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The true value of the minimum wage

Sorry, it has been a long time since I posted in this blog, but what better way to get back to it by posting a video of how increasing the minimum wage is economically and morally wrong

How free is the United Kingdom?

The Heritage Foundation have published the 2014 Index of Economic Freedom which calculated the economic freedom of all countries around the world. The UK came 14th, the United States came 12th. The top 34 are shown below.

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14th place may seem like quite a good place to be until you follow what has happened over time. The report for the UK says the following things:

  • Over the 20-year history of the Index, the U.K.’s economic freedom has declined by 3 points, the second worst performance among advanced economies. Despite notable improvements in trade freedom and investment freedom, the overall gain has been offset by combined declines in the management of public finance and regulatory efficiency.
  • Britain’s economy has been consistently rated one of the world’s 20 freest. However, since 2006, when it reached its highest economic freedom score ever, the U.K. has been largely on a path of declining economic freedom. Expansionary public spending has generated significant budgetary pressure. With government debt over 90 percent of the size of the economy, underlying economic fundamentals generally remain weak.
  • Following the market reforms instituted by Prime Minister Margaret Thatcher in the 1980s, Britain experienced steady economic growth throughout the 1990s, but the government’s size and spending grew significantly under successive Labour governments.
  • Public debt continues to rise, surpassing 90 percent of gross domestic output.

The second worst performer out of the advanced economies proves that the UK government has become too big and bloated. Not only that, but it has terrible control over its spending. The stats for the UK are shown below.

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It is clear that spending controls, such as those used by the Swiss who have been able to reduce government spending from 34%GDP to 20%GDP (2003-2012), are needed in the UK. Switzerland is the 4th freest economy in the world. Over the same period, most countries increased government spending.

Another interesting point is how consistently well, Hong Kong and Singapore have performed. Throughout the 20-year history of the Index Hong Kong has been rated the worlds freest economy every single year. Why is this the case?

  •  Hong Kong has one of the world’s most prosperous economies, thanks to a commitment to small government, low taxes, and light regulation.
  • The standard individual income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The tax system is simple and efficient, and the overall tax burden is around 14 percent of GDP. Government spending remains equivalent to slightly under one-fifth of the domestic economy. Public debt is virtually nonexistent, and a budget surplus has been maintained even in light of increased government spending and tax rebates.
  • Hong Kong is very open to international commerce, with a 0 percent average tariff rate and few barriers to foreign investment. A robust and transparent investment framework, in place for many years, continues to attract foreign investment. The financial sector remains highly competitive and well capitalized, serving as a leading global hub. There are no restrictions on foreign banks, which are treated the same as domestic banks.

But what does being more economically free actually translate to? How does it benefit the people? Here’s how:

Hong Kong GDP (PPP) = $51,494 per capita

United Kingdom GDP (PPP) = $36,941 per capita

Unemployment: HK = 3.3%, UK = 8.0%

Growth: HK = 1.4%, UK = 0.2%

Foreign Direct Investment inflow: HK = $74.6b, UK = $62.4b

Public debt: HK = <0.5% of GDP, UK = 90.3% of GDP

What happens when you have a big government and high taxes? Just ask France!

What happens when you have a big government and high taxes? Just ask France!

The Telegraph today:

Today it was revealed that French borrowing costs have continued to rise as latest figures revealed the manufacturing sector underperformed even Greece. The ten-year bond yield climbed as much as 4.5 basis points on Wednesday as a gauge of activity in its manufacturing sector slipped to a seven month low, to the lowest of the eurozone’s major economies.

This is a worryingly large increase in cost.

France’s manufacturing PMI slipped to 47, lower than the flash estimate of 47.1, and below the 50 mark which separates expansion from contraction. That marks the 22nd consecutive month of contraction for factory activity in the eurozone’s second largest economy.

 

“This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.”

How do you solve an inefficient, uncompetitive nation? You lower all taxes and decrease the size of government. It really is that simple. Make a competitive environment, and jobs will be created.

Yet France pushes on with its hate tax of 75% for top earners, leading to a mass exodus of wealthy business people and entrepreneurs from the country, who incidentally are the people who create the jobs. 

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When will it become illegal for politicians to print money

If politicians are allowed to print money to cheat the system, why are we not? Over the past 50 years, it seems as though people have forgotten how economies function. Some economies do well and prosper, some economies do badly and fail. If it fails, the politicians must answer to their citizens why they got it wrong and they should be accountable for their actions.

