Reading that the bureaucrats in their cushy offices in Paris are 'pushing' for an increased 'firewall' to protect the Euro from disintegrating and help the Eurozone to return to economic growth one is reminded how clueless these 'experts' really are. They refuse to realise that the introduction of the Euro currency in its present form was a catastrophic error and think that throwing money at the economy is all that needs to be done to correct the cumulative results of 40 years of creeping socialism.
Everything is still in thrall of the 'growth at any cost' philosophy. The astronomical salaries paid to 'Celebrities' and CEO's are counted as positive contributions to GDP and the qualitative aspects of Growth (better schools, better health care, better treatment of the environment) are neglected. Time to re-read Mill's prediction.
The massive gift that taxpayers and investors in many countries are forced to hand to the Greek citizens is unprecedented in recent history. While many commentators argue that the accumulated debt of the Greek state simply was too high a burden and had to be reduced we think that the origins of this crisis lie in the panic that gripped the bond markets during the past two years. For a long time the interest rate that Greece had to pay on its bond issues was artificially depressed due to carelessness by the investor and banking community. Starting in late 2009 the markets switched from overoptimism to pessimism. Increasingly a debt load that could have been restructured became unsustainable as market rates on Greek debt reached astronomical and unaffordable levels. Therefore one could say that Mister Bondmarket has made it possible for Greece to have its debt load cut by substantial amounts - with more to come in the future. Or does anyone really think that Greece would have gotten away with such a blatant renunciation of its obligations if interest rates on its bonds would have remained at, say, 4 or even 5 percent? For a more amusing take on this watch Panos the Greek
Tuesday, 20 March 2012
Population growth is number one economic issue says Paul Farrell (Marketwatch) and we fully agree.
Thanks to the weekly feature 'Lunch with the FT' we now know that Esther Duflo is 'petite' and about to become an American citizen (why is she renouncing her heritage?). God be thanked that the real 'stars' of economics never had to submit to the hagiographic treatment in a FT lunch session. The irony is that the 'star' professors that the 'elite' universities keep are beneficiaries of protectionism as they sit in a tenured position that protects them from the ravages of the economy that they purport to 'study'. Similarily, the 'elite' universities in the USA are part of the 1 per cent system where the rich donate to the same few universities that host their pampered and privileged offspring - thus aggravating and perpetuating a system that favors the few over the many. Maybe this 'star' economist should study this abuse and not wether or not the poor should pay for their mosquito nets or not.
News that 97 'Super rich' individuals have left the Swiss canton after a favourable tax treatment for rich foreigners was revoked demonstrates that unfair tax competition is alive and well. The 97 are among 201 rich foreigners that only paid an agreed amount to to canton that was far from representative of their overall global wealth. How little these individuals pay is revealed by the fact, that the departure of the 97 only led to a Swiss Franc 12.2 million diminution of the tax take. This means that each of them paid just around Sfr 100,000 a year. We do not know the aggregate wealth of these persons but we would guess that even Warren Buffett would be even more embarrassed if he could get away with the tax rate these tax fugitives paid. While the canton of Zurich is the loser, there are plenty of other Swiss cantons who still operate a tax haven on a highly selective (and discriminatory) basis. One only has to wonder what purpose the WTO or the OECD serve if they cannot stop this blatant case unfair tax competition. No wonder the Super rich 0.01 per cent are laughing all the way to the bank.
By suggesting nothing else but another 'Support Package' for Greece the establishment economists admit that they are helpless when faced with a crisis such as the one Greece (and and.....) is facing. If there is no other solution in today's economic toolkit than to throw ever-increasing amounts of taxpayer's and helicopter money at a problem we might as well bin the insights of 300 years of economic thought.
Professor Mankiw admits that he is an adviser to Mitt Romney so one should not be surprised that he expends a considerable amount of energy confusing the straightforward case against a low tax on carried interest for private equity promoters with a variety of situations faced by hypothetical property investors. But the performance fee and basic management fee charged by private equity firms that predominately buy and sell existing assets can simply not be called a capital gain as there is no capital at risk. The exception is the portion of capital that has actually be invested by the managers of the pe firm. The rest simply is reward for putting in the effort to manage the fund. One problem we have to face is that the amount of this investment can easily be manipulated. Already, the insiders of the pe firms (promoters and senior management of the companies that the firms invest in) receive founder's shares (or options) at exceptionally favourable terms (something that would need closer attention by the 'limited partners', i.e. the investors who bear most if not all the costs and risks of the funds). Subsequently it can be claimed that the proceeds arising from the eventual sale of these shares (allocated at pennies) are a 'capital gain'. Maybe it would be a good idea for Professor Mankiw to let us know how he would prevent this abuse?