Who invited the clowns?

The stage is once more set for Lib-Dems and Tories to pick at the unhealed scab that is the 50p tax rate. For those non-UK readers, the 50p tax stipulates that for every pound earned after £150,000, half will go to taxes. In an effort to generate more tax revenue from the rich, the polemic 50p tax has Conservatives (Tories) seething. The Financial Times reported today* that one unnamed conservative complained such tax structures (or any additional tax, for that matter) flew in the face of “Conservative values and principles” because they stifle a celebratory environment of success.

50p crushes spirits

If the celebratory sense of success if pivotal to the Conservative approach to economics and politics, why remain unnamed? If there is a transatlantic parallel to be drawn here, it is the celebration of the fairytale-like “American Dream.” Did the likes of Steve Jobs, Bill Gates or Mark Zuckerburg have private celebrations of success? Of course not. While they may have thrown a few private parties, their names are still commonplace in today’s society and an indication of just how public their success has been. Those very exposed, public success stories are the fuel on which entrepreneurs’ dreams run. Though there must be irony in the unnamed person championing the celebration of success, I digress.

Most importantly, the question is one of “how?” How will the 50p tax mar this conservative value/principle of success? Are we to believe that people will aspire to earn less because their taxes increase? I highly doubt someone would refuse a promotion that pushed him over the £149,999.99 edge. Can you compare the resentment of losing 50p to the pound (over 150k) to someone who can’t buy the name brand cereal because it’s 50p more?

The demoralization of taxes, if anything, is the biggest hindrance to the celebration of success. If you chose to subscribe to the belief that all taxes are evil, then of course you cannot see, let alone celebrate, that an increase in tax revenue from you personally may go to improving society overall. Granted, a mindset akin to “celebrating” taxes requires a high level of trust in government and its tax expenditure programs, and in today’s world, this is near impossible. And being oblivious to the effectiveness of taxes isn’t conducive either. Rather, we should be keen to celebrate success, understand taxes don’t reduce the achievements, and even see that [taxed] success is all the more praise worthy when well invested. So please, Tories, don’t be so quick to preemptively condemn an entire concept that pays for societal structure. Rather, be constructive and celebrate those programs that you think best use taxpayer money and this will provide incentive for success and a celebration we can all join in on – a feat whereby there need be no one name associated with celebrating success.


* This article may require a subscription. Apologies for those who can’t access the article.


Hi-ho, Hi-ho, it’s off to (unpaid) work we go

Please pardon the blogging hiatus. I can’t speak for all of us, but this week I found myself particularly detached from the news I so often love to question. I could list several reasons (read excuses) for not posting this past week, but let’s be honest, none of them would hit the mark satisfactorily. You see, my dear reader, I’ve recently started a work experience position and, upon returning to the work schedule of the real world, I have found little energy to question my surroundings.

It is exactly this experience, though, that caught me off guard when listening to Cameron’s speech this Thursday about the economic state of the UK. Though there are several issues I would love to delve into, the one that struck me most (and consequently got me writing again) was his comment about “snobbish attitudes” towards business with respect to education. He raised an interesting point when he argued: “Put a young person into college for a month’s learning, unpaid – and it’s hailed as a good thing. Put a young person into a supermarket for a month’s learning, unpaid – and it’s slammed as slave labour.”

Let’s flush out these ideas a bit. I cannot write-off the idea of internships and work experiences, as I do genuinely believe them to be of value for people interested in getting exposure to an industry of interest. However, the comparison Cameron makes here is to me, at best, unsettling. Forgetting the insensitivity of carelessly comparing unpaid internships to “slave labour”, and, skipping over the month-long time frame for college education that in itself provides fodder for criticism, let’s look at the “unpaid” aspect of both forms of education.

Rarely does a student get paid to study at university. For the lucky few, scholarships might offset the costs entirely, but most actually pay to go. Why then is this acceptable, whereas interning for free (let alone not having to pay for the experience) can inflame a population? I think Cameron may have missed an important difference: the service a university provides is directly related back to its students, shaping their opinions, providing experiences and allowing them to grow. Don’t get me wrong, academia is a business too, but I can’t think of a case whereby my time and energy spent within the university’s walls were [profitable when] sold to a third party.

