Taxes on beards and other unusual items

On September 5th, 1698, Tsar Peter 1st of Russia imposed a tax on beards. He wanted to Westernize his country, and thought the clean-shaven look favoured by the European nations was a symbol of modernity. He exempted the clergy and the peasantry, though. Men with beards had to carry a beard token to prove they had paid the tax, or they would be shaved on the spot by officials. This was an unusual tax, not only for what it was levied on, but because it was specifically designed to change behaviour. All taxes change behaviour, even though most are levied to raise revenues. Peter’s beard tax was designed to make growing a beard a more costly activity, in order to discourage it.

The UK’s 1795 wig powder tax was imposed for revenues, taxing the aromatic perfumed powders that people put on the wigs that were then fashionable. The extra cost that added led to a steep decline in the popularity of powdered wigs, and their eventual disappearance.

The famous window tax of 1696 led people to brick up windows in the UK in order to reduce the tax band their home fell into.  The 1660 fireplace tax similarly led people to brick up fireplaces. The brick tax, introduced in 1784 to help pay for the American wars, was initially charged at 2s..6d per thousand bricks, but canny builders began using larger bricks to use fewer of them. The authorities responded by slapping a larger tax on bigger bricks.

Britain’s soap tax was very unpopular, largely because it added two-thirds to the price of the coarse soap used by the poor, but a trivial mount to the refined and scented soaps of the rich. After a campaign against it, it was repealed in 1833.

France’s salt tax, known as La Gabelle, was even more unpopular, and opposition to it is reckoned to have been a contributing factor to the French Revolution. It was levied on the salt the French used for preserving food, making cheese, and raising livestock, and hit the poor hardest. The post-Revolution National Assembly abolished it in 1798, but Napoleon restored it in 1806, and it was not finally abolished until 1945, after World War II.

Taxes do tend to hang around. In 1902 Kaiser Wilhelm II introduced a champagne tax to fund an imperial navy and widen the Kiel Canal for it to sail along. The Grand Fleet is long gone, decaying relics on the ocean floor, but the champagne tax fizzes on.

Exotic UK taxes have included its 1784 hat tax and its 1789 candle tax, but Denmark probably wins the prize for the most exotic with its cow flatulence tax. Since cow-produced methane is reckoned to be a significant contributor to greenhouse gases, Danish farmers are subjected to a levy of $110 per cow. Needless to say, it created outrage among Danish farmers when it was introduced.

Taxes always change behaviour, and sometimes in unanticipated and unwanted ways. Increases in tobacco duty, for example, lead to increases in smuggled and fake brand cigarettes that are easier for underage smokers to access.

It is quite likely that the widespread adoption of taxes on income and purchases has created ways for governments to finance their activities without resorting to exotic taxes on strange items. But even here, it should be noted that taxes change behaviour, and higher top rates of income tax drive people into tax avoidance. Similarly, high rates on purchased goods lead to smuggling across borders and sometimes to cash purchases that are off the books.

The moral, if there is one, is that governments should use dynamic modelling that anticipates, where possible, the behaviour modifications that tax changes might lead to. It could make governments more cautious about levying new taxes or raising existing ones.

It's not just our government having problems

It appears that New Zealand suffers too:

The New Zealand government has scrapped its target to build 100,000 homes in 10 years, saying it was “overly ambitious”.

Do tell.

In June, Ardern replaced her housing minister and appointed a team of senior officials to fix New Zealand’s housing problems after KiwiBuild, the government’s flagship project for building 100,000 affordable homes in ten years, missed every several deadline.

As of 4 September, the number of homes built was 258, according to KiwiBuild’s website – thousands less than the target.

Certainly market failures exist - although the definition, accurately, is the absence of a properly functioning market, not failure of the market system. That doesn’t then justify whatever plans the government might have, for government failure is also something that exists.

Woods did not set any new target for KiwiBuild, saying the government would focus on building as many homes as it could, and targets had led to KiwiBuild homes being constructed in towns such as Wanaka that had no market for first-home buyers, and where they now languished empty for months.

Ah, it’s worse, those that were built are where no one wants any.