If this natural process is interrupted by printing money from thin air to postpone an upcoming crisis then no one learns the lesson. Here are some examples of how money in circulation has increased dramatically over the past 30 odd years:

The US:

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The UK:

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The eurozone:

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Japan:

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China:

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India:

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and some fun cartoons:

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Increasing government burden does not promote growth or prosperity

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VAT itself is actually the only fair tax that is used in the UK at the moment. This is because the rate is the same for everybody. However, I question whether it is even necessary when it has been proven that the most effective way of promoting growth, is by lowering taxes. Particularly when that tax forms part of a double/triple/quadruple taxation system. For example my monthly wage gets taxed, then with the money left over I pay my energy bills, which are also taxed, I go to the shop and by some food, again this is taxed, then I also have to pay council tax, next I put petrol in my car, tax, then I buy a ticket for the train to get to work, tax, and I could carry on all day. Would it not be more simple to phase out VAT and to implement a universal flat income tax to relieve the hardworking families of the UK? A tax system is most effective when ordinary citizens can work out their tax returns with a piece of paper, a pen and a calculator.

What is the best country in Europe?

I have always thought that Iceland, Switzerland and Norway were the countries with the most common sense in Europe. However, I found out today that Estonia is probably the best and here is why:

  • It is a pluralist democracy
  • A market based economy
  • It has liberalised trade
  • It has no budget deficit and total debt is 5% GDP
  • Unemployment is 1.8%
  • 90% of the economy is privitised
  • You can register a business in under 18minutes (14months in Italy)
  • It has a flat tax
  • It is the law for the government to have a balanced budget
  • The Estonian Central Bank is barred from lending money to the government
  • It has the worlds largest number of start-up companies per capita
  • All their policies were inspired by Margaret Thatcher and Milton Friedman as admitted by former Prime Minister Mart Laar

What an incredible country. This is an example of what can be achieved with the right policies after breaking away from the soviet union (Ukraine should take note!).

Furthermore, Estonia was hit very hard during the recession, unemployment reached 18%! Since then, Estonia now has the lowest ratio of government debt to GDP and the lowest budget deficit in the EU.

Estonia ranks high in the Human Development Index, press freedom (third in the world in 2012), economic freedom, civil liberties and education. It is often described as one of the most wired countries in Europe (Internet), and is recognised as a leader in e-government.

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The faux-conservatives and the squishy tory-liberal coalition

Now I know I like to cite Dan Mitchell from the CATO institute a bit too much. But he has correctly pointed out that the UK is a good model for showing how the laffer curve works.

A funny thing often happens on the way to soaking the rich: They don’t stick around for the bath. Take Britain, where Her Majesty’s Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before. That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown’s government introduced in its final days in 2010, up from the previous 40% rate. So, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010. The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

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He also points out the three main points which explain why the laffer curve works:

  • When tax rates increase, sometimes people engage in tax avoidance, lowering their tax liabilities legally.
  • When tax rates change, sometimes people choose to alter their levels of work, saving, and investment.
  • And when tax rates go up, sometimes people resort to illegal steps to protect themselves from the tax authority.

Finally, I love how he refers to the current government as the squishy Tory-Liberal coalition. I now like to call the tory party the faux-conservatives. They could go much further with their tax cuts and reducing the burden of government but they seem to have lost their backbone.

Those public sector workers…coming here, taking our jobs and our money

This is an example of how public sector workers are generally better off in the UK due to wasteful government spending.

A recent report has concluded:

A private sector employee working full time on around the median hourly wage, would be around £1,400 a year worse off than their equivalents in the public sector. In parts of the country where premiums are highest this rises to as much as £3,200 a year.

 

This premium exists even before the substantially more generous public sector pensions arrangements and other factors are added to the analysis.

With a humongous healthcare expenditure in the UK, the pay differences between the private and public sector employees hurt all taxpayers.

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With government spending increasing year on year, how can we seriously expect to get to grips with our debt?

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Brace yourself…obama says minimum wage increase will create jobs

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I do like to take the mickey out of obama on this blog, but this really is taking the mickey! How does he expect business to create jobs from a minimum wage hike! Is he really that deluded.

This is what he tweeted earlier today:

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It may raise GDP slightly but it certainly will not create more jobs.

