Let’s be very wary of Big Tech and Governments forming Big Brother Joint Ventures

Marietje Schaake holds that “regulators should be able to assess all sectors for harms done to democracy, using specified skill sets… Empowering them to probe, investigate, discover and assess companies’ respect for democratic principles would ensure broader and more explicit accountability” “Weakened democracy is another harm caused by Big Tech”, October 15.

That sounds very reasonable but it behooves us citizen to know that about the worst thing that could happen to our democracies, is the formation of Big Brother Joint Ventures between Big Tech and politician/government bureaucracy.

In the same vein, on October 13 Chris Giles in “Rich nations draft blueprint for $100bn revolution in corporate tax” reported on the large appetite that exists when it comes to taxing “the likes of Google and Amazon”. Sir, do we really want to see the taxman having financial incentives in the exploitation of our personal data? We do not.

Now, if all advertising revenues generated by exploiting such data was shared 50-50 with us who supply the data, for instance by means of helping to fund an unconditional universal basic income, that would much better align the incentives of all participants.

But Sir, this does not mean I see no role for regulators when it comes to Big Tech. On the top of my mind I can list:

That they help guarantee we’re always receiving messages from parties that we can easily and accurately identify.

That they help us to be targeted as precisely as possible, so that our scarce attention span is not wasted in irrelevant/useless advertising/information.

That they do their utmost to keep out all those redistribution or polarization profiteers who, with their messages of hate and envy, destroy our societies.

Sir, one last question. If an author can get a copyright for a book, should we not be able to get a copyright on our preferences, that which we include in our book of life?

PS. Sir, since soon I’ve written you 3.000 letters on the topic of the incredibly mistaken bank regulations that cause so much societal harm, you must understand that the whole topic of regulations makes me nervous. 

@PerKurowski

The battle between capital and labour may be surpassed by the battle between the working class and the not working class.

Rana Foroohar announces, “The age of wealth distribution is coming and will have major investment consequences”, “The age of wealth accumulation is over” August 5.

Indeed, but two questions stand out. 

First, for wealth to be redistributed some assets of the wealthy must be sold and, since precisely because of that there might be less interest among other to acquire those assets, the value of these could fall… with unexpected consequences. Here’s an example, what is best for New York City keeping property taxes and property values at current values, or increasing the taxes running the risk that property values fall and wealthy property owners run away somewhere else?

The second question is who is going to redistribute? Will a mechanism like an unconditional universal basic income be used, or will the usual redistribution profiteers be in charge of it?

Foroohar also announces, “Another battle will be between capital and labour.” That battle will always be present but, in these times when robots and AI seem to threaten jobs, the real battle could end up being between the working class and the not working class.

http://perkurowski.blogspot.com/2012/04/we-need-worthy-and-decent-unemployments.html

@PerKurowski

So if the taxman/(Big Brother) is now to get a share of the revenues some Big Tech obtain exploiting our personal data… who is going to defend us citizens?

Sir, you deem “The ability of some of the world’s most profitable companies to escape paying fair levels of tax…unfair both to other businesses which do not trade internationally and to governments, which lose substantial revenue” “France leads the way on taxing tech more fairly”, July 12.

It might be unfair to us taxpaying citizens but “unfair to the government”, what on earth do you mean with that? That sounds like something statist redistribution profiteers could predicate but, frankly, the government has no natural right to any income.

And since Big Techs like Facebook and Google obtain most of their revenues by exploiting us citizens’ personal data, then if there were some real search for fairness, a tax on ad revenues from such exploitation should better be returned directly to us, perhaps by helping to fund a universal basic income.

But what ‘s the worst with these taxes is that now effectively governments will be partners with these companies in the exploitation of our data. With such incentives do you really believe our interest will be duly defended? We, who are afraid of what all our data could feed with information a Big Brother government, must now recoil in horror from that we will also be suffering an even richer and more powerful Big Brother.

PS. Sir, it is not the first time I have warned you about this.

https://teawithft.blogspot.com/2018/03/our-need-to-concern-ourselves-about-use.html

https://perkurowski.blogspot.com/2019/05/i-have-some-ideas-about-what-could.html

@PerKurowski

Cutting taxes by means of inflation adjustment vs. reducing regulatory subsidies to state borrowings?