From which a useful guide to our own housing problems. The stated desire is that we have 300,000 new houses a year in the UK. The last time the private sector managed this was in the 1930s - before the Town and Country Planning Act 1947. Current government efforts are getting nowhere near close to that target. The solution would therefore seem to be to bypass government failure, blow up the Town and Country Planning Act 1947, and return to having a properly functioning market.

After all, we do have the evidence that it solves the problem being discussed.

Maybe Guido Fawkes was right: prorogation is not enough

The Trade Bill is important to securing trade agreements post Brexit.  No strategic matters are involved, just a bit of tidying up: “Make provision about the implementation of international trade agreements; to make provision establishing the Trade Remedies Authority and conferring functions on it; and to make provision about the collection and disclosure of information relating to trade.”

The 2016 Referendum made it clear that this administrative clean up was necessary and urgent so our Lords and MPs, so essential to our democracy, set to work. Three years on and after thirty odd sittings (see below), they have achieved precisely nothing, perhaps as a remainer plot. The Trade Bill is now likely, as a result of prorogation to go into the bin. Maybe that is irrelevant as the current version of the bill is in the “Ping Pong” stage which refers to the two chambers batting the bill to and fro with only slight changes in the wording. This can go on for ever. No date is arranged for the Commons to consider it again.

The Secretary of State, Liz Truss MP, has now declined the International Trade Select Committee’s invitation to discuss the matter. Presumably she sees little point in sitting in front of prevaricating MPs and being lambasted for something which is Parliament’s fault and not the government’s.

Stage	Date
1st reading: House of Commons	07/11/2017
2nd reading: House of Commons	09/01/2018
Money resolution: House of Commons	09/01/2018
Programme motion: House of Commons	09/01/2018
Committee Debate: 1st sitting	23/01/2018
Committee Debate: 2nd sitting	23/01/2018
Committee Debate: 3rd sitting	25/01/2018
Committee Debate: 4th sitting	25/01/2018
Committee Debate: 5th sitting	30/01/2018
Committee Debate: 6th sitting	30/01/2018
Committee Debate: 7th sitting	30/01/2018
Committee Debate: 8th sitting	01/02/2018
Report stage: House of Commons	17/07/2018
3rd reading: House of Commons	17/07/2018
1st reading (Hansard): House of Lords	18/07/2018
2nd reading (Hansard): House of Lords	11/09/2018
Committee: 1st sitting (Hansarad): House of Lords	21/01/2019
Committee: 2nd sitting (Hansard): House of Lords	23/01/2019
Committee: 3rd sitting (Hansard): House of Lords	30/01/2019
Committee: 4th sitting (Hansard): House of Lords	04/02/2019
Report: 1st sitting: House of Lords	06/03/2019
Report: 2nd sitting (Hansard): House of Lords	13/03/2019
3rd reading (Hansard): House of Lords	20/03/2019
Ping pong	TBC

How Google changed the world

Google was incorporated 21 years ago, on September 4th 1998. It had begun life in 1996 when two Stanford PhD students, Larry Page and Sergey Brin, thought up a better way of making searches. Instead of counting the search term’s appearances on the page, they wanted a system that analyzed the relationships among websites. They called it PageRank, and it determined a website's relevance by the number of pages, and the importance of those pages that linked back to the original site.

The name was later changed to Google, which is how they mistakenly thought a googol was spelt. A googol is the number 1 followed by a hundred zeros. They chose the name to indicate that the search engine was intended to provide an enormous amount of information. It was initially funded by four ‘angels,’ one of whom was Jeff Bezos of Amazon. They moved to Palo Alto six months after incorporation, and they never looked back.

I met both Larry Page and Sergey Brin at a Soyuz launch in Kazakhstan 10 years after they founded Google, and was struck by how boyish they were. I’ve observed this in several go-getting entrepreneurs; they seem to retain a boyish sense of enthusiasm and fun throughout life. Both were already fabulously rich, and destined to become more so. In 2012 the company passed the $50bn mark in annual revenue. Two years later it was reckoned that if it were a country, it would rank 70th in the world in terms of riches, richer than 123 members of the United Nations.

