The Joy of Tax - Richard Murphy

Sometimes conventional wisdom may be right. Don't rip it all up in the name of pointless, ill-conceived  radicalism

Banks work in a very simple way. People deposit money and the bank lends it out. Assuming that the depositors don’t all come calling at the same time no one reality notices that their money isn’t really in the bank but is being spent on a new conservatory by someone they have never met. Ever since the advent of the cheque it has been possible for banks to actually lend out far more money than they ever held. Simply put, if your money exists only on an electronic balance sheet a bank can create money by crediting one side of the balance sheet with slightly larger numbers. This leveraging has been going on for a long time and was, in part, responsible for the collapse, or near collapse of a good number of banks in 2007/8. Depositors learned that their bank had lent to people who weren’t going to repay and demanded their money. The banks, unable to pay, went cap in hand to the Treasury. The ‘confidence trick’ of banks creating money is something which seems to greatly upset Richard Murphy, and represents a great scandal he has helped to expose, despite the fact they everyone already knew about it. 

From the great scandal of banks creating money Murphy builds his thesis. If debt is the creation of money then repaying debt is merely the distraction of money. The private sector destroys money when you pay off your mortgage and the public sector does it when you pay your taxes. The money supply is not controlled by the creation of money, but by its distraction. Murphy points to the grown of government debt in the post 2008 era as coinciding with a great paying down of private debt, which by 2014 had fallen from 196% of national income to 160%, as evidence that a total debt level must be maintained for there to be economic stability. 

This is all well and good except that it leads to Murphy to conclude that "Government debt is just that part of the money supply that central government has created just as commercial bank lending is that part of the money supply the private sector has created.” On the surface this is obviously backwards. When the government borrows it takes the place of the person who has taken out the loan, not the bank. Indeed, government borrowing might contribute the public sector money creation if it borrows from a leveraged bank, but it does not create any money through borrowing.

More worryingly is it allows Murphy to claim that there is no need to ever repay government debt. A government running a surplus depletes GDP and, since the money was created out of thin air more can be created to follow it. I don’t know where Richard Murphy goes on holiday but he has obviously never been to Greece. A country can only borrow indefinitely provided its private sector lenders believe that it can repay, if they do not the bond yields will rise and eventually the flow of capital to the government will cease.

The other problem with wishing money into existence is that it doesn’t really happen like that. Murphy has arrived at his rather bizarre view because he has conflated government deficit spending with quantitive easing. the Bank of England’s QE program merely allows banks to shift bad debt from their balance sheets to the government and credit an equivalent amount. Effectively the state creating money to pay off debts the banks should never have created. This is very different from government borrowing. When a government wants to raise money it issues bonds which it sells to the private market. the bonds are bought by, lets say a pension fund, which I have put my pension in. My pension is effectively lent to the government in the assumption that in 10, 15 or 25 years I will get it back plus, say 2%. The money has not been magiced into existence, it has been transferred from one bit of the economy to another. 

So a government can, assuming it wants to run the risk of turning into Zimbabwe, indefinitely print more money then it raises through taxation, but what it cannot do, unless it wants to run the risk of becoming Greece, is borrow indefinitely. 

The fact that Murphy seems to think it can does not bode well for his proscriptions. And indeed they are disappointing. He is essentially a poor man’s Thomas Piketty. To create a fairer, more progressive, inclusive society he plumps for wealth taxes, and proceeds to layer them on like Nuttella. not only would he impose a financial transaction tax, he would extend it to all transactions, including those between individuals, so yes, you could be taxed for transferring money to a friend. Not only does he impose a mansion tax, he would extend it to all wealth, he would tax the value of land, rather than the property upon it, so a derelict plot would attract the same taxation as the luxury villa next door.

The problem with wealth taxes is that I am just not sure why we want them. Why as a society should we strive to tax grandmother’s silver spoons? The argument against taxing wealth are old; If an asset does not appreciate in value a continuos annual tax upon it will eventually reduce its value to zero. Equally wealth can be held in many forms, property, stock, etc, yet, unless we are going to revert to a mesopotamian system, where tax can be paid ‘in kind’, these assets will have to be converted into cash before the tax can be paid. In practical terms this means selling them or borrowing against them, not things the government should be forcing people to do. This is the 'asset rich cash poor' argument which dogged Labour’s ill conceived mansion tax policy in the run up to this year’s general election. 

