Publishing what governments earn in natural resource income, is much more powerful than “publish what you pay” rules

Sir, David Pilling lashes out at the House of Representatives (at Trump) for voting to nullify a rule known informally as the “publish what you pay” rule, which obliges oil and mining companies to disclose payments they make to foreign states. “Trump, Tillerson and the African resource curse” February 23.

Pilling puts forward the case of Equatorial Guinea where, “Since oil was discovered, per capita income has rocketed to nearly $40,000 at purchasing power parity, the highest of any sub-Saharan African country. That comes as scant consolation to the three-quarters of the population who live in abject poverty on less than $2 a day.”

Does the population of Equatorial Guinea know that? Most probably they don’t have the slightest clue about it. Just like the poor in my homeland Venezuela do not have a clue that, from their beloved Chavez, they got less than 15% of what should have been their per capita share of the nations fabulous oil income. That is of course so because the redistribution profiteers, like everywhere else, do not want such information to be known.

If for instance a Voice of America (or any other media for that matter) would daily beam out to citizens in natural resource rich countries, how much their monthly per capita share of such income would be, that would produce more beneficial consequences than a hundred “publish what you pay” rules.

Why is it not a “publish what they earn” rule suggested? Probably because, among redistribution colleagues, that would not be considered comme-il-faut. Hey, someone could even begin reporting daily on how much were the overall monthly fiscal revenues on a per capita basis. Horror!

PS. David Pilling, many of your crocodiles are pussycats next to ours

PS. It is interesting to note that the “publish what you pay” rule was irrelevantly part of the Dodd-Frank Act; that which failed to even mention the Basel Committee for Banking Supervision. Here and here

PS. David Pilling thinks that since this rule applies to all, the playing field is now level. He should look into Venezuela and all the chinese natural resource investments. 

@PerKurowski

Are risk weights of: Sovereign 0%, We the People 100%, imposed arbitrarily by regulators, compatible with democracy?

Sir, David Pilling refers to a recent paper by Roberto Foa and Yascha Mounk, that cites findings in the World Values Survey, asking Americans whether they approve of the idea of “having the army ‘take over’. In 1995, one in 16 agreed. Since then, that number has risen steadily to one in six.”, “A continent where the democratic dream lives on” December 8.

I come from a country, Venezuela, in which each day more and more people are toying with the idea of calling in a “new” military, not to have less democracy, but to have more.

And so perhaps the American’s desilusion with democracy that the survey hints at might also reflect that democracy has failed being democracy.

For instance, is the decision process going on in Brussels really compatible with the European democracies? Those voting for Brexit seems to have answered NO!.

And in America, the regulators, for the purpose of setting the capital requirements for banks, surreptitiously set risk weights of 0$% for the Sovereign and 100% for We the People. And that, which is something that clearly reads like a slap in the face of its Founder Fathers, seems as big failure of democracy as they can come. 

So in America, supposedly the world’s prime capitalistic society, statism was imposed. Democratically? No way Jose! 

@PerKurowski

Post-Crash Economics Society: Risk models & credit ratings are not wrong, the credence bank regulators give these is

Sir, since I was travelling I missed David Pilling’s “Crash and learn: should we change the way we teach economics?” October 1.

It discusses the Post-Crash Economics Society that was created by students at Manchester university, mostly in response to “glaring failure of mainstream economics [that failed] to explain, much less foresee, the financial crash of 2008.”

In it Pilling quotes Andrew Haldane, chief economist at the Bank of England: “We all became overly enamoured of a particular framework for thinking, or a modelling approach… It became something of a methodological monoculture [that] was not well equipped for dealing with economies or financial systems close to, or at, breaking point.”

That sounds about right. It was not the models’ faults, but the fault of those using the models.

For instance bank regulators, with mindboggling hubris, and blind faith in the models, using only knowledge, decided that the capital requirements for banks should be based on risk models using ex ante perceived risks. That was dumb. Clearly any regulatory wisdom would have indicated that those capital requirements, should be based on the so much more dangerous consequences to the bank system that could be caused if those risk models or risk perceptions, like credit ratings, turned out to be wrong.

The faster that is understood, the faster we can bridge the differences between those who, like Angus Deaton, though accepting that “economics is a broad church” yet argue that it “needs to be kept rigorous”, and those who, like Joe Earl, want it to be “more an exploration of ideas, and less a training in the economic priesthood.”

Of course, that will require bank regulators to declare much mea-culpa, or in other ways upsetting a lot the cozy relations in their mutual admiration club.

Here a more extensive aide memoire on some of the monstrosities of such regulations.

@PerKurowski ©

As an interested Venezuelan, when lending to a Zimbabwe, should there be no ethical considerations?

Sir, David Pilling and Andrew England report that “Zimbabwe is close to putting the final touches to a debt-arrears package that could see it receive an emergency injection of funds from the International Monetary Fund and other multilateral institutions”, “Cash-starved Zimbabwe closes in on deal to clear debt arrears” July 8.

And for that Zimbawe is receiving the advise of Lazard in order to arrange a seven years loan of $986m from the African Export-Import Bank (Afreximbank), in order to pay back arrears to the World Bank and IMF sin order to access more credit.