Its name has passed into language, with the verb “to google” defined in dictionaries as "to use the Google search engine to obtain information on the Internet." People use Google Analytics to track their site’s popularity. They use YouTube, owned by Google since 2006, for video viewing and sharing. They use Gmail for e-mails, Google Maps to find locations, Google Drive for cloud storage, Google Chrome as their web browser, and many use the Android mobile operating system Google developed. And, of course, there’s hardware in the shape of a smartwatch, TV, and soon a driverless car.

Their story has not been without issues. Google Glass raised privacy issues from people not wanting to be under surveillance and filmed by strangers without their consent. Their obedience to China’s Great Firewall of internet censorship blocks access by Chinese people to much information about the world outside.

The European Commission imposed a €1.49 billion fine on them for “acting unfairly” against rivals for online advertising, though many think this is just the EU attempting yet again to have funds paid direct to it instead of via national governments, just like their proposed Financial Transfer Tax. Perhaps more seriously, the United States Department of Justice announced in June that it would investigate Google for antitrust violations.

Google's corporate philosophy, however, is benign. They have mottos such as "you can make money without doing evil," "you can be serious without a suit," and "work should be challenging and the challenge should be fun." The company cultivates a laidback air that softens the edges of a very competitive organization.

It has made me very much more productive, and more knowledgeable. Previously when writing books I had to research my way through piles of books, whereas now I look up on line what I need to quote or to refer to. When I encounter something I don’t know, I look it up. Yet hardly any of this shows in GDP. It is a similar case with other online sites. They enhance life without showing in the economic figures. If someone had the same real-terms income they had twenty years ago they would be very much better off than they were then because of all of the developments that have added value to life. It rather suggests that GDP is at best a somewhat crude measure of economic performance.

The Environmental Kuznets Curve And The Thames

We have the news that seals are happily gambolling, frolicking and breeding in The Thames these days:

In 1957 the River Thames was so heavily polluted it was declared “biologically dead” by the Natural History Museum leaving hope for marine life lost.

But now, more than 60 years after the museum's dismal proclamation, experts have counted over 100 seal pups on the river’s shores.

Scientists from the Zoological Society of London (ZSL), an international conservation charity, were "thrilled" to discover 138 pups on the sandbanks and creeks of the river in what is the first ever comprehensive count of the offspring.

There have been salmon in the river again for the past couple of decades too. All of which goes to prove, once again, that contention of the Environmental Kuznets Curve. When people are struggling just above the subsistence level the grander environment can go hang. As we get richer then we spend more of our rising incomes on that clean and wondrous Nature out there. The environment is a luxury good that is. No, not a luxury, a luxury good, go look it up.

In this case we built sewers and treated whatever water did enter the river.

From which stems two important points. The first being that the environment is not a damage once and lose forever sort of thing. Entirely true that losing the megafauna is possible and we’d like to avoid that.

The second point being that perhaps we shouldn’t be insisting that today’s poor remain so rather then their being able to do what we did. Those scrub - note, not forest - fires in the Amazon, those reeking rivers elsewhere, they’re not eternal damage to Gaia. They’re rather pimples on the face of nature which fade as the economy leaves its teenage years. Inevitable as they happen yet an unfortunate but necessary part of the process.

Of course, the process isn’t perfect. We cleaned up the Great Stink of the river as it passed through Westminster but we’ve still got work to do on the cesspit in the Palace beside it.

When Sweden switched driving lanes

I happened to be in Sweden on September 3rd, 1967 to witness a day unlike any other. It was "Dagen H," or "Höger Day," the day on which Swedish road traffic switched from driving on the left to driving on the right. I had witnessed the razzmatazz leading up to it, the campaign to raise public awareness and to prepare people for the changeover. The Dagen H logos were everywhere, on cakes in shop windows, baked in its hexagon shape, iced in black with yellow edges, and with a yellow H in the middle. The other logo, the blue and white one showing a white arrow switching from left to right, appeared on milk cartons and even underwear. There was a TV contest for the best song about it.

Why did they do it? It was because their Nordic neighbours such as Norway and Finland drove on the right, and because most Swedish cars were left-hand drive. On narrow Swedish roads it made it hard for drivers to see oncoming vehicles. It was not a popular move, however. A 1955 referendum had shown 83% opposed to a change, but the Swedish government decided it knew better and did it anyway, and the Swedes fell into line.