What Murphy and Piketty and even Ed Miliband really want to do is tax capital, they just can’t work out how to differentiate between a capital good and mere accumulated wealth. As a result they have adopted the trawler approach and seek to catch everything and is therefore deeply unfair and punishes those who happen to live in a certain place or hold goods which happen to have acquired value. 

At their worst Murphy’s solutions to the problems of tax avoidance and evasion are deeply sinister. Murphy wants HMRC to hold banking data of every individual and company in the country, he wants them to amass passport data so that travel can be tracked and airport duty charged, he believes that any individual who fails to declare property for the purposes of tax forfeits that property to the state. Any individual who undervalues his or her property faces it being sold at the stated rate. In an unpleasant reversal of the concept of innocent until proven guilty he wants to place the onus of proving that tax should not be paid on the individual, rather than the state. and woe betide anyone clever accountant who thinks that he can help someone avoid paying their fair share, he will become liable for the amount of tax avoided.

In an attempt to finally defeat tax avoidance Murphy proposes that each tax law be accompanied by a statement laying out the purpose of the law so that breaching the spirit of the law, as well as the letter, becomes an offence. He is utopian if he thinks this will work and delusional if he thinks it is legal. But then he seems to be. The whole book has a faintly ‘in an ideal world’ aura to it. He believes in information sharing between tax jurisdictions which just isn’t going to happen. He believes that other countries would tolerate their companies having to disclose world-wide revenues to Britain’s HMRC. He believes that the public will tolerate a tax on their bank accounts and that he can hike taxes on business and make individual shareholders personally responsible for their paying tax without causing an industrial exodus. The whole book has the feeling of having been written by some one who is desperate to strong arm economics into an ideological mould. 

Murphy is right about one thing, tax is an important part of our economy, far too important to let people like Richard Murphy fool about with it. 

2015 Election Forecast

Right folks, me and my Casio FX-85 have been busy all afternoon and I am finally willing to put my name to an election forecast.

My projection is:

Con: 279

Lab: 268

SNP: 48

Lib Dem: 28

DUP: 9

Sinn Fein: 5

UKIP: 3

Green: 1

Others: 9

This is my forecast for the make up of the House of Commons as a whole however these figures include the Speaker and the five Sinn Fein MP’s who will not take their seats. Assuming that John Bercow is returned as speaker, which I consider likely, the adjusted the figures will be as follows:

Con: 278

Lab: 268

SNP: 48

Lib Dem: 28

DUP: 9

UKIP: 3

Green: 1

Others: 9

This would mean that the winner would require 323 to form a majority or 322 as in the event of a tie on a commons vote the speaker will cast his vote in favour of the government.

In this projection there will be no major upsets. Jim Murphy and Douglas Alexander, the two most senior Labour politicians Scotland under risk from the SNP will both hold their seats, as will Charles Kennedy for the Lib Dems. Nick Clegg will retain his seat. The most senior politicians to lose their seats will be Danny Alexander in Nairn, Badenoch & Strathspey and Esther McVey in Wirral West.

Alex Salmond will win in Gordon, albeit narrowly, and Boris Johnson will triumph in in Uxbridge. Saddam Hussein look alike John Thurso (Whose constituency coincidentally includes the town of Thurso) is no better than evens to hold his Caithness, Sutherland and Easter Ross seat. Caroline Lucas will represent Brighton Pavilion but the Greens will miss out on a second seat in Bristol West.

I think UKIP will have a better night than many expect. They look like winning Clacton and Thurrock and Farage will win in South Thanet. In Bradford West, although there is a dearth of polling, the betting is strongly in favour of George Galloway retaining his seat so I have chalked it up for Respect.

The other parties include Plaid Cymru, who will hold but not improve upon their tally of three seats, and various Northern Ireland parties.

What’s happening in the Eurozone tonight...

Out of the talks between what was known as the Troika and the new Syriza government of Alexis Tsipras rumours are emerging. The rhetoric is that neither side is willing to budge and that the talks have not reached an agreement, but the whispers are that one is near.

Here is what we know:

1)    The ECB’s move last week to force Greece to rely on the emergency financing had the effect of shortening the timetable for these negotiations to conclude. Several news organisations are now reporting that money is leaving Greek banks at an ever quickening pace, bringing forward the time when they will need refinancing. The Troika imposed reforms forced the previous Greek government to hold some reserves but they are not likely to be that huge. As it stands the Greece could run out of money by the end of March.

