When economists all agree

There was a new survey out last week from the European IGM panel of economics experts, about the recent proposal from the UK Labour Party to give the Bank of England an economywide productivity objective.  These were the results:

IGM productivity

Not a single economist in the panel seemed to think this was a good idea. Not one thought that central banks can make any material difference to productivity growth, except by promoting or maintaining macroeconomic stability.  Note that the question wasn’t just about monetary policy, and the Labour Party policy talks of the use of regulatory tools as well.

I share the view of the panellists, but it is interesting to see the answers coming through so strongly when the Bank of England itself (notably the chief economist Andy Haldane) has at times been quite vocal in arguing (drawing from this speech) that the costs of financial crises are large, and are either permanent or semi-permanent.    I’ve long been rather sceptical of that proposition (some arguments developed at the first link in the previous sentence).   Whether the respondents to the IGM survey connected the two stories I don’t know –  many would probably just have been running the conventional macro story that monetary policy is more or less neutral in the longer-run –  but the results are a useful reminder of just how limited monetary policy and banking regulation are in doing good, once one gets beyond the relatively short-term (perhaps three to five years).

It being school holidays, I’m taking a break and will resume late next week.   There are many things I haven’t got round to writing about so far this year, and I hope to put some of them high on the priority list in the coming weeks, including taxation.  For example, there are the officials’ papers for the Tax Working Group, in which it is recommended that rates of taxation on business incomes should not be lowered.    With such weak long-term rates of business investment, and low rates of productivity growth, you might have thought this was an obvious place to look.  But not, apparently, to the Treasury and IRD officials.  The bacillus of Treasury’s wellbeing approach has reached even into these background papers: lower rates of business taxation would, it is asserted, damage “social capital”.

 

13 thoughts on “When economists all agree

  1. Sounds like an absolute misuse of the concept of social capital. I’d struggle to link the concept to taxation in any way.

    My understand is, there are two kinds of social capital: bonding capital (between individuals in a tight knit/shared interest group; such as a workplace, a family, an iwi, a congregation) and bridging capital (between groups without a common/shared interest, such as happened after the CHC EQ when the Farmy Army joined forces with the already mobilised Student Army to assist clean up efforts).

    The workers in a particular business (i.e., workmates) are a bonded group, and if they put together a sports team which competes with a team from another business, then those new relationships formed are an example of bridging capital.

    The classic study on it is https://en.wikipedia.org/wiki/Bowling_Alone.

    I would be really interested to see how these TSY and IRD folks managed to link that concept with taxation.

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  2. As the Tax Working group correctly indicate that we are not comparing apples with apples tax rates from different countries. For example Singapore has a corporate tax rate of 17% compared to our corporate tax rate of 28%. On the surface a simple comparison would mean that we our tax rate is too high. But Singapore also have a compulsory Employer Super contribution of 15% which is significantly higher than our Employer Kiwisaver contribution of 3%. Therefore for Labour intensive service organizations Singapore likely pays a much higher corporate tax than a NZ corporate.

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    • Except that the supper extraction of money simply gets used by the higher Authorities to buy up and buy up.
      So its essentially theft on a grand scale and it’s probable that the individuals may well invest that money for a use more to their own choosing.

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    • How would that work? Nurses can’t wait for 10 or 20 years before getting paid a wage as Capital Gains can only correctly be ascertained after realisation?

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      • My mistake, it would be a capital income tax, not capital gains. That is to say it would only be paid once gains are realised (inflation subtracted of course). In essence it would not be a new tax at all, just a redefinition of what income actually is to include more forms of income.

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      • Capital Income tax on property would bankrupt many kiwis that do not work and have no income. How would you expect them to pay? It would mean the re-introduction of death duties as that would be the only time that would be collectible. Small businesses do not have a market value. In most cases with a key person risk, small businesses would have little or no capital value which also means no taxes to pay.

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  3. The better choice is to reduce the need for extracting money from other peoples pockets to give to someone else’s pet project.
    That then provides the right incentives for people and their lives.

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  4. I think it is a shame TOP is out of the race. GM relied on a well argued case. One problem is that peoples heads are like shells: they are never empty but tap on them and you will find they are occupied by a hermit crab. Gareth’s plan involved turkeys voting for Christmas (tax the family home). It is a bit like trying to persuade someone to have an operation when they feel fine.
    We need a better system which is structured such that politicians have to have firm credible plans without magical thinking and we need to make politicians responsible so they will be held to account in the future?.

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    • TOP clearly can’t argue it has a case for its policies. Might be well argued but not practical to implement and I could just as easily argue that it is poorly identified assumptions dressed up as research. In other words, research can be good or bad or biased dependent on the professional that is paid to do that research. The TOP leadership is not sincere to its policies if he keeps coming up with quips that he has bought his newest Harley Davidson from the Universal Super provided to him since he just turned 65 or that his lifestyle is being funded by his tax free Capital Gains from the sale of TradeMe shares or that he leaves his investment properties vacant because he does not like tenants dirtying his carpets or pride in his cat killer reputation.

      Now he is saying that whoever wants to continue with TOP, he would donate $$$ but expect his policies to be implemented 100% and whoever undertakes the task must abide by his will or be held individually responsible. He seems to have forgotten that it is illegal to force an incumbent government to accept money and to be influenced by outside donations. He needs to front up himself rather than force others to do his bidding influenced by his dollars which would in due course be an illegal act. Clearly he has no clue how our system of government works.

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