It was a massive project, involving replacement of 350,000 signs and repainting the lines on the roads. Each intersection had new poles erected, covered in black plastic until the big day. New road lines were painted in white, instead of the traditional yellow, then covered with black tape until the day of the change.

On Sunday September 3rd, all non-essential traffic was banned from 1.00am to 6.00am. Any vehicles that were on the roads had to stop at 4.50am, cautiously switch sides, then stop again to avoid colliding with others doing the same. Work crews laboured throughout the night removing covers from the new signs and covering up the old ones. The black tape on the roads was removed to reveal the new white lines.

An amusing sight greeted me the next morning. Cars were crawling along at 15mph with headlights blazing. Teenagers in uniform were stationed at intersections, directing traffic with huge flags, one yellow and one black. Everyone seemed very nervous, though there was much goodwill as people helped and directed each other.

It was costly. Apart from the infrastructure changes, over 1,000 new buses had to be bought with doors on the right-hand side, and 8,000 older buses were modified to have doors on both sides. Trams in Sweden's major cities had to be withdrawn and replaced by buses. Was the cost justified? The answer appears to be no in terms of traffic accidents. While there was an initial fall of 40% in motor insurance claims as everyone drove more cautiously, it did not last. Over the next 6 weeks the accident levels rose to the previous levels, and by 1969 they were back to where they were before.

If the aim was to make Swedish driving more in harmony with the rest of the world, it had limited effect. It aligned them with most of Europe and the USA, and Iceland, which did the switch 8 months later, but left many nations still driving on the left, including major ones like India, Japan and Australia, and of course the UK, plus many Asian and African ones. Former colonies that still drive on the left include Kenya, South Africa, Zimbabwe, Lesotho, Botswana, Malawi, Zambia, Namibia, Swaziland, Uganda, and Tanzania, Mozambique and Mauritius. In Asia they include Singapore, Pakistan, Indonesia and Sri Lanka, and Thailand that was never colonized.

The lines of Robert Southey's "After Blenheim" spring to mind.

"But what good came of it at last?" Quoth little Peterkin.

"Why that I cannot tell," said he, "But 'twas a famous victory."

It took a huge commitment for 4 years, unprecedented manpower and resources, and it caused major dislocations. Yet if Sweden had not done it, it is doubtful if it would have been adversely affected. It's what government planning and projects often do.

There's an epilogue of sorts. I was in Sweden at the time of the 2003 referendum on whether they should join the euro. I was invited there to help the "Nej" campaign. Despite the support of virtually all parties and the media, it went down pretty well everywhere except Stockholm County. It was non-binding, but this time the Swedish government chose not to override their electors. Of course, the EU may yet compel them to do so at some stage…

Benefits haven't kept up with inflation - good, excellent work

Citizen’s Advice has a new report out claiming that those on benefits have been affected by the benefits freeze. This sounds logical enough to be honest, if benefits haven’t been upgraded for inflation then they will be worth less in real terms. The question is, well, should this be so?

Benefits freeze leaves a third of claimants 'with £100 to live on a month'

That’s not actually true, it’s not even close to being true.

More than a third of people affected by the Conservative government’s freeze on benefits have less than £100 a month to live on after they have paid rent and bills for food, council tax and gas and electricity, according to the Citizens Advice service.

That could well be, the interesting question being should it? The actual claim itself is weaker again:

The charity is calling for increased financial support for people claiming benefits as it finds almost two in five (39%) people who claim have less than £100 at the end of each month, after paying for rent or their mortgage, food, council tax and household bills.

We can look at this in absolute terms. £100 a month is £1200 a year, which is in the top 50% -ish of all global incomes. How appalling is it that people get, after all the bills are paid, pocket money greater than the total incomes of half the planet?

We can also look at this in relative terms. As ONS tells us:

Earnings, excluding bonuses, are lower than before the 2008 to 2009 recession after adjusting for inflation

Sure, we can argue that if everything had been done differently then this wouldn’t be so. But if everyone’s incomes are lower in real terms then shouldn’t those on benefits also be? After all, the benefits do have to be paid out of the incomes of those not on benefits.

And then to the truly interesting question. What evidence do we have that the previous level of benefits, before they diminished in real terms, was the correct one that people should have been getting?

