But football clubs are already effectively owned by the players
Football does, as we know, come in a number of different forms and codes. It also comes in a number of differrent organisational forms. The way that leagues are formed, franchises handed out, how teams are promoted and or relegated. And the effect, at least as I see it, is that large numbers of clubs that are supposedly capitalist in their form are in fact workers' cooperatives. Which makes an argument about why there aren't such workers' cooperatives a touch difficult: for I'm asserting that there are. The argument comes from Paul Walker:
For me, yes. Right now I should be working on a revise and resubmit on a paper in which, in its conclusion, I argue why there are no worker cooperatives in football and in fact in professional sport more generally. So for me its "Football as a workers cooperative - or lack thereof". As Chris highlights football is a great subject for the application of economics, even the theory of the firm. When considering a football team we have a situation where human capital, talent at playing football, is the basis for the "firm" which we may think would favour ownership by the workers. When human capital is the major input into production ownership by, at least some of the workers, is common, e.g. partnerships in law and accounting etc. This was also true of pirates! The interesting thing for professional sports is that ownership by the human capital, i.e. the players, is extremely rare. This is, I would argue, because a worker-owned team would be at a disadvantage relative to a player-as-employee based team.
So far I agree except for the one point: that I think most clubs, European ones at least, are, in effect, workers' cooperatives. I agree entirely that in legal form they are not. There's a few fan cooperatives but no workers' ones. But pure legal form isn't quite, to my mind, the total definition. Of importance is to look at the flows of money. If the money flows as if an organisation were indeed a workers' cooperative then I'd be inclined to call it one even if the legal form wasn't so. And even a brief look at football club accounts shows that almost all of them make a loss almost all of the time. That's certainly not what we would imagine to be a defining feature of a seris of capitalist organisations. Further, the money all ends up in the pockets of the players.
I explain this in more detail here comparing US leagues with English. Put simply, US sports teams tend to make profits for they are organised as cartels. This restricts entry of new teams and there is no promotion or relegation. Thus, to be able to play the sport you've got to be accepted by one of those teams: this gives the team power over the player. UK soccer is not so organised. Here the competition is to stay (or get into) the top flight and movement by a team is possible. This gives much greater powers to the players for the supply of those capable of shining at the top level is now smaller than the demand for them. Thus any extra money coming into the sport (as we have seen with successive TV contracts etc) ends up flowing into the pockets of said players.
At which point I would be very tempted indeed to say that while soccer clubs do not have the legal form of a workers' cooperative the fact that all of the money, all of the profits and more leaving the "capitalist" owners with nothing but losses and pride, flows to the workers means that they are workers' cooperatives in fact.
Some 2014 budget nasties
The ASI has already given its response to the budget. We should also remember that the UK's fiscal position is basically unsustainable even if economic growth is sustainable - and I find that extremely hard to believe. The UK economy needs massive fiscal consolidation, supply side reform and sweeping tax cuts if it is going to prosper.
Moving away from those macro-type issues, there are some very troubling aspects to the 2014 budget that it seems worthwhile highlighting, if only to remind us of the madness that is UK public policy. You won't read much about these in the popular press, which is more concerned with bingo and beer.
Changes to annuities regulations will increase tax take in the short to medium-term
As this article points out, pensioners taking a lump-sum payment will still face very large tax charges which will make a tidy sum for HM Treasury
In the longer term, changes to pensions are being funded by higher taxes on contributions
The Chancellor has reduced the relief on higher rate income tax for pensions contributions. Osborne has reduced the cap on tax-free life-time savings from £1.5m to £1.25m. Sounds like a lot of savings, but given the current rate of inflation, this will probably be about average by the time a lot of current workers retire. Anyone breaching this cap will face a 55% tax charge, which promises to raise about £5bn for the Treasury. I won't spell out the long-term economic effects these sorts of raids on saving have on the UK's economic growth prospects, but people need to start recognising that we cannot have sustainable, real economic growth without savings.
