Zipcar creates cars out of thin air! No, really.

People might think that when they sign up for Zipcar, that a car is bought with their name on it. It isn't.

Instead what Zipcar does is a conjuring trick. They agree to provide you with a car when you want it. But at the point at which you sign up, they don't go out and buy another car. They merely create an account for you. Note that there are no cars involved in this process at all. It's just an accounting trick. Nothing more.

All that matters is that they can provide cars to those who need them when they need them.

Zipcar will charge you for the benefit of having opened an account for you. Even though there is no car as such, even thought you think there is. Because you can drive a car as if you really did own it. 

Of course, they need some cars. That's necessary to ensure that those who do want to drive can do so.

And of course they can't repeat this trick forever because if they did people would realise that there was no substance behind the promise they made to you when you agreed to sign up to their service. That promise is that the car that's notionally "yours" can be driven by other people, and it's a promise that is only as good as their own efficiency. If they're unable to supply cars to people when they need one, confidence in their service will suffer.

But that's the confidence part of the trick. So long as people believe that Zipcar will provide them with a car, they don't actually need a car. They can just pretend they own one. When people don't have that confidence, they will find that they do need a car. The risk is that companies like Zipcar will bring in too many members for the number of cars that they have.

Well, by now you'll probably have seen through what I'm doing here. People instinctively understand what companies like Zipcar are trying to do. But when the company is providing money, not cars, people throw their comprehension out of the window.

Banks aren't doing anything magical or mysterious. They merely take money from people who don't currently need it and lend it to those who do, thereby stimulating the economy. They act as an essential intermediary between these two people, ensuring that the borrower repays and that the 'lender' can actually access his/her money if needs be.

This notion that banks create money out of nothing is bona fide idiocy of the highest order.

Filed under: Economics with tags banks, cars, idiots, richard murphy, zipcar
15 Comments »

Source: Paul Krugman, here.

As he says, not good, but hardly unprecedented right now.

And no cause to panic, at all.

One question, Ritchie.

Where's the world war that would justify increasing our debt above its long term equilibrium position?

Filed under: Economics with tags debt, idiots, richard murphy, world war
91 Comments »

Today, doctors voted to strike over changes that are being made to their pension plans. Having been surprised to see clearly intelligent people talk complete gibberish about pensions, it's obvious that a simple guide to pensions is needed. So here it is.

Pensions are like a bucket.

The idea is to fill the bucket with water (representing money) while you're working. And then you empty the bucket when you retire. Easy, isn't it?

Well, it would be, but this situation requires a lot of judgements:

Filling the bucket

You have to decide:

• How much water to add to the bucket each year;
• How many years you'll add water to the bucket; and
• (ok, this doesn't quite fit) The level of investment growth over the period up to retirement.

Emptying the bucket

You have to decide:

• How much water you'll take out the bucket each year;
• How many years you'll take water out of the bucket; and
• (ok, this doesn't quite fit either) Interest rates in retirement (because pension pots are turned into safe income streams). 

There's a hole in my bucket

Inflation is a cancer that will eat into your pension both up to and during retirement. So you have to decide:

• How big is the hole in the bottom of your bucket (representing inflation).

So how does all this work?

The relationship between these items is fairly self-explanatory. Putting in more water every year, putting in water for more years and obtaining high levels of investment growth will lead to a lot of water in the bucket. Desiring a high pension for a lot of years while interest rates are low will require a bucket with lots of water in it. An emptyish bucket requires either a low pension or a shorter period of retirement.

The logic underpinning the bucket is inescapable.

But this doesn't apply to me because I've got a defined benefit pension plan

Yes, the bucket does apply to you. Even if you have a defined benefit pension plan. It's just that different variables are held constant compared to your unfortunate brethren on defined contribution plans.

Those on defined contribution plans typically have "number of years in" fixed. They then have "asset returns", "inflation", "number of years out" and "interest rates" as independent variables. If those variables conspire against them, as they have in recent years, then if they don't want "water out" to suffer, they must increase "water in". As most employers don't increase their level of contribution, employees must increase their pension savings unilaterally, or accept a lower pension in retirement.

Those on defined benefit plans typically have "number of years in", "inflation" and "water out" fixed. They have "asset returns", "number of years out" and "interest rates" as independent variables. If those variables conspire against them, as they have in recent years, then "water in" must be increased substantially to compensate. The difference to defined contribution plans is that the responsibility to increase contribution levels usually rests with the employer, not the employee.

OK, so defined benefit plans don't actually have a bucket with each employee's name on it. They have one big bucket, into which current employees and employers pay and from which pensioners are paid. But it's a helpful discipline to think of there being separate buckets. Those supporting the doctors strike like to argue that the current scheme is "in surplus" because there is more being paid into the scheme than is being paid out. Thinking about it in bucket terms shows this argument to be a load of nonsense. The excess of contributions over pensions in payment tells us nothing about the long term viability of the scheme, which can be determined only by considering the other variables in the equation.