How does the reverse translate? An intern who works for free at a supermarket (keeping in mind that others are paid to do the same job) is getting exposure to what exactly? It may help a wayward young adult decide this isn’t the industry for him. It may provide contacts for future jobs or simply provide much needed structure to daily life. But while what a student learns at university is invariably his own, the labour he provides while learning on-site is directly profitable to the business. Is it really snobbish then, to say that unpaid work, though definitely a learning experience, is one that can be deflating, if not altogether demeaning? If we understand our value to the company as reflected by our salary, then being paid nothing is equivalent to being worth nothing. And while the work can be instructive and formative, isn’t it always so for those employees who are paid to do it too? I must admit, I’ve had my fair share of jobs where it seemed as though paid employees were, in fact, paid to stop learning.

Perhaps worst of all, though, is the endemic expectations the system creates. It isn’t so much that unpaid work is branded bad a priori, but rather becomes bad due to the underlining assumption that we must all submit ourselves to various unpaid stints—that without these our CVs lack substance, and by extension, so do we.

So thank you Cameron for awaking me from my lethargic blogging ways. But please do try to be more careful in choosing your comparisons. The only “snobbery” I can see in this particular case lies with the politicians—so far removed from the reality of policies which they debate, yet insistent that they know better than those complaining (that is, those whom they actually affect).

Christ! Not again

After attending a lecture at LSE this Monday evening about how Keynes and Hayek continue to influence the political left and right today, the immediate reaction was to look at the news and see the abuses disciples of both these economic thinkers are committing in the name of political-economic ideology. Maybe they haven’t fully read the works they claim to support; maybe they haven’t understood them. Either way, there is proliferation of annoying inconsistency with how economic and socio-political issues are combined. Most recently, these haven taken shape in the UK, as in the US, with regards to religious intolerance that is supposedly occurring in the respective states. While the approach varied, the underlying message was the same: religion is under attack.

Lady Warsi on 'militant secularisation'

My initial reaction was to see this as a ploy by the Neo-Conservatives to revert back to tactics of fear. But the bigger picture, one painted by the lecturer Mr. Nicholas Wapshott on Monday, was that of larger historical trends. Counter-Enlightenment style tactics have reared their ugly head once again. And despite warnings from thinkers such as John Gray, who outlined the rise of utopian ideals being pushed from political extremes into the mainstream in his book Black Mass, we see politicians such as the UK’s Lady Warsi decrying “militant secularism” and the US’ Rick Santorum vehemently opposing Obama’s “antireligious” contraceptive healthcare plan.

How does any of this tie into economics or the Keynes/Hayek debate? Both economists were also very cognisant of the political repercussions born of economically induced desperation. Both men witnessed the degradation of hope in the economic and political system brought about by too harsh a sentence for reparations following WWI, and they knew that the results of dire economics gave way to radical politics. For Keynes, it was largely a question of unemployment: cutting public sector jobs during high unemployment yields extreme politics because it encourages contempt for the current political parties and/or systems. Hayek, being Austrian and seeing the effects of hyperinflation affect his own family, also recognized that economic woes could dictate political climates and hoped to find a (in his mind, more sustainable) way to stabilise the economy.

So why are conservatives on both sides of the Atlantic turning their attention to religion? Are they afraid that social issues have suffered at the hands of overwhelming media exposure to the economic climate? Is it a deliberate ploy to redirect attention away from an issue to which they don’t have a solution? At a time in which the population has lost hope and faith in its liberal democratic system, do they seek to benefit by filling that void? Or are they simply not aware of the contradiction? After all, Hayek wrote in his Nobel Prize acceptance speech that, “The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.” How, then, can forcing religion back into a predominant role in society be seen as anything other than an attempt to control civilisation?

Then again, maybe my sneaking suspicion that this is a NeoCon ruse was right. If that’s the case, let’s be sure to remind ourselves that when times are hard, we’re susceptible to lots of bad ideas and easy outs. Let’s not fall once more for scare tactics that only ever temporarily gives us a sense of purpose.