HMRC has been giving sweeping new powers
As if the (much-ignored, but hugely significant) General Anti-Abuse Rule (GAAR) of 2013 hasn't given HMRC enough. Essentially, the GAAR grants HMRC the discretion to determine, retrospectively, what is 'reasonable' practice, which, as Jamie Whyte points out strikes at the Rule of Law. Less seriously, but dangerous from an investment perspective, is that it creates huge uncertainty in the UK's tax position.
HMRC has received a £1bn increase to its budget and powers to confiscate funds directly from individual's bank accounts. This is hugely worrying from a civil liberty perspective, but we should also bear in mind that reducing the level of tax avoidance (which is, or ought to be, legal behaviour) simply represents tacit increases in taxation, which already stands at very high levels.
Changes to the rules on LLPs have been pushed through
The changes, outlined here, threaten to have potentially serious tax consequences for LLPs. This is in spite of a request by the House of Lords that they be delayed because of the uncertain impact of the new measures.
New rules on SDLT are very problematic
The Chancellor has signally failed to change SDLT despite the huge 'fiscal drag' and distortions to the property market it creates. As property prices rise, this will increase - no wonder the Government is extending its 'Right to Buy' scheme! As this article points out: "In the 2012 Budget, Osborne announced that homes worth more than £2m would face a stamp duty rate of 7 per cent.
Osborne said: “We are expanding the new tax we introduced to stop people avoiding stamp duty by owning homes through a company. We will expand the tax on residential properties worth over £2m to those worth more than £500,000."
This is a smoke-screen, however, as individuals were using this to avoid IHT on properties, and not SDLT. The reliefs available for landlords are very difficult to obtain, and essentially these changes will result in higher tax charges on landlords, thereby increasing rents and reducing availability, in a rental market which is already unaffordable to many and is plunging those on middling incomes into 'housing poverty'.
Why get rich?
You might have seen this chart, which shows different professions' household income during childhood vs their income now:
A lot of people have focused on the fact that artists' incomes 'fall' more than any other group. It reminded me of this quote from the American Founding Father John Adams:
I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain.
A truly great observation by Don Boudreaux
We like Don Boudreaux on this blog, we do. And this is a good example of why we do for Don has teased out, elicited, this observation:
Perhaps you’ve made this connection before, but reading all your posts about the minimum wage and global warming this morning, I was struck by the paradox in the proposed remedies for these two problems by politicians. The first problem is income inequality, and the remedy is to set minimum contract terms. The second problem is externalities from carbon protection, and the remedy is to tax output levels. In both cases, the solution is to raise firm costs. The assumption driving the policy prescription for a Pigovian tax on carbon is the idea that higher costs will spur innovation in ways of reducing carbon output. Of course, that private firms subjected to higher costs will innovate in ways to reduce those costs is precisely the problem with minimum wage legislation, as you point out. This is an obvious point, but my mind never made the connection before.
Yes, I know, people get fidgety when I extoll the virtues of the carbon tax around here. And an entirely different set of people don't like us pointing out that of course a rise in the minimum wage is going to have unemployment effects. They might be small, they might be large, depends upon the rise, but they will be there.
But what Boudreaux's done here is to make the connection to the two policies so obvious.
We want a carbon tax (OK, those of who do want a carbon tax want one because) if does indeed make clear to people the costs of emissions. This clarity, this rise in price, will lead, at least we hope it will, to people reducing their emissions. This is what Osborne and Cameron believe with having a minimum carbon price, this is what Ed Miliband believed about his own earlier plans and it's what the EU and Ed Davey believe about the whole idea of emissions permits and people having to pay for them. Raise the price and people will economise.
But exactly and precisely this logic must prevail with the minimum wage. Raise the price of labour and people will economise on the use of labour. It cannot be any other way, can it? And what really grates is the way in which some will insist on the logic being correct for emissions but flatly reject that it can be true for labour.