So, are the doctors right to strike? 

I don't intend to answer that question here. But a proper answer to the question requires you to consider just how much it costs to provide a doctor with the promised level of pension, given assumptions over mortality and inflation. Is the current employee contribution to this cost fair, or should the employee be asked to contribute more for a longer period of time to make it fairer?

Any answer that doesn't consider this angle simply doesn't answer the question at all.

Filed under: Current issues, Economics with tags defined benefit, doctors, inflation, mortality, nhs, pensions
1 Comment »

Because it's a load of bollocks. There is no 75% income tax rate; even when you add in national insurance, there's simply no way that you can generate a marginal tax rate of 75% for those on low incomes.

Ah, you say, but Ritchie means the marginal rate of additional taxes and benefits withdrawal. Well, perhaps he does. But that's not the same thing at all as "paying tax at 75%". Having started with nonsense, it's hardly surprising that he ends up with a stupid conclusion.

That, more than anything, is why those on £1 million shouldn't pay tax at a marginal rate of 75%.

Filed under: Economics, Taxation with tags fucknut, idiots, marginal tax rates, richard murphy, ritchiebollocks, welfare benefits
12 Comments »

UKuncut and their hangers-on have been getting very excited about their latest stunt: a party outside Nick Clegg's house. They made a particular point about how family friendly their latest protest was, and how many children were present at the protest.

Well, I'm afraid I take a dim view of children being used in this way. It is always inappropriate to indoctrinate your children like this and to drag them along to your political protest when they should be doing something more kid-friendly. You know, like going swimming or playing in the park. UKuncutters using their children to make a political point is profoundly selfish. Be political if you want to but, for God's sake, let your children enjoy their childhood.

But it's not just profoundly selfish. It's really profoundly selfish. While Ukuncutters talk about austerity, the truth is actually that we continue to run a substantial budget deficit. The costs of services that are being consumed by us today aren't being paid for out of our taxes. They're being stuck on a giant IOU, to be paid for by future generations. Yes, that's right - the children who UKuncut are dragging along to their photo opportunities will be forced to pay for our generation's overconsumption.

If UKuncut's children were allowed to think for themselves, they'd probably vote in favour of budget cuts. Because it's ludicrous that they should be forced to pay for something that they will never see the benefit of.

Filed under: Economics, Politics with tags austerity, deficit, fucknut, idiots, nick clegg, selfishness, ukuncut
2 Comments »

Eoin Clarke is back with one of his unsourced graphs:

The 10 companies above [Shell, BP, HSBC, BHP Billiton, AstraZeneca, GSK, Barclays, Vodafone, BAT, BG Group] made a combined profit of £100 billion last year. During the same period the UK economy stagnated, adding less than £5bn to its GDP. During the In addition, wages stagnated, unemployment grew, inflation rocketed, VAT was hiked to 20% and millions of people had benefits cuts. In total the government collected £48 bn in extra taxes from workers through national insurance and consumers in VAT. At exactly the same time, George Osborne cut profit tax by 1% in 2011 (and by a further 2% this year). Are you thinking what I am thinking?

I doubt it. Because I'm thinking "Dr Eoin Clarke is a fucking idiot". Here's why:

1. These are global companies. While some of them may have originated in the UK, and they still have UK stockmarket listings, these are global companies that make their profits globally. The share that comes from UK markets is a lot smaller than the amounts they generate globally.
2. His profits figures are complete and utter bollocks. He claims the companies made £100bn of profits in 2011. I've checked his figures, and they in fact made combined profits of £132bn. That firstly proves that he's attempting to use the consolidated global profit and secondly proves that every single number that Eoin gives on his website should be treated with extreme suspicion.
3. His tax paid figures are complete and utter bollocks. I suspect he has tried to extract them either from UK standalone financial statements or from the disclosures given in group accounts. Neither will work. Instead we should observe that these companies had cash taxes paid in 2011 of £37.6bn (most of which relate to their profits earned in 2010 of £76bn). That hardly fits the rhetoric that these companies aren't paying their way in the global economy.
4. There are two big oil companies in his list. Don't forget that oil companies are typically subject to additional non-profits based taxation that won't appear in the "tax charge" line of the accounts. These are big numbers: approximately £8bn globally for BP in 2011.
5. There are two banks in his list. Banks are also subject to additional non-profits taxation in the form of the banking levy. This also does not appear in the "tax charge" line of the accounts.
6. It's completely idiotic to compare the global profit made by companies in one year to the increase in GDP of the UK economy in one year. I've called him on this before, but it seems he's too stupid to understand.
7. And the benefit the UK gets from these companies goes far beyond their corporation tax payments. These companies are big employers of UK citizens. They administer the PAYE and VAT systems on behalf of the government without recompense (and largely without complaint). Their shares provide pension companies with somewhere to invest, and the dividends they pay help support pensioners in their retirement. On top of this, they fulfil our needs - for energy, for healthcare, for financial services and, erm, for cigarettes. You'd frankly have to be a complete moron to believe the only benefit we get from them is tax.