How the UK pension system is a massive Ponzi scheme

Charles Ponzi was born in Italy in 1882 and immigrated to Boston in 1903. In January 1920 he set up a small scheme that involved buying vouchers for cheap postage stamps in Italy which could also be exchanged for more expensive stamps in the United States - thus making a profit from the difference. However, he soon realised he could make a lot more money by using new money from new investors to pay returns to old investors. This delivered high returns to investors and thus grew incredibly popular and thus even more rewarding. However, it eventually collapsed on the 11th of August when it all came to light on the front page of the Boston Post.  

However, the central idea of the scheme of relying upon income from new investors to pay old ones ("robbing Peter to pay Paul") sounds slightly familiar - oh wait - that’s how our pensions work.  HM Treasury is running a £164.6 billion a year Ponzi scheme.

The state pension - in its current incarnation - relies upon current taxpayers to pay for the pensions of the elderly. In practice, this is a transfer system moving money from young taxpayers to the retired elderly. 

One of the first problems with this is that it is very vulnerable to demographic changes (specifically longer life expectancy). When the retirement age was fairly close to life expectancy then there may have been as many as 8 taxpayers per pensioner. However, as life expectancy has increased there may be only 4 taxpayers per pensioner. This results in either the taxpayers having to pay considerably more money in order to fund the same standard of living for the pensioner, the pensioner having to take a cut in their pension, or an increase in the retirement age to cut costs. The government will likely try to steer a middle way between the three options to spread the political fallout of such unpopular decisions. The result of this will be that each new generation will have to pay more in contributions, retire later and receive less in actual pension allowance. So a great deal for us to look forward to. 

Private pensions on the other hand are much more effective and much fairer. Firstly, they are not a Ponzi scheme but instead rely upon income that you save over your working life in addition to the interest that you gain on this invested income. This means it grows to be more than what you simply put in. Secondly, investing this money provides a lot of financial capital that can help firms finance projects helping to make the economy grow. Thirdly, state pensions are controlled by those whose self-interest is to be re-elected (and, in the case of conservatives, heavily reliant upon the elderly vote) and therefore are unlikely to try and make the tough necessary decisions to ensure its survival. Private pensions, on the other hand, are managed by private wealth managers who are motivated by competition to deliver the best long-term return on your savings thus working more in alignment with your own interest. 

In addition to this, the state pension provides an incentive against investing in a private pension. While many argue that the state pension is to supplement a private pension to ensure against old-age poverty it has evolved into something else. In fact, this is what it was originally meant to do as the 1908 Old-Age Pensions Act provided 5 shillings a week (slightly more if a couple) to those over the age of 70 whose annual means did not exceed £31 and 10 shillings. 

The argument for the state pension is that it is to supplement the private pensions in order to ensure that no-one suffers from old age poverty. But the state pension provides an incentive not to save more in a private pension. Most people work off the idea that there is a certain allowance they are happy retiring with. Therefore, if the state increases their expected allowance they will simply reduce the amount they put into their private pension. No matter how much the government promotes schemes to get more people to save it would never be as effective as removing the state pension. 

It is hard to change the system. To abolish state pensions overnight would leave millions in the lurch - to say the least. On the other hand, to abolish pensions in the future would mean those going into work now would have to pay for others’ pension but never get one themselves. Nonetheless, it is still a good idea to try and reduce the allowance many will receive in their state pensions to incentivise them to save more - and to reduce the burden on taxpayers. To do nothing will likely result in the whole thing crashing down, just as it did with Ponzi and his scheme. 

London’s burning, London’s burning

London has seen many momentous events in its chequered history, but perhaps none more so that the Great Fire that began at a baker’s on Pudding Lane on September 2nd, 1666. It spread rapidly and consumed most of the City of London (the central parts of London). In its four days it burned an estimated seven out of every eight homes in London’s central district, together with 87 parish churches and St Paul’s Cathedral.

London’s wooden homes and thatched roofs were tinder to the flames, and the riverside stores of pitch, tar, sugar, alcohol and turpentine fed their hunger. The battle to contain it was helped when the strong winds abated, and the fire-breaks created by the Tower of London garrison’s use of gunpowder stopped it spreading further East.