Sir, Sam Fleming reports “The Treasury has been examining the merits of adjusting capital gains taxes for inflation” “White House push to cut taxes for rich faces thorny obstacles” August 3. 

Fleming points out that the “initiative could cost $100bn or more over 10 years” and “Estimates from the Congressional Research Service suggest as much as 90 per cent of the benefits would go to the top 1 per cent of households.

Steve Moore, a visiting fellow at the Heritage Foundation opines: “It would be good for the economy. This is something we as free market people have been talking about for a long time.”

I am for free-markets, and I defended with great enthusiasm even more extensive inflations adjustments when they were introduced in Venezuela some decades ago, clearly before its current anti-free market regime came to power.

That said I would now use this occasion to ask, are such inflation adjustments, which reduces tax income, really compatible with the 0% risk weight assigned to the quite sizable US debt for the purpose of the capital requirements for banks?

That 0% risk weighting, de facto subsidizes US public debt, and which, on the tune of some 21 trillion in debt, could easily represent $100bn or more over 10 years.

If I were to choose, both from fairness and a free market perspective, I would much rather cut the bank credit distortions in favor of the sovereign than the inflation adjustment.

Just for a starter that would allow all to see better what the real unsubsidized interest rate on government debt is, and that should be useful, except fro those who do not want that to be known. 

PS. With a 0% interest rate, a 2% inflation target, how can regulators argue a 0% risk weight for a sovereign? That is of course unless they are from Venezuela or Zimbabwe, and only think of honoring public debts in nominal terms with the printing machine.

@PerKurowski

How would I privatize a public service? Always making sure that who owns and manages it, are neighbors I can hold accountable.

Sir, I refer to Martin Wolf’s discussion on the subject of privatized or not public services. “Nationalisation is the wrong answer to a real question” December 12.

I was a very active participant, wearing many different hats, in many of the privatizations that took place in my Venezuela, during its privatization influenza.

Like Wolf I much favour the private over the public sector managing these services but, looking back, the number one requirement I would make when privatizing, would be to require the private owners of any such privatized public services, to live within the community, and have their affiliation to the public service transparently identified all the time. Like being able to call over the fence: “Hey Bill, what happened last night when the lights went out”, “Hey Bill, can’t you find a way to stop it from being so expensive?”

I felt in the air the immediate difference between a private electrical services company held by a family living in Caracas, who wanted to make profits but also to be seen as good public servants, and that same company when it passed into the hands of absentee owners.

It was day and night! The new investors loaded up the old conservative run company with debt, took most of their skin out of the game paying themselves huge dividends and other services, and left the poor users having to serve that debt.

Of course, then came Hugo Chávez and put it all in the hands of the government, and so it went from a bit bad to plain horrible.

PS. But also, any privatization should be done in terms of who offers the lowest rates, not, as it too often has been, about who offers the government the most money upfront.

@PerKurowski

If Martin Wolf wants to help the poor at the bottom, why does he not help me arguing for getting rid of the risk weighted capital requirements for banks?

Sir, Martin Wolf, morphing into an activist, describes the Republican tax plan as “a determined effort to shift resources from the bottom, middle and even upper middle of the US income distribution towards the very top, combined with big increases in economic insecurity for the great majority”, “The Republican tax plan built for plutocrats”, November 22.

But, since Wolf refuses to discuss the distortions caused by bank regulators, let me here ask him, in quite similar terms: What is the risk weighted capital requirements for banks if not something that stops the “risky” bottom, middle and even upper middle of the US income distribution, from accessing those opportunities of bank credit that could help to propel them upwards?

Day-by-day it is becoming clearer to me that Martin Wolf is just another statist that thinks it is just great that sovereigns are 0% risk weighted and unrated citizens 100%.

I agree of course with Wolf in that “the reductions in corporation tax will [not] lead to a big rise in business investment”. But that, among others, is precisely because the regulators have seriously damaged one of the primary transmission channels of freed resources, namely bank credit.

What is not clear to me though is to what Wolf refers to when arguing that the rich will benefit more from tax cuts. Does he mean in paid US$ in taxes? Because if so I would say it is quite natural that anyone who is paying more $ taxes will pay less taxes when taxes are cut.

