of externalities and so on, denied that any such necessity existed. Despite this I note you continue to believe that the market prices accurately, and without need for intervention. How is that Tim? Again, it is one or the other. Either markets do price accurately without the need for intervention, which suggests that they are in equilibrium state based on all being in full possession of all relevant facts, or they do not price correctly. It cannot be both. Which is it to be Tim?
And just to continue the theme – how can you justify non-intervention, which you say it is our moral duty not to do in that same Guardian article, when you have denied on this blog that markets ever reach an equilibrium point? The fact is that if they are not in equilibrium they cannot be pricing efficiently or appropriately. In that case intervention is always justified, as Keynes, of course, suggested. Again, which is it to be? You can’t have both.
Sorry Tim. But you like to say I neither know what I’m talking about (and that’s your right) but in response I have to say that you argue completely inconsistently. You argue that markets know best, but then deny that there are strict conditions that must be complied with if this is to be true. You argue that you are compassionate, and promote hard line, abusive libertarianism. You say you follow Smith, but say we have a moral duty not to intervene against market abuse which he recognised was inevitable. However much more than me you might have read Tim (and who knows – maybe you have) you prove yourself time and again unable to argue consistently, or even coherently.
I have allowed you to continue to put these posts on this blog, but I’m running out of any enthusiasm for engaging with you for one very simple reason: I am bored by the duplicitousness of your arguments. I have to ask the question, do you have any clue what you’re about, apart from arguing for the sake of it? It’s becoming very hard to tell. And we all know that the role of the ranter, which is that which is left for you, is to be a real bore who no one really listens to. Are you auditioning for it, or have you already got it?
When you address the real issues such as tax abuse, tax havens, the failure of accountability, market failure, income inequalities, the failure of the professions to comply with regulation then we might listen. Until then, what are you for?
Richard
“. It is impossible to suppose that a man who can argue (as you did in the Guardian, very recently) that “Things in markets are worth what the markets say they are worth” is a true heir of Smith,”
I fear that you have failed to note the next but one sentence. “It’s also true that we often don’t like the values that markets come up with so we intervene to change them.”
As I’ve said before, and as just about everyone both acts and believes (and indeed I’ve made this very point here on this very blog), no one thinks that all markets all the time produces the optimal allocation of resources. “Things are worth in markets what markets say things are worth” is a tautology. The value of a freely copyable book (or MP3 in this digital age) is damn near nothing in a market system. So we intervene with copyright to create some value: for we do not like, either for efficiency (ie, if creators earn nothing from creation we’ll get too litte creation, the public goods argument) reasons or for more moral reasons (it is right that creators earn from their creations).
The argument is not over whether markets *always* produce either “just and moral” prices, as opposed to simply market prices, or whether they *always* produce an optimal allocation of resources. It’s over when and where do they and when and where do they not.
As I’ve said here before. And as you seem to be ignoring.
Tim
Oscillating again, aren’t we? Have you ever given a straight answer?
The simple reality is this: you’re recognising that markets produce imperfect outcomes except when it suits you to say otherwise – which seems to be when it’s a matter of abolishing the minimum age, for example.
In fact it’s always a matter of markets work when it suits you and your privileged ilk and not when they don’t. And you like to say economics is objective and a science?
Come on Tim, your true colours are now clear. You’re just a bigoted hypocrite hiding behind a market theory as a witch doctor does behind a cauldron, and with both as bogus in their claims to competence.
If markets don'[t work – and that’s what you’re saying – your arguments fall apart at the seams.
Game over Tim. Don’t bother to post again. You’ve been rumbled.
Richard
[…] PS For more on Worstall’s inability to argue, see here. […]