Here's my Top 10 links from around the Internet at midday in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read today is #9 on what's really going on in China for the people on the ground.
1. The myth of the rich who flee their taxes - James Stewart writes at the New York Times about the idea that high tax rates simply drive the wealthy 'wealth creators' over the border to a country or state with a lower tax rate.
Gerard Depardieu's high profile flight to Russia's 13% flat tax rate after France imposed a very high tax rate on the very wealthy certainly grabbed the headlines.
We've had a few people say the same here.
But is it true?
Do lots of people actually move for tax reasons?
It turns out not to be the case.
Here's Stewart:
It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away. As Stuart Varney put it on Fox News: “Look at what happened in Britain. They raised the top tax rate to 50 percent, and two-thirds of the millionaires disappeared in the next tax year. Same things are happening in France. People are leaving where the top tax rate is 75 percent. Same thing happened in Maryland a few years ago. New millionaire’s tax, the millionaires disappeared. You’ve got exactly the same thing in California.”
That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.
Despite the allure of low taxes, Mr. Depardieu hasn’t been seen in Russia since picking up his passport and seems to be hedging his bets by maintaining a residence in Belgium. Meanwhile, Russian billionaires are snapping up trophy properties in high-tax London, New York and Beverly Hills, Calif.
“I don’t hear about many billionaires moving to Moscow,” said Robert Tannenwald, a lecturer in economic policy at Brandeis University and former Federal Reserve economist. Along with Nicholas Johnson, he and Mr. Shure are co-authors of “Tax Flight Is a Myth,” a 2011 research paper.
2. WalMart's monthly sales disaster - Bloomberg reports early February has been very tough for some retailers in America after an increase in payroll taxes. It's early days, but worth watching.
“In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal- Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.”
Wal-Mart and discounters such as Family Dollar Stores Inc. are bracing for a rise in the payroll tax to take a bigger bite from the paychecks of shoppers already dealing with elevated unemployment. The world’s largest retailer’s struggles come after executives expected a strong start to February because of the Super Bowl, milder weather and paycheck cycles, according to the minutes of a Feb. 1 officers meeting Bloomberg obtained.
Tax competition may sound like anarchy, but there’s more to be said for it than you might think. International companies have so much discretion in allocating costs and revenues across their dispersed units that the corporate tax base is unavoidably slippery -- all the more so when governments promote that very slipperiness in an effort to attract investment.
Why fight it? The best strategy to deal with international tax avoidance is what we have recommended: Cut corporate taxes and increase taxes on individual investment income (dividends and capital gains) instead. It’s much harder for individuals to arbitrage away their tax obligations than it is for companies operating across borders. This way, corporate profits are still taxed -- but on a simpler, less distorting basis than the typical corporate tax code provides.
4. If only we could devalue - New Zealand and Britain had a much better Depression than the likes of France, Germany and America. That's because New Zealand, which was connected to the British pound at the time, withdrew from the gold standard and devalued before the rest. France hung grimly on the gold standard and got hammered.
Currency wars work when not everyone joins in and you're the first to fire. The losers are the ones sit naively in the middle of the battle choosing not to fire back.
Here's a chart courtesty of The Economist showing how well NZ and Britain did.
5. What actually happened in the 1930s - Here's Berkeley Economics Professor Barry Eichengreen looking at what happened in the 1930s.
Those against currency manipulation routinely point to the 'failure' of the tit-for-tat currency devaluations and trade controls imposed in the 1930s.
But did they really fail?
Eichengreen reckons not.
Currency wars, the allegedly beggar-thy-neighbor policies undertaken by central banks of depressed economies, are widely criticized for worsening the world’s economic problems in both the 1930s and today. Better, it is argued, would have been for policy authorities in troubled economies to refrain from measures that simply shifted problems onto neighboring countries and instead to have coordinated their responses. The same implications are drawn from both experiences. Indeed, the history of the 1930s is widely invoked by those warning of the dangers of modern-day currency wars. The analysis here suggests that the history is more nuanced and that more care should be taken in carrying over the lessons of the 1930s to today.
In the 1930s, when the countries concerned all experienced an essentially symmetric deflationary shock, what are now referred to as currency wars were part of the solution, not part of the problem. Reflationary policies were needed all around. Under the institutional circumstances of the time, these were achieved by depreciating currencies against gold and hence against the currencies of other countries still on the gold standard. By the second half of the 1930s, global reflation was underway as a result of what was essentially a full round of these so-called beggarthy-neighbor exchange rate changes and the policy initiatives they made possible.
6. How about a guaranteed minimum income? - Here's Matthew Yglesias at Slate talking about this idea instead of an increase in the minimum wage. This is an idea Gareth Morgan is keen on.
