Certainties

Death and taxes are said to be the only two certainties.

So, let us talk about taxes.

Our taxes go to pay for the communal services and benefits which we collectively consider desirable. I’ll name a few: collecting the rubbish, maintaining the streets, staffing a police force, administering government.

There are other things where we pay something like insurance, such as the hospital service, air-sea rescue, maybe we could even say the armed forces. We don’t want to use these services, but if we have a disaster and they are available to help us out, we are grateful. I think it is right that high levels of service in these areas, such as a private ward in a particularly comfortable hospital, are funded by voluntary insurance in the private sector, but that the bare minimum is funded through taxes.

Education falls into another category of socially desirable. I don’t have children, but I’m happy to pay for the education of others, because I received an education when I was young. That is in the best interest of humanity.

My philosophy of efficiency leads me to favour taxes that are easy to collect and deliver the money to structures that are associated with those who deliver the service. Fewer sources of taxation would be more efficient. So what would I tax? And how would I tax?

We have a principle that the rich should pay proportionately more tax than the poor, which inclines us towards a regressive income tax. The downside of that is that it generates an economy of tax avoiders who go about setting up accounting structures to prove that large streams of money should not be subject to the tax. So I’d do away with income tax.

The opportunity in restructuring the developed world economies through reshaping taxes would be huge.

There is a basic level of health care and welfare benefit which should be there as a safety net in any developed economy. The purpose is to help those of us who are unfortunate to get through the difficulty and resume being a productive member of the community as soon as possible. A welfare insurance scheme should therefore be funded out of taxation. It is a common pool and if you are in the system, you should benefit. Begs the question whether living on the planet means you are in the system? As an ideal, I’d like us to think that the answer is yes, and we should structure our global solution to work to that end.

Let me expand on the ideas of the taxes. By resources, I mean anything that nature has taken more than a generation to produce. Hydrocarbons and minerals which we extract from the earth are easy examples. A tree that has taken 100 years to grow is another. However, a field of wheat is not, although I will come onto taxing the field space under property tax. The resources of the earth do not just belong to the current generation, they belong to future generations too and we should only be using them if our economy makes the world a better place for the future. So, I see the need for a premium tax on every transaction that involves a natural resource.

Property tax relates to the house and garden, or factory, or farm, which is the capital base that reflects wealth. This is where the rich should pay more than the poor. Homes beyond the world average should attract a substantial tax premium. Factories and farms should pay a fixed tax every year to encourage their efficient exploitation. If you don’t work the factory or farm, you will need to sell it (or give it or even pay someone to take it off your hands) to someone who will.

Inheritance tax is a one-off windfall that strikes at wealth. I am not convinced it is necessary if property taxes are suitably rated. Two percent property tax every year is more than 100 percent every 70 years, so don’t bother with the inheritance tax collection.

I wonder if these two taxes could be sufficient in themselves. We are used to taxing the transactions in our economy – sales and income. The benefit is that a low perceived rate of tax generates a high volume. If we have to tax the transactions, then sales rather than income would be more efficient. But we don’t really need either.

So how does this work in practice? I can’t go hitting the elderly pensioner. So reach the official retirement age and you become exempt from property tax. (It is silly to pay out a pension and collect tax at the same time). Those who have paid a pile of tax accumulating wealth in their working life deserve to enjoy the benefit in retirement. Now we can have a debate whether retirement age is 65, 70, 80 or 100, but the principle applies. Maybe retirement will evolve to reflect when you are no longer fit to earn a living.

I’ll get into the ideas of who collects the taxes and who distributes the benefits in another blog.
What else would you tax?  I hear some say pollution and that could work well. Any other suggestions?

National Borders and Nationality

I’ve failed to write in my blog for a week, with the excuse that I’ve not been well, but also because I feel I should write something rounded and complete. Today, I decided to write my thoughts and publish, without necessarily getting to the answers. Do please let me know what this provokes, as I would like to bring the strings together into answers.

As a freeman of the City of London, I’ve a slight inclination towards the city state.  The concept was historically about earning the right to trade within the city walls without paying a fine, where one could charge a premium price compared to those trading outside the gates.  To gain that right, there were three routes: by servitude (for apprentices who have served a full apprenticeship to a Freeman or for a valued skilled craftsman presented by a Livery company), by patrimony (for children of Freemen), or by nomination (reflecting having done something good for the city).

Anyone was free to enter the city. If you had earned your money somewhere else, you could rent a place to live. When it came to trading, the city wanted to set standards of competency and only wanted people who met those standards to run businesses.  Note that any freeman could run a business (trade) employing non-freemen (apprentices) as their staff.  The freedom is neither an entry permit nor a work permit; it is a business running permit.

Having passed several times through the immigration lines of both the USA and UK recently, I’ve been thinking about how wasteful the whole process is.  What is that we really fear about foreigners?  Are they really worse than nationals?  Are they coming to sponge off our welfare state?

Most would really like a job to earn their way to a comfortable life.  Yet, I could apply this sentence to foreigners and to nationals alike.

Why do we want this lottery system of where you were born and who were your parents. 

What about history?  What about all the effort in the past that has gone into nation building?  My answer would be to question whether that is really “good”.  It is protective nation or state entities that go to war to defend what is ours.  What do we defend?  The right to deprive others of the opportunities we are so fortunate to have?

