Diseconomies of scale

An interesting essay on one of the causes of the diseconomies of scale that you find as any organisation grows. He is mainly concentrating on why small companies are so much more nimble and responsive than large ones, but the same arguments apply to why small states are better than large ones.

Such things happen constantly to the biggest organizations of all, governments. But checks instituted by governments can cause much worse problems than merely overpaying. Checks instituted by governments can cripple a country's whole economy. Up till about 1400, China was richer and more technologically advanced than Europe. One reason Europe pulled ahead was that the Chinese government restricted long trading voyages. So it was left to the Europeans to explore and eventually to dominate the rest of the world, including China.

In more recent times, Sarbanes-Oxley has practically destroyed the US IPO market. That wasn't the intention of the legislators who wrote it. They just wanted to add a few more checks on public companies. But they forgot to consider the cost. They forgot that companies about to go public are usually rather stretched, and that the weight of a few extra checks that might be easy for General Electric to bear are enough to prevent younger companies from being public at all.

The thing is that goverments never know the costs of their actions, they can't because they are never costs to them. With a company too much red tape will eventually hit the bottom line as they become slower to react to changes. Eventually a company will get strangled by their own red tape if they let it get out of control. For a government on the other hand there is no cost to producing more checks on action because it is always somebody else that pays the price for them because it is other people who are having their actions curtailed.

In other words regulation is an externality, and we all know the correct response to an externality. You place a tax on it to internalise it.

But how to tax the government? And whom to give the tax to? Well a tax reduces your income so perhaps we should force the government to send out rebates on the taxes that we pay it based on the amount of regulation there is. Regulation goes up and the rebate goes up. Regulation goes down and so does the rebate. The government could just keep on putting up taxes to cover the cost of the rebate, but then there would finally be a political cost to them since no government gets elected on a promise of putting up taxes (hence Labour's current scorched earth economic policy). It might make them think whether yet more regulation really was the answer.

Zanu Labour

The big story Friday and over the weekend is going to be the fact that 9 anti-terror police battered down the door of Opposition front bencher Damien Green because he has received leaks that have embarrassed Labour. Nine officers! That would be the entire number on duty in many towns. They don't come out to burglaries but anything embarrassing for the government and they are out in force. Tonight the Labour Party have truly earned their Zanu-Labour nickname.

The opposition always get leaked to. They always find ways of getting these leaks into the papers in the way that will be most damaging. The papers always print it because they aren't going to turn their noses up at a effort free story. When Labour where in opposition they seemed to have an almost limitless supply of stolen documents. By ordering the arrest of a senior opposition MP for doing his job of pointing out the governments faults they are asking for trouble. This is a story that is going to run, and going to cause huge difficulty for the government. The papers that were leaked to will have to stand behind Green. All the rest of the papers will stand behind leaking because it is their stock in trade.

Boris Johnson knew, and has said he knew, so it is inconceivable that Jacqui Smith and therefore Gordon Brown did not know like they claim. That will come out next and so the speculation will start as to whether McStalin ordered it himself. The 'Gordon Brown Saviour of the World' media narrative is over, and Brown himself will shoot himself in the foot soon enough. He always does as soon as the discussion moves away from topics where he can bore his opponents into submission through the recitation of tractor production statistics.

Here is what a serving police officer has to say about it:

Jacqui Klebb (our boss) has been getting a lot of embarassing flack from some leaks to the Tories. Cut to an unwelcome but deeply persuasive phone call or meeting in person for some compliant A.C.P.O. rank with orders to pull the pin on the leaker on the benches opposite. Next thing you know 9 of our finest are knocking on the poor political bastard’s door, carting him off for interview and searching his home and offices.

This is the end of Labour.

Labour have done it again

Pre-Budget Report ... it gets worse

In addition to creating a new tax band for no other reason than envy Labour are going after the less well off.

Millions of people earning more than £20,000 will pay more, said the respected Institute for Fiscal Studies, contradicting the Treasury's claim that those with salaries under £40,000 were safe.

Then there is Labour MP Andy Love threatening to nationalise the banks that were foolish enough to take Labour's shilling if they do not voluntarily start giving out dodgy loans again. The Labour definition on 'voluntary' being rather different from one of normal English one, much like with ID Cards.

Asked by Labour MP Andy Love if he had ruled
out “wholesale nationalisation” of the banks, he replied: “In time of financial crisis, it would be a very serious error to rule out measures which may ultimately prove necessary. It would be an extremely brave person who ruled anything out.

“It wouldn't be our first option, but remember: the Government now has a majority holding of shares in more than one bank. The United States has just acquired a very significant stake in Citibank, the biggest bank in the world.”

Party people

Labour could have raised a million people out of poverty, and probably more by reducing the current disincentives of work, by changing the personal allowance and this would have cost less than the VAT change. So I wonder why they chose a tax cut that principally helps retailers rather than poor people? It would, of course, have absolutely nothing to do with the fact that the Labour Party is currently being propped up by major retailer Lord Sainsbury.

79% of people are not stupid

The reason for the pathetic little trimming of VAT, other than to increase the profits of major Labour donor Lord Sainsbury, is to try and get people spending money to keep the economy ticking over. This will only work if Ricardian equivalence does not hold. They may be right, it may be that we are all so highly taxed already that any tax cut simply makes survival a little easier rather than freeing up money that can be saved. However they may be wrong because most people at least realise that all of this debt that Labour is running up will have to be paid back later with interest according to the polls.

65% of people said they had cut their expenditure because they were worried about the future and that a majority of people - 54% - disagreed that they would spend more if the government cut their taxes. An overwhelming majority (79%) thought that any tax cuts now would mean higher taxes in the future.