Bonuses busted

Oliver’s post highlights something that has been annoying me for some time now: “Europe” has assumed a negative connotation in the GOP debates. I want to re-examine Americans’ recent inclination to distance themselves from our closest political, economic and social allies. Why are we isolating ourselves in a time of rapid growth and further interconnectedness?

I have a sneaking suspicion that the answer lies in economic principles we’ve borrowed, albeit unfaithfully, and, like so many in this dire economic climate, cannot afford to repay with interest. Allow me to skip the past 200 years of incorrect assumptions or blatant half-truths about our “Smithian” economic model of laissez-faire and jump to debates that are currently raging in London, the financial capital of the world. This weekend’s Financial Times was filled with articles addressing the front-page caption “Banker bashing.”

It appears our economically inferior allies are charting uncomfortable territory that we Americans, by preemptively painting a bleak picture, wish not to confront; bankers, and the bonus culture, are being called into question while taxpayer money funds economic recovery via “too big to fail” banks. I find it amusing, if not ironic, that Europe should be so negatively viewed right now for a few reasons.

GOP candidates continue to tow the religious line. Fair enough. Religiosity is something not soon to leave the socio-political landscape in the US. However, arguments made about America’s moral predilection to enshrine rights not because the state deems them worthy, but because the state is seen as the safeguard of rights bestowed by a higher power, must ultimately prompt questions of morality in general. Funny then, that Adam Smith, a moral philosopher by trade and Scotsman by birth, should fall into that negatively branded “European” stock conservatives have come to despise. Better yet, it’s serendipitous that these debates in London should revolve around none other than the RSB (Royal Bank of Scotland) and Stephen Hester, its chief executive.

Stephen Hester, RBS' chief executive

Hester has been the center of attention as of late for being offered, and ultimately refusing (either out of moral rectitude or public humiliation) his £963,000 annual bonus. As far as I know, and please correct me if I’m wrong, but talk of forfeiting annual pay-outs is so far unheard in the States. True, Obama is now looking for ways to prevent future bonuses from occurring to the same extent they have in the past. But no news has broken this side of the Atlantic that a single executive has forgone his or her annual bonus, let alone a hand full of them.

More interesting are the questions this debate raises, and perhaps ultimately conservatives fear having to tackle back State-side. Is a culture that prefers the proverbial carrot to the stick too over-fed? In other words, can we continue to rely on a system of incentives when those incentives are either not in line with performance and guaranteed from the onset? The particular issue here in London is that the RBS is now largely government owned (83% to be precise) and tax-funded, and private sector incentives and public sector incentives have never really matched. More importantly though, it’s brought to a head the issue of entitlement, questioning whether people are doing what their job demands of them, or doing so exceptionally well they deserve a bonus (which often times in the banking sector is already promised when signing a contract). Attracting and retaining the best talent in a globally competitive world seems to outpace the contributions a person can do for even the most internationally lucrative company.

Before we lament over Europe’s economic woes due to, what the rhetoric can only imply is inherent, problems of its social liberalist inheritance, perhaps we ought to applaud deeper commitment to the morality of capitalism that, for better or worse, continues to crop up in London headlines. Are we afraid that becoming European (and yes, the UK is European enough to justify this argument, if for no other reason than Americans placing it unconditionally in the European pool due to vague proclamations of social liberalism) means reevaluating our economy, our morals or both?

American…socialism? Dubious.

I’ve been perplexed this week as to which of the multiple issues I wanted to address and, rather than writing several entries, I had all but given up entirely. As I’ve said in previous entries, the need to further investigate macroeconomic principles founded on either a Keynesian or Hayekian basis becomes increasingly clearer with each passing day of GOP debates (and their conservative followers’ Facebook posts) and EU budgetary talks.

Fiscal conservatism, e.g. cutting back spending to reduce debt, seems like sound advice. However, in times of economic downturn, think about what austerity measures really do for the economy. By reducing government spending, be it in the form of direct stimulus plans or indirect benefits, people are wont to save. You cannot grow an economy if no one is willing to purchase. While I admit that certain packages may not inspire the degree of confidence needed to jumpstart consumer habits to pre-recession levels, they do more than reducing government spending would do. After all, folks, it’s called a stimulus package, not a climax package. So let’s curb our seething criticism for a moment (which consequently is doing nothing to encourage consumer faith and as such is contributing to a self-fulfilling prophecy) and re-evaluate some claims that have been made recently.

