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Europe

8 May

In, out, shake it all about?  (Britain is definitely choosing the 3rd option at the moment…) 

The former Chancellor Nigel Lawson’s speech encouraging a British exit from Europe makes it clear the “Europe” debate has certainly not subsided…. it is alive and well. Perhaps then, the public should actually consider what it would mean if Britain were to leave the European Union.

What worries me is the influence of those with irrational political agendas on what is essentially an economic argument. (Nigel Farage springing to mind hmm…). UKIP has risen from a marginal party on the fringes of the right to a mainstream political party (increasingly seen as the “new Lib dems” as their by-election results have shown) whose populist image is already having a noticeable impact on voters.

Unlike both Nigels, I would have to say I’m in the Pro-Europe camp. Here’s why:

The benefits of free trade within the single market. We save a ridiculous amount on the cost of mobility of the factors of production simply by being members of the EU. Considering over 50% of our trade is with Europe, the CET that would be imposed upon us should we leave the EU is likely to be very damaging indeed. In addition, we are also seen as a “gateway” to Europe for many companies wishing to avoid the tariff by setting up factories and generating employment in the UK.

Despite the right’s ongoing rage towards immigrants exploiting the welfare state, EU immigration is actually pretty beneficial to the UK. Immigrants help to fill gaps in the labour market and actually pay more tax and receive less benefits than the average British citizen. If you’re a fan of the multiplier effect (as I am) then this is all good news! Also, sceptics may  not have realised that forced repatriation of many UK citizens living abroad isn’t likely to have positive effects – it is a 2 way-street after all. Although I said this was going to be an economic argument, I do believe there are many positive cultural benefits of immigration and for Britons to claim immigration is eroding their culture, I find absurd.

Evaluating the Costs of membership

Most of the “cumbersome regulations” that come with EU membership are actually there for our benefit. For example, ethical trade shouldn’t be seen as a burden but a necessary cost that helps to define a humane and developed labour market and the practices within it whilst retaining a degree of essential labour market flexibility that the UK has been noted for. We can cut costs yet I doubt any of us want labour practices mirroring those of developing countries.

I would have to agree with Ken Clarke in that a “Brexit” will be extremely damaging to the UK. The annual (approximate) cost of £8 billion is outweighed by the benefits of membership or rather the greater costs that would greet us upon exit. Although we could regain control of the North Sea, stop subsidising the agriculture of poorer countries/regions and get rid of those pesky regulations, we would also lose regional development funds which have helped to revive poor regions, we would  likely be seen as less attractive for investment and most significantly we would lose our elevated trading position.

A looser relationship with the EU, similar to countries within the EEA, has been suggested however this perspective fails to realise the UK will consequently be reduced to a bystander with no VETO power or input yet still be largely bound by these infamous regulations. Surely we might as well exploit our current position of power? There is also no guarantee that the EU would even agree to such a relationship with the moody child of Europe.

Britain should realise that not all of its domestic problems are a consequence of the EU and that when the trend is increasing integration, opting for isolation may not be the best idea.

Tax Avoidance

22 Jun

Although an issue I have mixed views on – it does annoy me quite a lot.

The recent scandal with comedian Jimmy Carr transfering millions of his money to a company abroad in order to receive most of the money back as a loan on which he has to pay no income tax, has made the relatively eternal issue resurface. As well as this K2 scheme, there are many other ways that people can avoid tax, including tax reliefs and other schemes. George Osbourne hopes that GAAR (General Anti-Abuse Rule) will attempt to tackle this but most realise similar schemes will then by concocted to adapt to this.

Now there is a difference between tax avoidance and tax evasion. Tax avoidance = using all means to exploit the tax regime legally for personal advantage. Tax evasion = the same thing but by illegal means.

Since tax avoidance is legal, the issue is a moral one. Some say that paying any more tax than you absolutely have to is a gift to the government, and it is every citizen’s right to avoid doing so. However the blatant fact is the poor are paying a greater rate of tax than the rich. This is because they can afford the financial advisors to assist them in these schemes and activity with off-shore companies etc… that ordinary people simply cannot. Jimmy Carr was revealed to be paying only 1% income tax and the top earners paying a rate of only 10%. This is costing the exchequer £25bn every year, probably much more than the “benefit scroungers” that so many have been complaining about.

Bill Bragg put it well yesterday: “Who was it who said “taxes are the price we pay for a civilised society”? Jimmy Carr is just the tip of a massive iceberg that includes individuals and corporations who cost us much more each year than ‘benefit scroungers’. You’d think making millions every year would be reward enough, but no – so many high earners do everything they can to avoid making their contribution, often while complaining how uncivilised society has become.

Having said all of this, the focus really should be redirected. It is the tax system created by politicians that has allowed people to avoid making their tax contributions. After all, Jimmy Carr disclosed the scheme to HMRC.

The conclusion is that we need to reform the system rather than dishing out moral criticisms – and simplicity is key.

Funny side-note:

“In the United States, thieves are required to report their stolen money as income when they file for taxes, but they usually do not do so, because doing so would serve as a confession of theft. For this reason, suspected thieves are sometimes charged with tax evasion when there is insufficient evidence to try them for theft. “

Hedge Funds, Currency Trading and other Financial mysteries…

1 Jun

So although the Occupy movement is dwindling, especially after its eviction fromSt Paul’s, it has certainly left a big impact onLondon. The battle between the ‘evil 1%’ and ‘angelic 99%’ is something all of us have spent a least a little time thinking about. I think they do make a certain point, especially about the people with the economic power causing the mess that ordinary people have had to clean up. However criminalizing capitalism isn’t going to work. They attack “the system” without providing a viable alternative. They want “a system that operates in the interest of the people” but how exactly, besides going on endless marches and protests, do they propose to do so? Capitalism works effectively at creating wealth, though not necessarily distributing. The importance of the second part is something the various existing political ideologies will continue to disagree on.