We read: “In the more cautious Senate version, households with incomes below $75,000 would be worse off.” Does Wolf want to imply these would now have to pay more in taxes? If so, I am totally on his side on this issue… but I sort of doubt that. $75,000 sounds like a quite normal civil service salary, and you usually don’t go after you own, on any side of the aisle.

@PerKurowski

If chefs cannot obtain effective intellectual protection for their recipes, how can they beat robots armed with AI?

Sir, Sarah O’Connor writes: “The risks to workers from ever smarter computers are clear, but the opportunities will lie in maximising the value of their human skills. For some people, such as talented chefs, the battle is already won.” “Machines do not have to be the enemy” November 1.

Oh boy, is she not a romantic? How on earth will individual chefs survive against robots and AI, unless it is for those few the 1% of the 1% is able and willing to pay for their human artisan cuisine creations protected by patents?

That “In most jobs, people combine cognitive skills with other human abilities: physical movement; vision; common sense; compassion; craftsmanship… that computers cannot match”, that unfortunately sounds like wishful thinking.

Much better is it if we accept that robots and AI can supplant us humans, in way too many ways, and instead look for ways how they should be able to work better for all humanity. And in this respect she is right, "machines are not the enemy".

I say this because since many years I have held that we do need to prepare decent and worthy unemployments, in order to better confront a possible structural unemployment, and without which our social fabrics would break down completely. Capisci?

That might begin by taxing the robots so at least humans can compete on equal terms.

Of course a totally different world might be out there in the future, but I can’t but to stand firmly on my western civilization’s stepping-stones, those that got me to where I am.

@PerKurowski

Are taxes on petrol correctly used? Repatriation of what “cash”? End users/payers of infrastructure should be present

Sir, Gillian Tett, discussing the financing of president Trump’s plan for infrastructure writes: “One sensible, overdue step would be to raise the petrol tax to pay for infrastructure; another would be to use proceeds from repatriated overseas corporate cash.” “Private money might yet save Trump’s infrastructure plans” May 26.

First, more taxes on petrol just means that more money goes into the same fiscal pocket to be channeled in often quite non-transparent ways to uses that might or might not include the building of infrastructure. The best use of taxes, such as those on petrol, which by the way constitutes de facto a discriminatory import tax on gas, is to transparently help fund a Universal Basic Income scheme.

Second, “cash”, what cash? Could Ms. Tett believe that high denomination bills stored under corporate treasurers’ mattresses represent that cash? Before opining anything about what “cash” could do, I suggest she finds out how that “cash” is currently deployed. Who knows, it might all be invested in gilts.

Finally, I have witnessed decent privatizations and infrastructure PPPs in my life, but I have also seen those that are only ugly expressions of crony statism. In this respect at the negotiation and executions phases of any privatization, any public infrastructure project, or any PPP, future users, or otherwise payers for the projects or the services, should be present… and their names publicly recorded as having represented the citizens.

Too often most of us see something very wrong that makes us reflect: “This would not have been the case had my grandfather or grandmother overlooked what was going on.”

@PerKurowski

Just as there is room for higher taxes, there is also room for much lower margins for the redistribution profiteers

Sir, Rana Foroohar writes: “It is likely that companies would put any extra money from a lower rate on repatriation of foreign cash into share buybacks. The 2003 dividend tax did not increase investment, but the 2004 repatriation holiday bolstered buybacks 21.5 per cent.” “The case for higher taxes” May 22, 2017

What? Does she mean that the “foreign cash” is in cash (stashed away under a mattress) and not already deployed in assets like for instance US Treasury Bills?

What? Does she mean that was has bolstered the immense buyback we have seen over the last decade has more to do with repatriation than with the low interest rates imposed on markets by the Fed, by means of QEs and bank regulations?

Clearly there is room for higher taxes, but never ever crazy 83% ones, and not those that enrich the redistribution profiteers, but those that would allow to initiate the payment of a Universal Basic Income, perhaps starting at only $300 per month, and then taking it from there.

That could help growth and that could help reduce inequality.

@PerKurowski

Martin Wolf, to keep the welfare state alive, before considering taxes, look at what real economy you need for that.