Why, oh why, can my fellow Americans not understand that the Obama administration’s approach to taxes is not socialist? The quips made on everything from Fox “News” to social media platforms such as Facebook continue to liken Obama to European style socialist democracy. I have a few complaints with this: his proposed tax scheme is nowhere near what I would qualify as socialist (especially when compared to European counterparts) and, frankly, with moral questions of fairness aside, in global recessions it’s in the long-term interest of those wealthier citizens for short-term tax increases.

“Comrade Obama” proposed in his State of the Union Address that millionaires should pay no less than 30%. Let’s take a look at tax structures on the other side of the pond. The UK, which in many respects is the ideal EU counterpart to the US, structures its taxes as such:

Income Tax band Income Tax rate on non savings income Income Tax rate on savings Income Tax rate on dividends
£0 to £2,560Starting rate for savings Not available 10% Not applicable – see basic rate band
£0 to £35,000Basic rate 20% 20% 10%
£35,001 to £150,000Higher rate 40% 40% 32.5%
Over £150,000Additional rate 50% 50% 42.5%


Aside from glaring differences in the percentages themselves, the groups are shockingly smaller ranges than Obama’s millionaire bracket. Please stop haphazardly praying on an anemic American educational system that associates Socialism with nothing but negative connotations unless you’re prepared to defend how “no less than 30%” for millionaires is at all close to 50% for earners of roughly $237,000 (unless of course, in addition to social sciences, history and philosophy, you want to further contribute to an already inarticulate and often imprecise teaching by adding, if you can, mathematics to the list). This is not to say that the UK doesn’t have its skeptics, but perhaps that’s the only thing the UK and US share in terms of socialism: a disapproval from the conservative side.

Moreover, it’s corporate tax structures that need to be evaluated. If we follow trickle-down theories for personal taxation, the money all but dries up the minute wealthy citizens buy foreign-made goods. And in a globally competitive market, it’s the companies that are liable to move operations abroad, rather than the individuals themselves. Think of it as a basic causation. In other words, companies are taxed out of competition within borders and move elsewhere, and as unemployment rises, the individual tax pool becomes smaller. If the wealthy wanted to reduce the burden they ought to pay over the longer-term, they should be funding ventures that bring job growth, and thus, potential taxable income. In the short-term, then, having to offset government spending that instills confidence in the consumer and gets the economy growing again is a small price (especially when compared to our European counterparts) to pay. For those who knock stimulus spending, I need only point to Ford’s recent success in Detroit, reported a few weeks ago in The Financial Times. In this case, not only did it prevent the collapse of an industry, but actually caused a rebirth of sorts.

Of course it cannot be stated clearly enough that government expenditure is a dangerous game. When the question of socialist tax structures is raised, the debate ought to be focused around spending programs rather than mere percentages. It is not enough to assume on good faith that programs created and funded will have the impact intended, and I would strongly disagree with the assertion that Obama’s intention is merely a redistribution of wealth–mainly because those who talk of redistribution use it in the sense of equalisation, and that is obviously not happening. Either way, corruption is always a worry in the public as well as private sector. But perhaps, with Congress approval ratings hitting all-time lows, they’ve never had more motivation to insure these steps, from taxation to smart government programs, succeed for posterity as much as this current suffering generation.

Piracy, Privacy, Individuals and Corporations

In keeping with my loose theme of political economics, I wanted to broach a subject raised recently on both sides of the Atlantic for very different reasons: Individuals’ vs. Corporations’ rights. O’Brien’s article in The New York Times today speaks to European political worries of privacy protection in the digital world. Viviane Reding, The European Commission’s vice president for justice, has made it clear that the EU ought to ratify a new law that protects citizens from data collecting sources such as Facebook. This proposed law would allow citizens to delete any information collected upon request, as well as force companies to tell users why data is being collected. Without going into the deeper argument inherent in these issues, e.g. who owns personal data especially once it’s uploaded on digital mediums, the bottom line here is one of individual versus corporate rights.