2)    No one wants Greece to default. This means that the Greek government is unlikely to want to play this card in the negotiations. The Greek people are opposed to default and, even though default has a worse reputation than it deserves, it would bring immense hardship and the social unrest in the short term. What is more, it looks as though default may not be the nuclear weapon it may once have been. The fluctuations in the Greek markets have not been mirrored outside Greece, suggesting that the markets believe that other European economies are sufficiently insulated to withstand a Greek default. If Greece had defaulted in 2010 or 2011 it would have dragged the Eurozone down with it, not any longer.

3)    Greece wants a bridging package rather than a bailout extension, the Troika doesn’t. The bridging package would be designed to get Greece through the next six months whist a long-term solution was negotiated. Here Syriza may be playing on a loosing wicket, there seems to be no reason for the Troika to agree to a bridging package, the shorter the timetable the weaker the Greek governments negotiating position. In exchange for the bridging loan Tsipras has offered to the run a primary surplus of 2% (rather than the 4.5% demanded by the Troika) and to slow down the implementation of some of his manifesto.

It now looks like there will be an agreement. George Osborne said at the weekend that the Treasury is drawing up contingency plans for Grexit but this does not seem to have been mirrored in Germany, whose finance ministry are on record saying there is no possibility of Greece leaving the Euro. What will almost certainly happen is that there will be either a bailout extension which looks enough like a bridging agreement for Syriza to claim victory or a bridging loan which looks enough like a bailout extension for the Troika to claim that they have stood firm. Given the comparative strength of the negotiating positions the former looks more likely than the latter, although there is no guarantee that the activist core of Syriza would accept this. They may be the wild card in this which no one can control.

What the ECB did in the night

At 11pm Athens time the ECB went on the offensive. Having been slow to respond to the manoeuvres of Greek finance minister Yanis Varoufakis as he darted around Europe, the ECB finally came out with a meaningful, if not entirely unexpected, response. Varoufakis had stolen the momentum of the renewed Greek bailout debate when he announced that he would no longer recognise the Troika as the single entity but would deal with its constituent parts (the EU, the IMF and the ECB) separately. He then continued to control the debate by making various concessions around the extent to which the total debt burden should be reduced. The action last night (4^th February) is the ECB trying to seize the initiative in the wake of the Greek government getting a warmer hearing than anticipated in Paris and Rome.

So what has the ECB done? Essentially they have lifted a waiver on a credit rating rule which allows European banks to trade their junk loans for credit. Essentially the scheme allows banks to swap debt they will never get back for credit. Normally there is a minimum credit requirement to participate in the scheme, to keep bad banks out, however there was a waiver for Greek banks, which otherwise would not have made the grade and would have been excluded. The removal of this waiver means that from 11^th February Greek banks will not have access to the scheme.

Why does this matter? At the moment there is a high level of uncertainty about the Greek economy leading to a flow of money out of the already weak banks. At the moment these banks have access to capitalisation from the ECB which buys their bad debt. Come 11^th February this stops. If money continues to flow from the Greek banks the banks can either apply to the ECB through an emergency liquidity fund, a far more expensive way of accessing capital, or it can turn to the Greek Central Bank in Athens. If the Greek Central Bank cannot get money from ECB it will have to find its own methods of recapitalisation. This will involve Greece printing its own money, a new Drachma. The action by the ECB makes Greece being forced out of the Euro far more likely if a deal cannot be reached in near future.

Because the introduction of a new Greek currency will immediately be followed by its devaluation, making it impossible for Greece to service its debt, Greece leaving the Euro will result in it defaulting. This nuclear option is the strongest card in Syriza’s hand, but it is one that it is loathe to use. Greeks do not want to leave the Euro and the defaults and currency changes are rarely clean and never cheap. Default is good for neither side economically however the actions of the ECB raises serious questions about democracy within the EU and the Eurozone.

If the ECB forced Greece out of the Euro it would be an instance of a bureaucratic central bank overruling the expressed desire of a democratically elected government. Are we sure this is the sort of thing that we want to allow? In most nations the central bank is under the control of the government and even where it is independent, as in the UK, it would never knowingly act contrary to the interests of the country. The actions which the ECB took late at night were neither desired by the Greek people nor in their interests. Aside from anything else, removing liquidity from a fragile banking system is never likely to encourage economic recovery. The path that the ECB is threatening to go down has not been voted for the Greek people, or indeed the European people. The ECB has pursued a neo-liberal, pro-austerity dogma into an undemocratic and potentially quite nasty cul-d-sac. 