That sounds so rational, so hygienic, but should there not be a small question about whether if lending to Zimbabwe is ethical? I mean its government has not behaved too well, and there is no guarantee it will, and any new credit might just help to postpone any urgently needed change.

And so, independently of how juicy the risk premiums or the commissions might be, do the lenders really believe these loans will help Zimbabwe, and not only help some criminals, some technocrat or some bureaucrats?

Because if the lenders decide to bet on the government, and the government does not deliver, should they anyhow have the right to hold the citizens or any future government to repaying their non-earned winnings?

Sir, as a Venezuelan, I am naturally very interested in hearing your opinions on this.

And Sir, I have for decades argued that the world needs a Sovereign Debt Restructuring Mechanism but, for that SDRM to work in the best interests of us citizens, it needs to begin by identifying clearly what should be classified as odious credits or odious borrowings.

@PerKurowski ©

Should not those who live under the thumb of blatant redistribution profiteers have safe access to safe tax havens?

Sir, David Pilling raises a question that needs to be asked more often, especially when inequality is debated “Why would people pay tax if much of the money is simply stolen or distributed to others, and provision of public goods is so inadequate?” “Where states remain at the mercy of their elites”. March 17.

In my country Venezuela, the really poor have not received more than a maximum of 15% of what would have been their per capita share of the nations net oil revenues. The rest if not just wasted, has gone to redistribution profiteers and associates.

And Pilling quotes Senator Alphonso Gaye from Liberia saying: “You need some cash. Your respect in this country depends on your capacity to respond to people’s demands.” Of his salary… how much do you think goes into his responses? 10 percent?

This is why I am hopeful the universal basic income that currently is being studied, for instance in Finland and Canada, could become a reality.

That would help us to get rid of all those odious redistribution profiteers. And with such a redistribution mechanism many would look much more favorably on a pro-equality tax on wealth.

Question: Where would inequality be today if all social redistributive spending had been done by means of a cost effective Universal Basic Income?

PS. My tax paradise (Nothing as powerful against tax havens as tax heavens)

@PerKurowski ©

The only bank credit-allocation taking place, in UK and China, is based on credit risk weighted capital requirements

Sir, David Pilling when writing about deregulation of bank interest rates opines that: “China now needs a better allocation of capital. It needs less money to be pushed into heavy industry, and more into services and innovative industries, many of them outside state control.” “Beijing cannot control babies or banks” November 5.

No Mr. Pilling, as long as China follows the dictates of the Basel Committee, as seemingly it does, that type of “better allocation” of bank credit does not exist. With the credit risk weighted capital requirements, the only real allocation, or more correct misallocation of bank credit that exists, is favoring what is perceived as safe and hindering the access to bank credit of what is perceived as risky. And of course that applies to UK too.

And Pilling also mentions: “Ending financial repression is an important step in the right direction”

No Mr. Pilling. The real financial repression, the one resulting from favoring with ultra low or no capital requirements for banks when holding assets of sovereigns, and which started in 1988 with the Basel Accord, is alive and kicking, even in your UK.

PS. What the Basel Committee has done is not much different from China trying to control babies.

@PerKurowski ©

We must rid ourselves of the incredibly vicious regulatory centrifuge that will make our economies implode.

Sir, David Pilling writes about inflation being a tonic that grows the size of the nominal economy and keeps the ratio of public debt to gross domestic product more manageable, “Japan, too, needs outside thinking at its central bank”, November 29. So that's the trap! What a horror story... at least for those who have saved for their retirement investing in government debt.

First the bank regulators appointed by governments, declare that it is so much safer for banks to lend to the government than to lend to a small business and entrepreneur, and so banks need to hold 8 percent in capital when lending to “The Risky Citizen”, but can lend to “The Infallible Sovereign” holding zero or little capital (Basel II).

As a result banks will expect earning a much higher risk-adjusted return on equity when lending to “The Infallible Sovereign” than when lending to “The Risky Citizen”; while some lucky banks will also be able to grow into desirable “too-big-to-fail-banks”, by leveraging their equity more.

And as a natural consequences of this regulation “The Sovereign” gets saddled with too much debt, and since this could threaten its infallibility, they contract “outside thinking”, which suggests to them they use inflation so as to inflate themselves out of the problem.

And simultaneously, the most cooperating courtiers, the “too-big-to-fail banks”, get knighted as Systemic Important Financial Institutions, which will of course allow them to keep up the cycle of lending to the still "infallible sovereign".

What an incredible vicious regulatory centrifuge they invented. It will make our economies implode. Sincerely, I do not think they did it on purpose, because, otherwise, instead of just wanting the regulators out, I would want them shot.

Who’s really shortchanging who in India?

Sir, David Pilling in “India’s ‘bumble bee’ defies gravity”, February 16, writes: “By selling the licences on the cheap, the telecom ministry is accused of shortchanging the exchequer to the tune of $39bn.” 

Indeed, but, one could just as well argue that if selling the licenses for $39bn more, the exchequer would then be shortchanging the mobile telephone users, to the tune of $39bn plus expected returns more in fees, and over a very long time. 

In other words the $39bn are equal to taxes collected in advance,to be paid by users that are not even aware of it, meaning something which is not an example of transparency. 

In other words the $39bn will have to be repaid at the rate of return required by the telecom investor, rather than at the usually lower interest paid by the government on its public debt, meaning something which is not an example of economic rationality.