I recently dismissed a friend’s post on Facebook juxtaposing Julian Assange and Mark Zuckerburg with a wry laugh. The tagline read something to the effect of: the one openly publishing information on corporations is deemed enemy of the year while the one selling private information to corporations is the year’s hero. On second glance, I might not have given adequate attention to (ironically enough) this Facebook post. With SOPA and PIPA being defeated in US Congress, and the EU proactively seeking to defend individuals’ rights, it would seem that the people have unanimously rejected this Assange/Zuckerburg comparison!

Oh wait, unless of course you consider the inherent contradiction of terms it would cause if you, say, saw the world through Mitt Romney’s eyes. After all, if corporations are people too, where do you draw the line (or perhaps, build the firewall)? That is to say, that if the Frankenstein-esque logic used to convey corporations as the aggregate of those individuals working there was applied to digital mediums like Facebook, than the personification of the corporation is self-defeating. People are having their private data collected and/or sold by the very “person” they intrinsically create via use of the service.

The issues of both privacy protection online and the corporate individual are pressing, as any decisions reached will drastically shape politics and economics in the future. It begs the reevaluation of the ideological questions behind both by eliciting definitions, prioritizations and expectations of freedoms. I happily invite anyone with a clear opinion on either, or both, of these issues to kick off a discussion in the reply section by posting your comment.

Jobless Keynesians

This is likely to be the first part of a series of entries based (very) loosely on the ideological standstill reached in the macroeconomic theories of Keynes vs. Hayek. I know, I know. It sounds quite dry; but, at a time in which we see discontent being voiced by masses, we should aspire to see the practical implications these policies have. Unlike my fellow contributor Karlo, I have never taken part in an Occupy movement and therefore can only speculate what the drivers of this frustration are.

If their experiences are anything like my own, though, I have a few ideas as to what’s compelling them to take to the streets and raise their voice. Primarily, I should think that a majority of the youth are motivated by unemployment. Not because the unemployed have nothing better to do, and frankly more than enough time to do it, but because unemployment statistics pose a daunting image. In a liberal market economy that supposedly thrives on its labour pool of generalists to provide the elasticity needed for “creative destruction,” the constant uncertainty of when or if it will happen can be exhausting.

Competition is a necessary evil, however the parameters of competition are stifling. Youth today face entering a labour market with exorbitant expectations. University degrees, past work experience, a charismatic personal demeanour and direct exposure to the sector might only get you an unpaid internship.  Add to that austerity steps taken by the government to further reduce debts (read: stop spending programmes, extend retirement age, etc.) and it quickly becomes apparent how maddening the system is.

So how does this relate to Keynes and Hayek? The assumption these days that Keynesian economics, or deficit spending, is defunct is misinformed. Keynes sought to combat unemployment (as opposed to Hayek, who was largely concerned with inflation), and deficit spending was one way in which to do that. However, job growth is not synonymous with government spending. As Paul Krugman points out in this weekend’s New York Times, Bill Clinton’s first term yielded 11.5 million jobs, and although not a complete Keynesian, was influenced by his theories. In fact, in Clinton’s new book Back to Work: Why We Need Smart Government for a Strong Economy, there is a laundry list of Keynesian-style government spending programmes that would achieve the ideological economic goal: employment (thereby fulfilling economic growth via the “Keynesian multiplier”).  

It is my experience that gainful employment is harder to come by for those entry-level positions. We need look no further than Spain’s astronomically high youth unemployment rate, which currently hovers around 43%. To this end, we are beginning to see attempts to address the dire inadequacies of the current situation. Italy’s new Prime Minister Mario Monti has announced plans to invest $7.1 billion in infrastructure and opening restrictions on professional guilds to promote employment for youth. Interestingly enough, his attempt to promote competition and thus pave the way for more employment opportunities may, in the long run, only have the same effect as we’re seeing in already highly liberalised economies: the parameters of competition (i.e. employers’ demand of qualifications) is unrealistically high for first-time job seekers.