Why we must continue to laugh at religion

In 2012 Stéphane Charbonnier was asked by a journalist from Le Monde how he felt about the death threats he was receiving because the magazine he edited had dared to depict Muhammad and mock the Islamic faith. He famously replied that “I would rather die standing than live on my knees”. On Wednesday Stéphane Charbonnier was murdered by two machine gun wielding fanatics in his Paris office. Thankfully his murderers are now dead, along with an accomplice who shot a police woman in the back and took twenty people hostage in a Jewish supermarket, killing four of them. What did Stéphane Charbonnier die standing for? And would it not have been better to kneel?

In the debate since the Charlie Hebdo offices were attacked there has been a strand on the (presumably illiterate) hard left who believe that the magazine didn’t satirise Islam but race bated muslims. The proponents of this view hold that whilst no one should be killed for drawing a cartoon (they are generous enough to give us that) the cartoons were offensive, racist and should never have been drawn, let alone printed. The people who believe this are apologists for murder and terrorism. No matter how many “no one deserves to be shot” caveats they laden their spineless sentences with what they are saying is that, at least in part, the blame for these murders rests with the murdered and thus not wholly with the gutless psychopaths who carried them out. 

We have heard this before. This is the same dull crowd who believed that every time a lunatic blew himself up in a market in the middle of Baghdad the blood flowed onto the hands of Tony Blair. It is the same crowd who blame the economic disadvantage for the stabbings in Hackney or social exclusion for shootings in Peckham. The fault is never wholly that of the perpetrator, whose failing is merely that he failed to resist the prevailing economic and social conditions which drove him down the path of mindless violence. Such a view is, as the late Christopher Hitchens put it, an affront to the idea of moral responsibility. In the case of this weeks Paris massacre the people who believe such things are not just craven quasi-appeasers, they are wholly wrong.

Most people who don’t crave tyranny would willingly concede that you do have the right to be offensive. As the old adage goes, offense is taken, not given, and you don’t have a right not to be offended. What happens when you try to stop people being offensive was shown by the introduction of Section 5 of the Public Order Act: you end up arresting carol singers and those who are rude to horses. But this was not what Charlie Hebdo is about. It was not a paper which set out to offend just because it could. Charbonnier did not mean we should stand tall and be obnoxious for the sake of it. 

What the murdered cartoonists believed was that religion should be critiqued, criticized and, where if fell short, mocked lampooned and ridiculed. Religion is human. The animals don’t have it, nor do the trees or the rocks. Religion came into the world with humans and will leave it with us, unless we are sensible enough to dispense with it before hand. There is nothing of the supernatural about religion. Religion is manmade and must be seen that way.

People mock everything that is human. I can think of jokes I have heard about the most terrible parts of human nature and history; from cancer to the Holocaust, we mock them because they are part of the world as we find it and as we have made it. Possibly we would not be able to deal with reality if we could not laugh at it. Possibly our existential angst would make life inoperable without humor; we can only deal with the apparent fruitlessness of existence and the finality of death by laughing at it. Laughing makes us who we are; it makes us human.

The second you say something is out of bounds, that it cannot be laughed at, you are saying that it is inhuman, it is higher than us, stronger or better than us. That we should defer to it and revere it. This is the road to tyranny.

Why can dictators not abide satire and people mocking them? Why couldn’t Hitler stand Charlie Chaplin? Why would that silly fat man in North Korea rather start a war than see a terrible Hollywood comedy about him be released? Because their power rests on the belief that they are super-human.

In psychoanalytic theory this is known as belief through the other. I believe in the leader because he knows things that I don’t. In mediaeval christendom the common man did not have a clue what was said when the priest mumbled the mass in Latin, but it didn’t matter because the priest knew, and that was what counted. The belief in God was mediated through the belief in the priest and the church more broadly. It was only with the introduction of the Bible in common languages that this con began to break down.

Likewise, Hitler was allowed to lead the Reich into the abyss because everyone around him believed he had a secret plan which would lead Germany to a glorious victory, it didn’t matter that everyone could see the country steadily disintegrating under a hail of allied ordinance, Hitler would see them through, he was the all-powerful Fuhrer.

The moment that the dictator is exposed as merely human, imbued with all the frailties of the human race, his power fails. This is what satire does. In the hands of the satirist Hitler was a diminutive mustachioed ego-maniac. In the hands of the comedian the Bible is a set of improbable and absurd fairy stories, as much of man as the Brothers Grimm. A satirist exposes the fantasies which surround and support the tyrant for what they are: fantasies. It is not enough that they could be exposed, it is imperative that they are.

Stéphane Charbonnier and his fellow cartoonists knew that the absurdity of religion was not a secret to be whispered between liberals on the Left Bank, it was something to be proclaimed. They knew that We are not free because we have to right to laugh at religion, we are free because we do. That is what they stood for, and that is why they died standing. 