Zero hedge has asked: ‘why not raise the minimum wage to $100?’ Surely by obama’s logic, this will create even more jobs.

 

One big problem

UK debt reached £1,377bn in Q1 2013. Just think about that number for a second. Actually, its difficult to imagine a number like this in our heads because it is simply too large to compute. With debt forecast to reach 99% GDP by 2014, when will labour, conservatives and liberal democrats admit that government spending has not been cut by enough.

Here is UK debt in euros:

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As you can see we are catching up with France and Germany on total debt. What about debt as a percentage of GDP?

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As you can see our debt is spiraling out of control like it is for many of the eurozone countries.

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THE DEATH TAX

The death tax (or inheritance tax) is just another way for the government to confiscate your money. The graph below is very scary indeed. It shows all the sensible countries who don’t implement a death tax, including Hong Kong and Switzerland who are pro free market, anti regulation states, and those countries who do.

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The UK and USA have higher rates than Greece, Spain, France, Belgium and Venezuela! That says an awful lot. The death tax should be scrapped in the UK. This will allow people to plow more money back into the economy instead of the government spending it on the non-productive sector.

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And we all lived profitably after

Profit has a bad reputation in the UK. This can be down to many things but the main problem is people don’t understand what profit is.

Profit increases everybody’s standard of living. No matter what ‘class’ you are or where you come from, profit allows the individual to improve his life. This means that when profit is not achieved, living standards either stay the same or reduce.

People who criticize profit do so because people have achieved it in devious and bad ways. So shouldn’t we criticize the people who do this instead of profit itself? If I were to steal food from you, is that the foods fault or is it my theft?

Put simply, profit is benefiting from the fruits of your labour. If anyone wants to criticize it who also picks up a pay slip every month then that is hypocrisy.

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UK production, construction and services

Take a look at this graph from the office of national statistics:

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Firstly, it shows how volatile the construction sector is in the UK. Secondly it shows that the UK services industry is booming while production has never really recovered from the crash.

The production side of the economy is directly effected by regulation and taxes, where as the services industry is propped up by government spending. The more the government spends, the more it has to tax. High taxes stifle growth in the production side of the economy and this reduces output. If our output is reduced the country suffers from a trade deficit and a budget deficit. The most effective way of reducing both is to produce more than you buy.

EU red tape is also having a massive impact on our productive sector and churns out new legislation every week.

Obama, Cameron and Milliband are all the same

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I blackout when they talk about socialism

Venezuela, the country with the worlds largest crude oil reserves and lots of other natural resources, has been suffering from periodic electricity blackouts since 2009. Another blackout occurred on Monday at 8pm local time, it caused chaos, mass protests, and people couldn’t travel home from work.

Apparently the blackouts have been caused by PLANNED POWER RATIONING and utility failures. But then, is this any surprise since the country has been governed by a socialist party for the past 15years?

Now the prime minister of Venezuela, Mr Maduro, thinks the opposition party deliberately caused the blackout whilst he was delivering a live address on TV:

“Be strong against this electrical war that yesterday’s fascists have declared against our people” 

The stark reality is that Venezuelans are suffering from 54% inflation every year and a shortage of basic things such as flour and toilet paper. This is a direct consequence of having a socialist government. If you share out resources instead of giving an incentive for people to work, the productive side of the economy will reduce so much that there becomes a lack of basic products like toilet paper.

Furthermore, the blackouts are also a consequence of political parties squabbling with each other instead of ensuring that there will be enough energy for the future. Reminds me of the current situation in the UK.

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Sorry I also had to involve Obama

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Don’t laff, this is serious!

The laffer curve. The libertarians most powerful tool. It explains how increasing tax rates by too much can lead to reduced revenue and that decreasing tax rates can promote growth and prosperity.

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Ronald Reagan proved this can work:

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The table above, which is based on data from the IRS’s Statistics of Income, shows what happened to tax collections from upper-income taxpayers between 1980 and 1988. Supply siders can be criticized for many things, especially their apparent disregard for the importance of limiting the size of government, but the IRS figures clearly show that lower tax rates were followed by more rich people, more taxable income, and more tax revenue. For those keeping score at home, that’s a perfect batting average for supply-side economics. – Dan Mitchell

The majority of tax rate hikes arrive via class-warfare policies, which aim to ‘tax the rich and give to the poor’. However, as I explained here, the geese that lay the golden eggs can fly accross the border.

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