When people realise that they are not going to see any of this VAT cut anyway, but they are going to see their take home pay fall when the national Insurance rises kick in the prospect of people saving now to have something there for the tax rises to come.

Labour risks causing deflation

The big excuse for the enormous splurge of debt labour have created, debt that will will be repaying through higher taxes for years to come, is the threat of deflation. If we get into a deflationary spiral it could turn the recession into a depression. Unfortunately if it actually does anything noticeable for consumers at all the feeble tax cut they managed of reducing VAT to 15% (admittedly as much as the EU will allow that tax to be cut) could itself risk causing deflation! Had they chosen to reduce National Insurance, rather than raising it, there would have been no such risk. People would be better off from having more money and by reducing this tax on employment they would be better off because they would be more likely to still have a job.

The budget

So that was Labour's big 'save the world' emergency budget, and what do we get? More tax on booze and fags, because Labour are a bunch of puritanical despots that hate pleasure.

The big, and heavily trailed, announcement was the cut in VAT down to the minimum allowed by the EU. Not that this is actually going to have any visible effect at all.

A product enters the supply chain. They sell it another firm for £1.4 + 0.25 VAT, who then claim back 0.25. This second firm sells it on to a third firm for £1.5 + 0.26 VAT and this third firm claims back 0.26. The third firm sells it to the public for £1.69 + 0.30 VAT because £1.99 is an important price point.

A product enters the supply chain. They sell it another firm for £1.4 + 0.21 VAT, who then claim back 0.21. This second firm sells it on to a third firm for £1.5 + 0.23 VAT and this third firm claims back 0.23. The third firm sells it to the public for £1.73 + 0.26 VAT because £1.99 is an important price point.

The VAT is claimed back all the way up the chain. Because VAT was supposed to be like a sales tax, a horrifically bureaucratic and complicated one that is prone to fraud. Like everything else the EU does. Reducing it will be good for cash flow of most firms in the chain since they will not be having to wait to claw as much VAT back from the treasury, but it will do nothing to the bottom line. It will be good for the end retailers (like Labour's last big donor, Lord Sainsbury) because they are able to get a bit more profit, but it will be invisible to the customer for lower value items because there are certain psychologically important price points.

However there is also also going to me more tax on fuel and since the product will need to be moved between all of these firms that is going to increase the costs of the entire supply chain reducing their bottom lines. Cash flow might be easier but the only place it will be flowing is right out the door.

That won't be the only thing heading for the exits. 5% more tax on people with enough money to move country, that such help to fix the Irish property crash then. Perhaps Gordon is banking on these high earners tipping their staff as they leave? They better keep quite if they do get slipped a few fivers, or perhaps a few wheel barrows of fivers once the effect off all this extra debt filters threw into the currency markets, because Gordon plans to have that as well increases in employees and employers National Insurance, aka Second Income Tax and Employment Tax. Yes, they increased the tax on employment to help people weather the recession.

This is all justified by the need for some Keynesian reflation, despite the inflation rate having been above the target level for quite some time and real inflation, rather than Gordon's made up numbers, has been higher still. Of course had they been proper Keynesians they would have been reducing the levels of debt that the government held during the good years to make it easier to finance the counter cyclical splurge when the inevitable correction came. However Gordon Brown had abolished boom and Bust so that was not needed since there would be continous growth for forever more, the lion would lie down with the lamb, and Heathrow's new runway would be used excusively by pigs.

If this was Labour's big bribe for an early election in order to minimise the size of their defeat then they have blown it. No single budget was ever really going to turn around fall out from the bursting of the giant property bubble that has been inflating in this country for years, but this has been a complete damp squib. Gordon will be dragged to the polls in 2010 and his party anhilated. David Cameron will be next Prime Minister but it is going to take decades to clean up the mess that Labour have left behind. One can only hope that Labour are beaten so badly that they are out of power for long enough. It isn't just the economy that he has to fix though, he must also do something about the systematic destruction of liberty Labour have been undertaking. That could well take even longer given how hard it is to get a politician to give up meddling and devolve power downwards. Maybe the first of the inevitable cut backs to try and balance the governments budget can be on ID Cards and Labour's Stasi databases.

UPDATE

The Daily Mash has a great take on it.

Red Green Colour Blind

Harry's Place picks up a nice little tip bit from when the BNP accidentally had their entire membeship list leaked, perhaps they were trying to look more like a government in waiting? It turns out that a Green Party Candidate is also a BNP member, eco-fascist meets real fascist. Not that it should really be surprising that that two parties of the left fringe share members.

Christianism begins to learn from Islamism

The idiot Christianist Stephen Green is at it again, trying to stifle other people's freedom of speech because his invisible friend is an insecure prick. At least in this case it hasn't been pulped and the book in question (Darkness is Where the Stars are) can still be bought from amazon or W H Smith or Waterstones if you don't mind the fact that they folded to this religious maniac. Green also appears to be getting more willing to incite violence saying about another artwork he disliked:

"On the other hand, there were those at the Baltic Centre who wanted to take matters into their own hands and I have warned Anita Zabludowicz that her statue will not survive being put on public display again.

"If the CPS wanted to give the green light to blasphemous art their decision may paradoxically have the opposite effect. With the threat of destruction hanging over it, the Zabludowicz statue is now locked away by its wealthy owners and is unlikely to see the light of day again.

"The same will go for any other blasphemous works of so-called art. Put simply, Christians won't tolerate insults to Jesus Christ."

He must have noticed how well religious violence works as a way of enforcing deference to violent religions.

Two good videos