Recorded casualties were light, with some accounts recording 6 deaths, others 8, though many more poor people may have been burned or suffocated, with their deaths unrecorded. This is insignificant compared to the 100,000 deaths suffered a year earlier in the Great Plague of 1665, perhaps up to a fifth or even a quarter of London’s population. Some historians suggest that the fire extinguished the Bubonic Plague by destroying the unsanitary housing and killing most of the rats and fleas that spread it.

Scapegoats were needed, and when Robert Hubert, a simple-minded French watch-maker confessed to staring the fire on the instructions of the Pope, he was convicted and hanged, despite concerns that he lacked the mental competence to plead. It later emerged that he had been at sea when the fire started and hadn’t reached London until two days afterwards.

London changed in the aftermath, with new houses built upon wider, less crowded streets that gave more access. Christopher Wren built 50 new churches to replace those lost, including, most famously, St Paul’s Cathedral. Close to Pudding Lane, where the fire started, a 200-foot Doric column was erected, now called simply, “The Monument,” which gives its name to the nearby tube station.

Fires and other calamities bring death and destruction, but they bring in their wake the opportunities to rebuild and renew. The Nazi blitz destroyed much of the slum housing of Britain’s city centres, but cleared the space to replace it with something better. Coventry Cathedral was destroyed, but the new one designed by Sir Basil Spence stands resplendently in its place. Much of Notre Dame was destroyed earlier this year, but the determination is there to build it anew.

Humans learn from their misfortunes, and after the setbacks and the suffering they construct new and more durable systems to replace what was lost. We do this after physical calamities such as the Great Fire, we do it after disastrous epidemics and natural disasters, and we do it after social and economic collapses such as the Great Depression. We are resilient, and we rise up from misfortunes. We learn, we replace and we improve.

As Will Hutton says there is merit in a written constitution

Will Hutton wishes to blame everything - including, obviously, Brexit - on Britain’s lack of a written constitution. We’ll agree that there can be merits to having it all written down so that the plain man can understand it. By analogy, the Protestant view of the Bible, in the vernacular and anyone can read it, rather than the Catholic where only the elite may do so. Requiring, obviously the intervention of that priesthood to interpret it:

It is only unwritten, uncodified understandings that protect the body politic from regressing to government with minimal checks, balances and accountability. They in turn depend upon a political class that, whatever its differences, accepts common rules of the game, especially making sure that any recourse to direct democracy by referendum is firmly subordinated to rule by parliament.

Quite so Mr. Hutton, quite so. When it’s all written down in plain and simple language then we are not in some miasma of a fog of having to fight the establishment to get something done. The direct word of the people can at least be heard.

It is but one of the many constitutional earthquakes triggered by Brexit whose aftershocks will be felt for decades. Even the character of the referendum itself is testament to our lack of a constitution......What is happening is the culmination of a rightwing coup that has deployed the weakness of Britain’s constitution to drive through toxic, divisive change, the manipulated will of the people trumping representative democracy. .....The citizenry had become disillusioned with the parliamentary process, so that direct democracy seemed more democratic......Last week demonstrated that instead the constitution is fundamental. .....After last week’s events, which enraged the bravest and best in the Tory party, Corbyn has a chance to build on the emerging coalition for legislation and make his offer again, but copper-bottoming it constitutionally as an alternative to Johnson. As interim prime minister, he will exercise no prerogative power, introduce no new policies, wholly respect every constitutional protocol and commit to hold a fully-fledged constitutional convention after the election.

Well, yes, and take that as you wish. But there’s a logical failure in this argument.

EU law beats British, that’s what the European Court of Justice is for. Thus our treaty with, or perhaps creating, the EU is part of our constitution. And it contains this. Article 50. Which opens with:

Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

In so far as we’ve got bits of the constitution written down that’s part of it. Thus what Hutton is really complaining about, that the people, damn them, have decided to exercise their rights under that very written constitution he blames events upon the lack of.

Take Brexit either way you wish but Hutton’s wish for a written constitution in full is one of those things where he might not like getting what he wishes for. For writing down all the rules means that those who don’t like them have both an explanation of them and the target as to how to change them. For example, if Article 50 didn’t exist how could we have had a referendum in the first place?

We agree that plain and simple explanations of the societal rules are important. We just wish to point out that having such might not chime with the desires of those who benefit from our current lack of them.