Sir, Martin Wolf asks: “Will the UK public sector be able to provide the benefits the public expects in return for the taxes it is willing to pay? The answer to that question seems to be “no”. If so, will the promise to provide some universal services be abandoned? Will taxes be raised? Or will debt be allowed to grow until it has to stop?” Wolf answers: “With current commitments, [fiscal] revenue must rise relative to GDP… The alternative is to abandon pillars of the welfare state.” “It is time to talk about raising taxes” May 19.

That starts from the wrong end. The real question should be what future economy do we need so that it will allow fiscal revenues or other means by which not having to abandon the pillars of the welfare state? The answer to that question might be increasing taxes as Wolf recommends but it could also require many other means, not necessarily including extreme ones like to “choose a collapse in life expectancy”

For many decades I have argued the best and most sustainable pension/health plan to be that of having children who love you and are working in a healthy and functioning economy.

I have been blessed with loving children, thank God, but I do fret about the future economy, as there is no way on earth for it to be either healthy or functionable with regulators distorting the allocation of bank credit, with their insane risk weighted capital requirements.

Since 1988, with Basel I, that set the risk weight of the sovereign at 0% and the citizens at 100%, public indebtedness has been artificially subsidized.

Unless that distortion is eliminated it will guarantee to deliver unsustainable public debt levels and an unhealthy economy. That is because whether the statists like it or not, reality is that government bureaucrats do not know how to use bank credit more productively than the private sector’s SMEs and entrepreneurs.

Having allowed the banks to run up such huge exposures to what is perceived as safe, the past and the present, while refraining from financing the riskier future, will cost our aging society much, because frankly, why should our children and grandchildren ignore that regulatory discrimination against them.

If we do not rectify, there will come a day where the young will show the elderly the finger… pointing at the closest “ättestupa”

PS. My decades long insecurities on the debate about social security

PS. Of course immigration and emigration could also help.

PS. A 2022 letter in Washington Post: “Before the debt ceiling is lifted, Congress must dare to at least pose a question.”

@PerKurowski

Our societal radar does not record sufficiently many crucial problems and less do we discuss their possible solutions

Sir, Gillian Tett refers to JD Vance’s “Hillbilly Elegy” April 28.

The author, having faced “a family and culture in crisis” and in order to “combat a culture of instability, irresponsibility, anger and pessimism, made worse by opioid addiction’ suggests, besides the reintroduction of [some] military service, giving extended family members easier adoption rights over troubled children, enabling people receiving housing vouchers to move beyond poverty-stricken ghettos, and, most crucially, encouraging business to work with schools and community colleges to reshape education for teenagers, with more mentoring and apprenticeships.”

Ms. Tett concludes, “These are profoundly sensible steps. But they are also notably not measures that are getting much attention from Trump, let alone from the Democrats. Therein lies the tragedy of America today.”

Absolutely, it is a tragedy, but not only of America. Too much is not recorded timely by our social radars, or if identified then becomes horribly distorted, most often by those who want to profit, monetary or political, from the solutions.

For example: The world is facing structural unemployment, among other by robots and automation becoming more and more efficient. But was that talked about during the last election? No! It was not as politically juicy as going after, or defending, immigrants. If it had been discussed the Mexican wall could have been a non-issue.

In such a jobless world, in order to remain viable societies, we would have to create decent and worthy unemployments, which would probably have to include some sort of universal basic income? But was that talked about during the last election? No!

Also, for our economies to be able to move forward we have to stop current insanely risk adverse bank regulations, that refinances up to the tilt the safer present and past, while refusing financing the riskier future. Is that distortion discussed? No way Jose! If you do they might not invite you to Davos.

Instead populists agitate for instance with realities such as some few billionaires holding more wealth than half of the world’s population…while conveniently ignoring how un-transferrable such wealth really is… or scream about all the “cash stashed away” as if that cash was cash.

To have a chance to leave something reasonably workable to our grandchildren, we need to dramatically realign many incentives and fight those who are marketing solutions only to profit on these. In that respect here follows some of my wishes:

That we are able to keep the fiscal income lean since that is the only way to guarantee the fiscal spending does not get mean.