At last Britain's private pension savers will be treated like responsible adults
At last Britain's private pension savers will be treated like responsible adults. The rule has long been that, apart from a proportion that can be taken as a lump sum on retirement, pensioners have had to convert their retirement pot into an annuity, paying them a lifetime income. The idea was to ensure that people do indeed have a lifetime income from their (tax-aided) retirement savings, and do not just spend it all at once and then fall on welfare. But as lifetimes have lengthened and financial uncertainty has abounded, annuity rates have fallen, leaving savers much worse off then they expected.
Indeed, pensioners used to be trapped into the annuity rates that happened to prevail on the day they retired, which for some was a disaster if rates had plummeted for some reason. But the current government has already eased that problem by saying that people do not have to convert to an annuity until age 75. And there were rules allowing retirees to 'draw down' some of their pension pot each year, giving them an annual 'income' without having to take out an annuity.
Now, Chancellor George Osborne is giving them greater flexibility still. From April 2015, retirees will be able to access their pension savings pretty much as they wish. Instead of being hit by a 55% tax if they took out 'too much', ordinary rates of tax will apply. So it all becomes much easier. You build up a pension pot while you work; on retirement, you can take 25% of that tax-free (a provision designed to help people with moving costs and other changes on retirement); then you can decide whether you will buy an annuity, draw down the pot at a set rate, or withdraw the whole sum, facing tax only at the prevailing marginal rate.
People of course will need advice on which of these options will be best for them, and the government is making the insurance industry stump up the cost of that. Which does not seem so unfair – it is reasonable that product providers should tell you how best to use their products.
Pensions cause problems for libertarians. Why should a particular form of saving be given special tax treatment, and then hedged around by all sorts of complicated rules, they quite reasonably say. The trouble is that when you have a welfare system, you inevitably are sucked into some such arrangements.
It's not that pensions have a 'favourable tax treatment' exactly. The original concept was that if you were not taking part of your annual income but were 'deferring' taking it until you retired, then it was unreasonable to charge you income tax on the income you had not yet drawn. It would be taxed only when you retired. But then you needed rules to prevent people just spending all this untaxed cash on retirement, then presenting themselves as a charge on welfare – so-called 'double dipping'. And hence the mire of rules.
Most people, though, are perfectly capable of managing their retirement income and do not want to fall back on the state anyway. The new rules recognise that. On the rare occasions when governments treat us like adults, they should be encouraged.
Something of a blunder from Oxfam here
They have a new little reportette out. Their instructions to George Osborne on what to do in the Budget. And it contains something of a howler. I've been chatting to them this morning about it and still haven't managed to get them to see what they've done wrong here.
The scale of Britain's growing inequality is revealed today by a report from a leading charity showing that the country's five richest families now own more wealth than the poorest 20% of the population.
This is true of course. But it's absolutely nothing at all to do with increasing inequality. It's also nothing at all to do with the calculations that they use:
In a report, a Tale of Two Britains, Oxfam said the poorest 20% in the UK had wealth totalling £28.1bn – an average of £2,230 each. The latest rich list from Forbes magazine showed that the five top UK entries – the family of the Duke of Westminster, David and Simon Reuben, the Hinduja brothers, the Cadogan family, and Sports Direct retail boss Mike Ashley – between them had property, savings and other assets worth £28.2bn.
They got their numbers on the wealth owned by the poor from an IFS report. Which was actually about income inequality, not wealth. And they've then managed to overlook something really quite important.
If you've no debt and a £10 note then you, yes just you on your lonesome, has more wealth that the bottom 20% of British society in its entirety.
For it's possible to have negative wealth, d'ye see? In fact, negative wealth is a normal part of every life cycle. That newly minted graduate carrying student loans? Highly likely to have negative wealth. You've just splashed out on a new car on HP? The moment you drive it off the forecourt the depreciation means the debt is greater than the value of the asset: if you've no home equity then this could be enough to make your wealth negative. You can have a very nice income, hundreds of thousands a year even, and carry debt higher than the value of your assets. Sadly it's not true that all of us will have an income of hundreds of thousands a year but except for a lucky few it's almost certain that we will at some point have negative wealth.