I still think minimum wage regulations are far from optimal. The real policy mix you're looking for is a blend of wage subsidies (to encourage work) and something like a Guaranteed Basic Income program that just hands out cash to people regardless of what they do.
A GBI helps people by giving them money, obviously. It also serves as a kind of de facto minimum wage, since if people can earn money doing nothing in practice you're going to need to offer them higher pay to get them to work. But it's much more flexible than a minimum wage. In a GBI world, an employer has to make work somehow appealing enough to get employees even though everyone's guaranteed a basic minimum whether they work or not. But that "appealing" factor could be high wages, could be valuable skills and training, could just be a pleasant work atmosphere, or could be some combination of the two. Current minimum wage policies sort of try to achieve these goals by having exemptions for educationally rewarding internships or vocational programs. But these exemptions manage to be simultaneously too prone to abuse and too inflexible to capture the full range of possible scenarios that arise in human life.
7. 'Digital capitalism produces few winners' - John Naughton poses some uncomfortable questions at The Observer about the enormous profits now being posted at Google, Facebook, Amazon and Apple, but how staff don't seem to benefit much (as opposed to the executives). Plenty of profits, and not many jobs. And the jobs that are there aren't always a lot of fun...
The really tough question that none of these companies really wants to answer is: what kinds of jobs exactly? Anyone seeking an insight into this would do well to consult a terrific report by Sarah O'Connor, theFinancial Times's economics correspondent. She visited Amazon's vast distribution centre at Rugeley in Staffordshire and her account of what she found there makes sobering reading.
She saw hundreds of people in orange vests pushing trolleys around a space the size of nine football pitches, glancing down at the screens of their handheld satnav computers for directions on where to walk next and what to pick up when they get there. They do not dawdle because "the devices in their hands are also measuring their productivity in real time". They walk between seven and 15 miles a day and everything they do is determined by Amazon's software. "You're sort of like a robot, but in human form," one manager told Ms O'Connor. "It's human automation, if you like."
Still, it's a job. Until it's replaced by a robot.
8. China's corruption culture - The FT's Simon Rabinovitch and Kathrin Hille do a great job in this piece fleshing out the details of China's endemic culture of corruption.
China’s lunar new year holiday is the busiest time of year for the Zhengzhou East long-distance bus station. But officials in Shuyuanjie village, the district that owns it, complain that every bus rolling out of the station is a reminder of the revenue lost through corruption. Fan Jianhui, the local Communist party secretary, has seized control of the station to run as his private business and despite street protests and complaints by local officials, there has been no investigation into his activities.
“The current campaign-style fight against corruption is not sustainable,” says Wang Yukai, a professor at the Chinese Academy of Governance, a top training institution for cadres. He says there are too many separate institutions tasked with fighting graft under the party, the police and the judiciary, and many probes get stuck in this thicket. Those complaining about corruption in Zhengzhou agree. Local officials have spent more than a year reporting Fan Jianhui to the party’s internal corruption watchdog, to its department in charge of personnel issues, to the police and to the local prosecutor’s office – without any result.
9. What Chinese people really think - China Economic Review reports on the work of Economist Gerard Lemos in China. He asked regular people very simple questions about their hopes, dreams and fears in a systematic way. What he was told was surprisingly dark for a country that has been the most outwardly successful in the world in the last decade. There's a lot of talk about lifting 300 million people out of poverty. But are they happy with their lot?
For the hundreds of millions of Chinese migrants who live in the purgatory between rural and urban life, contemporary China is a soured amalgamation of economic experiments. During the all-encompassing rule of Mao Zedong, which stretched from the founding of the People’s Republic in 1949 to Mao’s death in 1976, most Chinese were members of a work unit, where food and resources were distributed somewhat evenly. Chinese received medical care and compulsory education. The government allocated land, housing and employment. “This was the 'iron rice bowl': It never broke regardless of how often it was dropped. But it is broken now,” Lemos writes.
As the most inefficient state enterprises broke down in the mid-1990s, tens of millions of people lost their jobs yet failed to qualify for benefits. In Chongqing's Banshan Ercun neighborhood, respondents who had been laid off at a state-owned tire factory were particularly anxious about how they would afford medical bills and their children's education expenses.
The cost of education is a heavy burden on parents in China, especially for farmers hoping to see their children shake off the yoke of the rice field. Education bills can eclipse up to half of the annual earnings of many migrant households. Add that to health care costs: In some communities, residents pay a yearly health care fee, a US$128 charge for people making as little as US$33 per month, according to Lemos. Elderly people were frightened that neither they nor their children could get proper health care.
10. Totally Tom Waits doing his thing. HT Waymad for pointing to this song in yesterday's comments. Waits is a better poet than Dylan. Standing back. Touchpaper lit.
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