That we fight tooth and nail against all redistribution profiteers. By for instance creating carbon taxes that helps to save the environment, but that have all its revenues shared directly, equally, among citizens.

That we develop guidelines that help us classify credits, and as a consequence debts, into legitimate or odious.

That we make the pension plans of academics of the universities entirely contingent on how it goes for their students. As a minimum their pension funds should hold all the education loans that were given out in order to pay their salaries.

And of course, please, we must get rid of the so useless and so dangerous risk weighted capital requirements for banks.

@PerKurowski

How do you tax land deemed “junk space”?

Nicholas D Rosen writes that Henry George, “writing in 1879, noted that if labour-saving technology reached perfection, labourers would get nothing and capitalists would get nothing; all production would go to the owners of land, as land would still be needed despite automation”, “Instead of taxing robots, tax the land” February 23

And Rosen uses that to argue for “letting people keep what they earn by their own efforts, and putting the burden of taxes on those who enjoy the privilege of holding land that they did nothing to create.”

“what they earn by their own efforts”? Oops I thought we were referring to robots.

“privilege of holding land”? Oops, most people don’t care one iota about land; they just want to be close to each other, preferably close to the 1%, in order to have a better chance to make it. Recently Kjell A Nordström, a Swedish economist, mentioned in that in 30 years five million will inhabit Greater Stockholm and that other parts of the country emptied of people would become economic "junk space".

@PerKurowski

If Uber drivers are considered workers, are not driverless cars, or robots, workers too, to be taxed accordingly?

Sir, Sarah O’Connor, Jane Croft and Madhumita Murgia report on how “Uber drivers in the UK have won a crucial legal battle with a tribunal ruling they are “workers” entitled to the minimum wage and holiday pay.” “British court rules Uber drivers are ‘workers’ in setback for ‘gig economy’” October 29.

Yes, but if so, why are not those driverless cars that are expected to soon be supplanting all drivers not considered workers too?

Sir, as I have written to you before, if we do not tax what will represent lost work opportunities for humans, something’s going to have to give.

I have nothing against artificial intelligence or robots replacing human workers. That’s great, that will leave us humans much more time to enjoy life. But our non-human replacement workers need to be taxed too; and all those tax revenues re-distributed to all of us humans, by means of Universal Basic Income. That so that we humans will be able to afford enjoying all our additional spare time.

And it is all a case of simple justice. If a company does not employ me because of the payroll taxes I generate for him, should not my robotic substitute be charged with those same taxes?

And a Universal Basic Income would make it so much easier for all us humans to adapt to the gig-economy… we would not have to work 16 hours a day to make a living, perhaps 4 hors would do.

PS. I pray for my grandchildren not having to live surrounded by dumb artificial intelligence and lousy 2nd class robots  

@PerKurowski ©

Free market capitalism with regulatory controls on the free flow of bank credit, is an oxymoron

Sir, I am not discussing here Margrethe Vestager’s, the European Commission’s competition chief decision to order Apple to pay €13bn in back taxes to the Irish government. But, titling as Philip Stephens does his September 16 article, “How to save capitalism from capitalists” seems to me topsy-turvy.

What now most hinders free-market capitalism from delivering its full potential, is not capitalists, but inept and statist bank regulators.

Currently, for the purposes of the risk weighted capital requirements for banks, “The Risky”, like SMEs and entrepreneurs, those who cannot even afford a credit rating, are given a risk weight of 100%, while the government bureaucrats who are going to spend the tax revenues, or the public indebtedness, are risk weighted at 0%.

That translates into that government borrowings are subsidized, a fiscal revenue, with the subsidies, the taxes, paid by those “risky” that as a result have less access to bank credit.

So the real question should be: how to save free-market capitalism from state capitalists.

As is we really need a Robin Hood to come and rescue us from Sheriffs of Nottingham disguised as expert bank regulators.

But it is even worse, because those yet unpaid €13bn of Apple are not allowed to flow freely as bank credit even within the private sector; and that is because “The Safe”, the AAArisktocracy, have also been given a much lower risk weight, one of only 20%.

Sir, and if only those who rightly pressure taxpayers to correctly pay up, would also try to pressure with the same vehemence, the tax revenue spenders to correctly spend.