I look at the organisations to which the countries of Europe belong: United Nations, World Trade Organisation, Organisation for Economic Co-operation and Development, Council of Europe, Organisation for Security and Co-Operation in Europe, European Economic Area, Commonwealth of Independent States, European Union Customs Union, Schengen Area, Eurozone, European Space Agency, North Atlantic Treaty Organization, Collective Security Treaty Organization, International Criminal Court, and the Free trade areas of europe: EU(27), EAEC (6), EFTA (4), CEFTA (7), CIS (11), GUAM (4), European Neighbourhood Policy, Eastern Partnership, Euromediterranean Partnership, Mediterranean Union, Transatlantic Free Trade Area, Eurosphere.  What are we up to? Clubs for the boys or really working for an efficient world community?

I am going to suggest we would be better off without most of these national and international structures.  We need something local to handle the garbage and maintain the roads.  We probably need something global like the UN and WTO to police fair play.  But do we really need all this rubbish in between?  I think not.

The power of a company that employs millions of people worries many people.  The power of a country of many millions of people rarely does anything truly national that is for the “good” of the world. 

If you want to travel, you have to have the means to pay. 

Clandestine immigrants pay large sums of money to be sneaked past border controls, usually into thousands of pounds.  They would be better off keeping some of that money to pay rent and be allowed to buy a cheap air ticket.  So a simple rule, every air ticket comes with the obligation to transport the person back to the place of origin if they break the laws of the destination.  Most travellers will not need that, but for the few that do, the airlines and train companies could cope moving such people on the off peak days.

Legalising what everyone wants to do is better than making rules to prevent us from doing it.

Paying for Education

I was thinking of titling this blog, “Are we ready for world peace?”  That is an important question, yet it is the solutions I’m seeking and I postulating a link between education and warfare.

The majority of people in the world, I believe, want to get on with life in peace.  Yet there are plenty of conflicts going on right now.  This map from www.conflictmap.org seems authoritative, although they make the point that they leave out local violence like “gang violence in Rio de Janeiro”.

My observation is that where there is the least education there is the most warfare.  Yes, the educated countries meddle and get involved, but with the overriding requirement not to have "our boys" killed, yet forgetting the numbers killed on the other side.

Here is another graphic from "The International Institute for Strategic Studies", which shows much the same distribution.

http://www.iiss.org/publications/military-balance/the-military-balance-2012/

I'm thinking, we are prepared to pay for the education of the children down the road, but are we prepared to pay for the education of all the children in our world community? 

The question is do we live in the same community?  As long as we are saying "our children" and "other children", we are inviting trouble upon ourselves in the long run.

To take this point further, I've been thinking about what it would cost.  The answer I fear is staggering.  The young in developing nations far outnumber the adults in the developed nations. 

Researching the cost of a satisfactory education in the developed world, I find it is of the order of $2,000 per year per child.  I suspect that number does not include the cost of capital for the school. But as a working number, multiplied up across the globe, I found that about 5% of world GDP needs to be spent on education. 

In the developed world we spend more than that for the education of the children in the country (both as a percentage of GDP and in absolute dollars).  We are not as a world anywhere near that level of education spending and the gap lies in the places that appear on the conflict maps. 

China, to my surprise, is close at about 4%. Yet the difference in absolute dollars is huge because the population is so large.

What would I tax?  

I suggest a universal tax on energy. If every energy trade were taxed at 1%, the resulting tax revenue would be about right to foot the education bill.  Eventually, as warfare declines, the military budgets could decline to policing budget levels and we'd all be better off.

Can we afford to do this? 

Small print for further thought...should we be taking out debt to fund this education.  Anyone with some good ideas on how to securitise the loans would be appreciated.  

 

Economic Efficiency

My first precept is about the value of money.  I’ve been talking about the value of money, by which I mean all the money in circulation in the world.  What is the meaningful amount?  Does it reflect the total wealth of the world?  Is it possible to create more real wealth?

I play games, often economic games, which provide me with insights in economic systems. In many games, paper money is used.  The denomination does not really matter.  The value of money depends on what is available to buy.  The same, I feel, must be true of the world. 

Everything we buy is the result of other people’s effort, either present or past.  So, my thought of the day is that the value of money is sum of everybody’s effort. 

Exactly how does that work in practice?  There must be a subsistence level of effort. An individual could expend their productive effort just feeding himself, which would consume the product of labour and thus not create wealth. 

Effort beyond subsistence, which could be simply doing the same and offering the excess for sale, or through specialisation doing something which can be traded for subsistence living and then perhaps some comforts, arts and luxuries.  If the effort exceeds subsistence, we are creating wealth.  Money is our unit of trade for the excess effort.

So it doesn’t matter if governments decide to print money or banks lend each other more units of currency, the real value is determined by the gross effort of the world’s population.

Note well, that I am talking about productive effort.  That does not mean time spent at work.  If someone mans a shop all day, they are serving the shop owner, but if (together) they sell nothing, there is no productive effort.  The shop of course will eventually go out of business, but the employee may have been laid off long before that. 

However, a civil servant who processes applications for social security is doing something that society may desire to be done and it is therefore productive, because it meets a need for which others are prepared to pay taxes.

Where am I going?  What about the title of the article, economic efficiency?  If we can get machines to do the productive work better than people, then provided the effort that goes into the machines is less than would have been spent in the manual task, automation creates wealth.  But don’t forget the human effort and investment that goes into operating and maintaining the machines.

World Solutions is to think about how economies can be structured to maximise the real wealth, which means avoiding having people do un-productive tasks, even if on the face of it they may appear to be putting in a lot of time and effort.

Open Debate

I've been debating with friends about the global economy.  Let's try to resist saying we have all the answers, yet I am confident that some drastic changes will be required to avoid our world slipping into catastrophe.

I am going to set myself the objective of posting at least weekly here and will welcome all constructive debate.

Please do participate.
Daniel T Shaw