500 Words on the Cosmological Argument

Guys!! I can scarcely believe my stupidity! Having taken about two and a half of your precious earthly minutes to explain the ontological argument I was somehow deaf to your choruses of ‘yes Nick, but what about the cosmological argument?’ So here, to sate your lust, are 500 words on why God is the cause of everything.

The argument is very simple really and dates back to Hellenistic times although it is most famously associated with St Thomas Aquinas.

1) Everything which exists (contingent beings) could, under different circumstances, not exist.

2) It follows, therefore, that there is a reason that they exist as opposed their not existing; they have a cause.

3) This cause must be something other than itself. This is obvious if you think about it: We are talking about bringing things into being. A thing which at one moment exists must have not existed prior to that moment. It cannot have bought itself into existence as to do so it would have had to have existed prior to its existence. You don’t have to be a genius to realise that that makes no sense whatsoever.

4) Other contingent beings alone are not good enough to account for the cause of contingent beings. This is the case because it would mean that there were always objects to serve as the cause of other objects. This would just create an infinite regression and would never explain why the universe exists as opposed to not existing (see premises 1&2)

5) Therefore a non-contingent being must be involved in the cause of contingent beings.

6) A non-contingent being, or a being without matter, is just a posh way of saying God. Consequently God Exists.

Now as it stands this argument looks better than the ontological one, which just goes round and round in circles in a space just left of reality. The most obvious reply to this is that we observe causality by observing things which have causes. As we don’t see the causes of the universe so we can claim that the universe just is. Unfortunately the answer to this is that we see causality in everything else so why should we not extrapolate to the universe, just because we cannot observe its cause doesn’t mean its not there. Put another way: All dogs drink water, just because my dog isn’t drinking water at the moment doesn’t mean that the statement is incorrect. Bertrand Russell does have an answer to this but it is somewhat obscure, so I shall omit it here.

Far more convincing to me is the fact that the conclusions of the argument are contradictory. God is a metaphysical necessity and therefore must exist. Yet this takes us back to premise 1. If God exists then it is possible that under altered circumstances could not exist. Therefore there must be a cause for God existing as opposed to not existing, so God is a contingent being and therefore cannot be a first cause.

Anyway folks that’s me out of words.

500 Words on the Ontological Argument

Hello folks, I thought I would dedicate 500 words (and not more) to the explaining ontological argument for the existence of God. The argument was set down by Saint Anselm of Canterbury in 1078. It runs something like this:

1)  God is perfect. This is true by definition. If the being is not perfect then it cannot be God.

2) God exists in the mind as an idea.

3) A being that exists in the mind is inferior to one that, should all other properties be the same, also exists in reality. For example, think of a spade. If I have a real spade which is exactly like the one you are imagining my real spade will be superior as I can dig a hole with it.

4) Therefore, if God exits in the mind he is not perfect as we can imagine a better God; one that actually exists.

5) But wait! There cannot be a being more perfect than God, therefore amongst God’s qualities is existence. Quod erat demonstrandum: God exists.

There are a number of problems with this as I’m sure you can imagine. First, it draws existence from a physiological phenomenon. If I say “I am imagining the perfect being” and then you say “no you’re not because I can imagine a better one, one which exists” then all that proves is that I wasn’t imagining the perfect being. To confer from this that the being exists is to take unquestioned the premise in point 1, that God is perfect. To say that God exists because he is perfect and that his perfection he exists is entirely circular.

Secondly, The argument, as Gaunilo pointed out, would exists equally well if you replace the word God with a perfect island. Yet no one would claim that if you imagine a perfect island, a more prefect one would be one that was real, therefore the perfect island must exist. The lack of empirical basis for this claim formed Hume’s criticism of the argument for the existence of God.

Meanwhile, Kant pointed out that the existence of God was a prerequisite of the argument working. Take a triangle. It is true by definition that it has internal angles equalling 180^oC and three sides, but that does not mean that the triangle exists. The argument states that if a triangle exists these would be its properties. In the same way that Anselm’s argument states that if God exists this is what he would be like, not that God does exists.

All in all God’s perfection could be a good test of anyone claiming to be God but it cannot be used to prove that he exists.

All in all the ontological argument for the existence of God is an interesting argument which goes round and round in circles in a fashion completely detached from reality.

Right, 500 words are gone so we don’t have time for that Descartes had to say on the matter. But don’t worry it’s not very interesting.