Given the lifecycle of wealth it's entirely normal, possibly even entirely desirable, that the bottom 20% of the population in wealth terms will have negative wealth.
So Oxfam is actually correct in their assertion here. But entirely wrong in the method by which they've reached it.
Adam Smith tells us about the private financing of science
The New York Times has one of those very New York Times pieces about the funding of science. They note that the usual cast of billionaires are upping their spending upon scientific research. The problem with this is that, according to the New York Times at least, this means that people get to fund the sort of research they like to fund rather than fund research that meets the approval of the sort of people who run government and the New York Times.
Imagine that, people being able to do what they wish with their own money and without the wise council of the NYT? Horrors, eh?
They do note that the initial effect of the influx of money is good. Then they start to worry about the following:
The issues are considered social as well as intellectual, and so, in their own grant-making decisions, federal agencies strive to ensure that their money does not flow just to established stars at elite institutions. They consider gender and race, income and geography.
That's actually an excellent example of why we should welcome this private funding of science. For as Adam Smith pointed out:
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.
Which means that we want to get the most and the best science done for our cash regardless of gender, race, income or geography. And then there's an even larger mistake:
The official reticence about private science may reflect, in part, a fear that conservatives will try to use it to further a small-government agenda. Indeed, some of the donors themselves worry that too much focus on private giving could diminish public support for federal science. “It’s always been a major worry,” said Robert W. Conn, president of the Kavli Foundation, which has committed nearly a quarter of a billion dollars to science and is part of the private effort to increase financing for basic research. “Philanthropy is no substitute for government funding. You can’t say that loud enough.”
But it is exactly a substitute. For the basic problem here is that scientific research, or at least the results from it, is a public good. It's non-rivalrous and non-excludeable meaning that it's very difficult indeed to make a profit from it. Thus there will be too little private investment in this sphere. This is the argument in favour of government funding of science, that scientific results are a public good. But if we can gain private finance, despite the public good problem, then we've solved that public good problem, haven't we? And therefore private funding, to the extent that it happens, is indeed entirely and actually a substitute for government funding.
To the extent that science is getting private funding this is indeed the perfect argument in favour of cutting public funding. And given the increased efficiency coming from not having to worry about race and gender perhaps cutting by more than is donated.
This is why the nef is known as not economics frankly*
There is good reason to wonder about the new economics foundation, nef, and they've given another one of the interesting data points today. They're arguing that climate change forecasts are more accurate than the economic forecasts that we use to try to plan the economy.
In fact, climate forecasts are actually outperforming many of the key economic forecasts cited by government departments and journalists. Looking at a selection of key long-term forecasts – population, debt-to-GDP and oil price – we can see that not only do many of the actual observations fall well outside the forecast range, the expected trend was way off the mark as well. But have you ever heard these measures condemned as “mumbo jumbo” in the media? Common sense tells us that public policy decisions must be based on the information and tools we have available. What our new paper makes clear is that climate change forecasts offer just as much, if not more certainty as long-term economic forecasts. The argument that climate science is just too uncertain to inform long-term spending decisions can no longer be used as intellectual cover.
Let us leave aside one little problem, which is that they seem to have forgotten (OK, that assumes they ever knew) that the IPCC climate papers are based upoon a foundation of economic forecasts. Which they must be of course. The SRES, that set of recasts, is needed because we need to have the number of people, how wealthy they are and what energy generation technologies they're using to be able to calculate what emissions are going to be. So, any accuracy concerning the IPCC reports on such matters is in fact because of the accuracy of the earlier economic forecasts.
But let us, as I say, leave this aside. Let us instead consider what they think that they're telling us.
We have distinct problems in coming up with sensible plans for dealing with climate change even though that information and those forecasts are better then the usual economic ones. So, where does this leave the usual nef idea that we should be planning our economy? Presumably wandering around in hte dark of insufficient information to be able to plan anything at all.
Which does, I'm afraid to have to point out, seem to put the total kibosh on everything else the nef has ever said about anything ever.