Now all this inevitably made me think, what does the British economy rely on now? Certainly not manufacturing and this is a shame – arguably inevitable but then there is always the black sheep Germany as an example. Financial services now define us. Much of this sector has encouraged economic growth over the past few decades and are extremely useful to us so it is careful not to lump everything in the same boat. The problem that I have, which is largely due to my ignorance in this subject, lies mainly with hedge funds and currency trading. What the hell do these people actually do? They get paid for….investing and transferring money? The second especially, the only thing that I can see it leading to is a volatile and fragile economy. Where is the stability in this?? I really need to get around to reading this… http://www.amazon.co.uk/The-Hedge-Fund-Mirage-Illusion/dp/1118164318/ref=wl_it_dp_o_pC_nS_nC?ie=UTF8&coliid=IZMBM4T8WR3AB&colid=1VSRPWB2GRAB0

Personally I think we should focus on improving our manufacturing sector, in particular technology firms that provide a relatively stable business base for developed countries. Even other services, as a deficit on the goods market…. is fine as long as we have an overall surplus.And please stop the obsession with deregulation! Good to an extent but a dangerous path. Also, we need to find demand before increasing the spare capacity in our economy even more.

P.S. If any hedge fund managers or traders are reading this and would like to enlighten me to the magic of their profession, I would be very grateful.

ACTA

17 May

The consequences of ACTA

The internet revolution has had significant impacts on every area of life. It has acted as a catalyst to globalisation and helped to spread ideas, cultures and most importantly markets. The digital economy has provided developed nations with scope for expansion and specialism whilst also providing an opportunity of growth developing nations. Studies in Western Europe and North America have shown that for each 10% penetration in broadband an increase of between 0.25-1.38 per cent in a country’s GDP. High street shops are competing with online shopping, bringing greater efficiency to a variety of industries. A projected 55% increase is projected for Nigeria’s online retail industry, contributing over N40 billion to its economy.  However, as (developed) nations become accustomed to the internet within the digital economy we forget the uneconomic benefits it brings.

As the internet grows in influence it is only right that regulations are put in place to ensure the safety of various interests. However the implementation of ACTA will infringe two of our fundamental rights:  freedom of expression and privacy.

The Anti-Counterfeiting Trade Agreement is a treaty aiming to enforce and defend intellectual property rights whilst protecting the industries suffering from global counterfeiting. As of October 2011 the agreement has been signed by Australia, Canada, the European Union, Japan, Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland and the United States of America. However it is yet to be ratified by even one of these participants.

Although the protection of key developing industries from online privacy may seem like a justified pretext to such an agreement, the unavoidable consequences presents us with an extreme picture. Internet disconnection and website blocking may become a feature of daily internet use.  Authorities will be able to “act upon their own initiative” in confiscating infringed goods in customs checkpoints. Piracy such as recording a movie will now become a criminal offence, rather than merely a civil matter. Furthermore, such infringement does not even have to occur, but appear to be “Imminent”. Many are in fear of such arbitrary judgments. This is not merely a consequence at a commercial level but on an immediate individual level affecting ordinary citizens of the signatories. Travelers may now be subject to pervasive searches, hunting for pirated material. Oxfam is worried that the regulations could mean a block on generic medicines reaching the poor in developing countries. Copyright law also, to the extreme it seems. The use of any copyrighted material in any context will be prohibited and subject to numerous criminal sanctions. In addition, ISPs will be forced to collect information about its users and store it for government. This includes any action you make using the internet. The violation of privacy is clear. Furthermore, freedom of expression is severely restricted in the name of preventing counterfeiting. Theft and counterfeit of physical goods is compared to file-sharing. Under this new law, teenagers sharing a few songs could potentially face prosecution. This ultimately represents a diversion of justice. The legal system should cover every necessary aspect of society that needs regulation, however by conflating minor issues we are at risk of distraction from the major legal problems our justice system faces.

The uncertainty over the effects of ACTA’s various provision is evident. Protests are already visible: Polish law makers wore Guy Fawkes for their obvious recent connotations and were in conjunction with Slovakia and the Czech Republic in refusing to ratify the treaty. 1.8m petitions to the treaty have already been distributed online. Despite the European Commission’s acceptance, the European Parliament is unanimously against ACTA.

ACTA will face an ECJ ruling regarding its possible conflict with the EU’s fundamental rights and freedoms however this is not expect until 2015 at the earliest. In addition to the negative consequences outlined, the lack of transparency in the process is worrying. Lastly, ACTA will be ineffective in its achieving its core aim as most counterfeit goods are produced and distributed by developing countries, excluded from ACTA. Ultimately all it will do is serve as an attack on the fundamental freedoms of the citizens of developing nations.

Rethinking the old “money can’t buy you happiness”

17 May

An interesting viewpoint: maybe it’s the way we selfishly spend our money that prevents us from being truly happy. After all, we’ve all met those people who are barely scraping a living and are happy as Larry…

Money and Happiness

http://www.ted.com/talks/michael_norton_how_to_buy_happiness.html