It's really extraordinary that someone with a PhD could be so incapable of using sources and referencing his work properly. Somewhere there is a PhD supervisor with a bad case of insomnia...

Filed under: Economics, Taxation with tags astrazeneca, barclays, bat, bg group, bp, corporation tax, eoin clarke, fucknut, gdp, glaxosmithkline, hsbc, idiots, pensions, shell, vodafone
4 Comments »

Via Ritchie, we find this:

The government gives up to £40 billion per year in tax [relief] for ISAs, pension contributions, venture capital and property investment, encouraging saving and investments. Yet, there is nothing attached to these subsidies to encourage responsible or sustainable investment.

This report demonstrates how these powerful levers can be used to build a stronger, more sustainable economy. It suggest that policy makers, the public and the financial services industry need to consider and debate seriously a new principle that, in return for tax relief and implicit subsidy, savers and investors should be able to demonstrate a contribution to the public good.

Erm, folks, the public good is the very fact that people are saving in ISAs, pensions, venture capital and property investment. That's it. That's what the government wants to incentivise people to do. And that's why it provides preferential tax treatment for money placed inside such vehicles.

So it's really very strange to ask that there should be strings attached to these "subsidies". The entire point of the subsidies is to encourage us to save, so to attach strings to them would be counter-productive.

And to make this proposal at a time when people are clearly failing to save enough for their own retirement is really quite bonkers.

Filed under: Economics, Taxation with tags government, green alliance, idiots, individual savings accounts, pensions, richard murphy, venture capital
5 Comments »

Ian Fraser, a financial journalist, has been interviewing Ritchie:

Richard Murphy believes that the way in which accountancy and economics are currently taught is fundamentally flawed since it is based on a false premise—that markets are perfect and investors rational.

Yeah, only there's a bit of a problem with Ritchie's entire thesis. Actually it's a big problem. A problem so big, you'd expect Fraser to have picked it up himself.

And that's this graph (on p33):

Accountancy courses are mostly irrelevant. It really doesn't matter what they're teaching students of accountancy and economics at university because the majority of accountants become professional accountants having taken degrees in other subjects.

Kinda torpedoes his entire argument, really!

Filed under: Economics, Institutes with tags acca, cima, cipfa, ian fraser, icaew, icas, idiots, pob, richard murphy, university
67 Comments »

Ritchie, like anyone else, can make estimates of tax evasion. But behind every estimate lie workings. And some mean people, myself included, like to point out the errors in Ritchie's workings.

Now, in response to this, you could argue that it's just a rough estimate. Or you could go away and rework your estimate, taking account of the criticisms of your work, to the extent that they're valid.

What you don't get to do is to ignore the criticisms completely on the grounds that "it's just an estimate" while continuing to claim that it's the best estimate available. Because it quite patently isn't.

Filed under: Economics, Taxation with tags fucknut, idiots, richard murphy, tax evasion
3 Comments »

The Sunday Times has published the 2012 version of its annual rich list, with the news that the combined wealth of the richest 1,000 people in Britain has risen to record levels. Unsurprisingly, this has got a lot of people very upset. For example:

And many many others besides. But this is part of a wider folk narrative that presumes that the rich "stole" money from the rest of us, "avoided" tax on their ill-gotten gains and are basically "exploiting" the poor... forever.

That's misleading. Because there is no such thing as "the rich". There are merely people who have a lot of money. Although, unfortunately, the oldest list I can find easily is the 2007 list (thanks, Wikipedia!), you can see that not all those in the 2007 top ten are still there in 2012:

Those who are in one list but not the other are in bold. And that's just in 5 years. What would be the picture in 25 years? Of course, this is just the top ten, and some may have been just below that threshold in a particular year. But it does rather dispel the idea that "the rich" are a distinct group from the rest of us. People leave and join their ranks all the time. The hypothesis that they gained their wealth illicitly and held on to it illicitly, simply isn't supported by the evidence.

As a result, the notion that they're "not all in this together" also isn't supported. Sure, some people have done very well. And some people have done very badly, so much so that they're no longer on this year's rich list. Don't hate the rich; shed a tear for them. They pay a lot more tax than we do and - remember - in a losing year, they've got so much more to lose than the rest of us. 

Filed under: Economics, Politics with tags fail, sunday times, super rich, twitter, wikipedia
4 Comments »