*Originally coined by Giles Wilkes who is currently buried in the anonymity of SpAdism.
The surprisingly Hayekian Charles Koch
This is an interesting interview with Charles Koch. Yes, he of Koch Industries, according to some the antithesis of all that is democratic (and certainly Democratic) in the US economy. He's very Hayekian for example:
The expansion seems like a vote of confidence in Wichita when other large companies — Boeing, Coleman’s corporate headquarters — are moving away. What makes Wichita a good fit for Koch Industries? How’s that worked for them? People underestimate the tacit knowledge, the local knowledge that people ... it’s the way people think about government, “The Fatal Conceit,” that a few geniuses are telling everybody what to do — it doesn’t work that way. The people who make it go are the people doing the work who have the hands-on knowledge. And all you can do at the top is set a vision and standards and try to hire the right people. And then they make it happen. That’s what so many companies are missing and what I think we’re missing in the country in a big way.
That is of course a direct reference to Hayek there but I have a very strong feeling that there's more to it than just having read the book. 47 years as a CEO is likely to give you some opinions on how business and companies really work over and above what one might have read in an academic study.
And this is lovely:
I think one of the biggest problems we have in the country is this rampant cronyism where all these large companies are into smash-and-grab, short-term profits, (saying) how do I get a regulation, we don’t want to export natural gas because of my raw materials ... well, you say you believe in free markets, but by your actions you obviously don’t. You believe in cronyism. And that’s true even at the local level. I mean, how does somebody get started if you have to pay $100,000 or $300,000 to get a medallion to drive a taxi cab? You have to go to school for two years to be a hairdresser. You name it, in every industry we have this. The successful companies try to keep the new entrants down. Now that’s great for a company like ours. We make more money that way because we have less competition and less innovation. But for the country as a whole, it’s horrible.
And for disadvantaged people trying to get started, it’s unconscionable in my view. I think it’s in our long-term interest, in every American’s long-term interest, to fight against this cronyism. As you all have heard me say, the role of business is to create products that make people's lives better while using less resources to do it and making more resources available to satisfy other needs. When a company is not being guided by the products they make and what the customers need, but by how they can manipulate the system — get regulations on their competitors, or mandates on using their products, or eliminating foreign competition — it just lowers the overall standard of living and hurts the disadvantaged the most. We end up with a two-tier system. Those that have, have welfare for the rich. The poor, OK, you have welfare, but you’ve condemned them to a lifetime of dependency and hopelessness.
Not that I tend to get offered the chance to have a beer with a billionaire but I can imagine that if it did happen we'd bore each other stupid by agreeing with every word the other said.
For that is indeed exactly the point. Large companies just love regulation because it prevents the upstarts from disrupting their comfy businesses. Being anti-regulation is therefore determinedly pro-poor: not that you'll ever get one of the Statists to believe or admit it.
Think piece: Bitcoin and the English legal system
Commercial lawyer and ASI Fellow Preston J. Byrne explains why, despite the cries of his inner libertarian, more government involvement in Bitcoin would be a step forward for the cryptocurrency-cum-payment-system, rather than its end.
When Mt. Gox went offline last week, taking half a billion dollars’ worth of bitcoin with it, many of the cryptocurrency’s public advocates – some of whom lost “life-changing” sums – moved swiftly to its defence. Erik Voorhees’ rallying cry, in particular, was a standout piece of Austrian rhetoric, warning against the near-universal social-democratic impulse to “cry out for Leviathan’s intercession” to remedy every petty inequity and misfortune.
This reaction should not be a surprise. Many early adopters, and practically all bitcoin users I know personally, are libertarians (Roger Ver, in his video-recorded post-Gox appeal for calm, can even be seen wearing a voluntaryist lapel pin). Many are mathematicians; few are lawyers. From this outside perspective, I’ve therefore arrived at a conclusion with which most of them will disagree.
To achieve its full potential, cryptocurrency needs a legal system in the traditional sense. It therefore needs a state.*