@PerKurowski ©

Nowadays they are much more sophisticated

PS.Basel Committee’s risk weighted bank capital requirements with decreed risk weights of 0% governments - 100% citizens have, since 1988, empowered a Bureaucracy Autocracy.

Governments best take big decisions, when there’s no conflict of interest, no stupid groupthink, and contestability.

Sir, I come from an country, Venezuela, where privatizations of public owned utilities were based not on who would provide us citizens the best services, but on who would provide the state with the highest upfront payment… an anticipated tax revenue for the government, to be paid later by us citizens by means of higher than needed tariffs, for decades to come. And, to top it up, that was accused of being odious neo-liberalism product of the Washington Consensus. 

That’s why when I read Martin Wolf’s “Big energy decisions are best taken by government, not the market” of September 16… I immediately reacted… “Hold it there, take it very easy!”

If government is going to take big decisions, as it should, we must make sure all its possible conflicts of interest are removed, and that the decision process is transparent and guarantees contestability, and not just the result of a small mutual admiration club of technocrats/bureaucrats.

For instance, allowing bank regulators to impose their statism of a 0% risk weight for the Sovereign and a 100% risk weight for “We the People”, was wrong.

And allowing bank regulators to impose risk weighted capital requirements for banks based on the ex ante perceived risks of bank assets, and not on the ex post risks conditioned on the ex ante perceived risks, was utterly stupid. What’s the chance of something really bad happening from something perceived as “safe”, and what is it for something “risky”?

Wolf lectures us: “Rational risk-taking by individual financial businesses will create substantial threats for others. This, too, is a spillover, or “externality”. Financial regulation has to internalise such externalities, thereby reducing the likelihood of crises and making them more manageable when they arrive. One way to do so is to raise capital requirements far above what profit-seekers would wish”

I argue that much more important than that, is to get rid of the credit-risk weighting of the capital requirements that only distorts the allocation of bank credit to the real economy while serving no bank safeness purpose, much the contrary. Wolf, in spite of hundreds of letters I have sent him over a decade on this issue, has yet to understand that.

And Wolf ends “The government must have the courage to make… difficult decisions and the wisdom to make them well.” Yeah, yeah, yeah, but what if the decision makers are dumb and we are not allowed to correct them… because so many want to suck up to them nevertheless (like in Davos)… or because some are interested in exploiting that dumbness? 

@PerKurowski ©

Why should profits made with IPR protection, patents, be taxed the same as profits made in the nude?

Sir, I refer to Andrew Ward’s “FT’s Big Read on Drug Prices: Tweaking the formula” April 26.

First of all I did not know of Nice and I must admit I am impressed that some formal rulings exist on whether to fund the use or not of some medicines. That certainly must help to put a lid on some bureaucrats’ “flexibility”.

That said, the article reminds me of a question I have posed many times before, including in Op-Eds in my country Venezuela, and in letters to you.

Why on earth should profits derived from operations under the protection of an Intellectual Property Right (IPR), patents, be taxed at the same rate than profits obtained fighting it out in the markets, naked, with no protection at all?

Surely the revenues of a special IPR/Patent profit tax could be ploughed back into some type of insurance scheme that could help cover some medicine costs the society can in general not afford to cover.

@PerKurowski ©

Tim Harford, what about taxing the sin of excessive risk aversion instead of subsidizing it?

Sir, I refer to Tim Harford’s “These are the sins we should be taxing” March 12.

Mark Twain supposedly said: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” And we used to mock or even abhor the risk aversion there implicit.

But then came regulators and with their risk weighted capital requirements; which allowed banks to leverage more the equity with the safe than with the risky; which allowed banks to earn higher expected risk adjusted returns on equity with the safe than with the risky; which was a de facto tax on risk taking and a de facto subsidy of risk aversion; they made it absolutely certain that Mark Twain was more correct than ever.

And that is indeed socially harmful. Not only does it block the access of “the risky” to bank credit, the SMEs and entrepreneurs, something that causes both more inequality and lesser economic sturdy growth.

But in order for this truth to sink in, so as to do something about it, we need that persons like the Undercover Economist understand the difference between the possible short-term costs of risk taking, and the truly high and certain long-term costs of risk aversion.

Just because something is perceived risky does not mean it is risky, sometimes it means, ex post, that it is quite safe. Make sure you really know what is what in risk and sins, before you tax it. ​Know your base rate J

@PerKurowski ©

Tim Harford, non-transparent taxes disguised in clothes of bank regulations, is that not statist sadism?

Sir, I refer to Tim Harford’s discussion of taxes from the perspective of economists, “The pillar of tax wisdom”, November 21.

If companies could like governments print money so as to repay their debts with money worth less, or if companies, like governments do when they increase taxes, could when in need force shareholders and strangers to pay in additional equity to help repay its debts, then companies could be as “good-credits” as governments.

In 1988, the overall important G10, with the Basel Accord, sprang the risk weighted capital requirements for banks on the world. In it bank regulators amazingly decreed the risk weight of the sovereign, meaning the government, was to be zero percent, while that of the private sector was set at 100 percent.

From that moment on, banks of G10 would be able to leverage their equity more with loans to the sovereign than when lending to the private sector. And that meant banks would earn higher expected risk adjusted returns on equity when lending to the government than when lending to the “risky” private sector. Of course, implicitly it also meant that regulators believe that governments could use bank credit more efficiently than the private sector. In other words an expression of statist sadism!

That translated into a non-transparent subsidy for the government, just another different type of tax revenue, payable by all the extra interest rates or lesser access to bank credit the private sector would have as a result of it.

How much would that tax be? It is hard to say but, if we consider that the most important part of its cost is the foregone opportunities of fair access of bank credit to SMEs and entrepreneurs, then we could be talking about some truly mindboggling amounts.

Sir, would you ask Tim Harford whether he, as an economist, has any opinion about taxes disguised as regulations?

PS. That subsidy also implies that the usual proxy for risk-free rates, like US Treasury, now indicates a subsidized risk free rate

​Per Kurowski

Economist

@PerKurowski ©

Tax profits obtained under the umbrella of patents higher, and plough those revenues back lowering medicine prices.

Sir, I refer to Jonathan Ford’s “Pricing of life-saving drugs is put under the microscope” Monday 17.

It is for sure a very difficult and delicate topic that of harmonizing the incentives needed for research to be carried out, with the need of the results of that research ending up being accessible for the general market.

Since open ended (no profit limits) intellectual property rights is the source of much current income inequalities, I have for some time now been suggesting those profits generated under the umbrella of patents, should be taxed at a higher rate than profits obtained when competing completely naked in the markets. 

Perhaps the revenues obtained with such taxes could be ploughed back in exchange for lower prices and thereby help to bridge somewhat the divide between the two objectives.

http://perkurowski.blogspot.com/2014/08/my-current-list-of-prominent-inequality.html

http://perkurowski.blogspot.com/2006/05/human-genetics-made-inhuman.html

@PerKurowski

Greece’s “NO!”, to be useful, must foremost be a “NO!” to the Basel Committee’s pro-government biased bank regulations.

Sir, Nick Malkoutzis writes: “Greeks…need to hear something more hopeful than talk of more spending cuts and tax rises.” “Greeks deserve more than threats of further hardship” July 6.

Spending cuts and tax rises can indeed strengthen the finances of a government, but, if it does not go hand in hand with the strengthening of its private sector economy, which is what supplies its sustainability, it all becomes a exercise in futility.

How did Greece get into the hole? By European bank regulators telling the banks they were required to hold much less capital when lending to the Greek government than when lending to the Greek private sector… and so the banks duly responded and, in relative terms, lent much too much to the Greek government and too little to the Greek SMEs and entrepreneurs.

And so now Greece must wake up to the fact that, no matter what dumb self-serving Euro/Basel technocrats believe, the private sector makes better use of bank credit than government bureaucrats. And so the “NO!”, if it is going to be useful, must foremost be a “NO!” to the Basel Committee’s pro-government biased bank regulations.

And if the ECB really wants to help, they should device a plan to recapitalize Greek banks… after all one of its super-technocrats, is Mario Draghi who, as former chair of the Financial Stability Board, is co-responsible for the mess Greek and other banks are in, after lending so much to governments against so little capital (equity).

@PerKurowski