Why Taxes are good for you #7: but why you still won’t want to pay them

It’s time to wrap up our counter-intuitive series Why Taxes are good for you. We started it as a slightly cheeky riposte to the massively funded and relentlessly intolerant opposition who insist that taxes must be, always and everywhere, a despicable evil. In the first part we met the industrious but not very knowledgeable Dave Watford who expounded upon the best of their arguments from his post at the bar of the Dog and Duck. We went on to learn the rather chilling truths about life in a low tax nirvana, where their are no laws, roads nor health services and violent death lies around every corner. Part three considered the little known but incredibly well documented story of 18th Century China whose low taxes led it to be conquered by the tax- funded armies of ruthlessly hypocritical western nations. Whatever else they are for, taxes are good for your health as we showed in part 4. We felt that part 5, despite being a historical argument, was crucial. No taxes equals no economy. And if you really do want to get rich, the best chance of doing it is by starting from a well-taxed society, as our part six concluded. We provided lots of links and books and that sort of thing for you to read in order to draw your own conclusions. And so we said ” Quod erat demonstrandum“

Except it wasn’t. Isn’t. And probably never will be. Because we forgot one thing. The benefits of taxes are long term, and require an immediate short term loss. Think how Dave Watford sees it. Money taken from his pocket to pay for armies, nurses, roads is not there now. Indeed, some of those hospitals, schools and museums may not even have been built yet. But Dave feels that loss of money very personally. Money which he could spend here, and now on, any number of Bright Shiny Things. And it is no good telling him “Dave-most of these Bright Shiny Things, that you covet so desperately, will have no value in the long term. Remember how you longed for an Austin Healey, a record by the Bay City Rollers, Watneys Red Barrel, a bottle of Hirondelle, a quadrophonic stereo? All good in their day, no doubt-but are they quite what they were, have not other things come along to take their places?

But Dave knows things that we do not. Has studied authors that we have never heard of. Like Thorstein Veblen who as long ago as 1899 showed that people buy Bright Shiny Things not because those things are useful, but to signal the wealth, status and sophistication of the buyer. To consume conspicuously, ostentatiously, vainly, and emptily. To doom themselves thereby to domination by rich men, and to conquest by foreign ones. Oh well. We tried to warn.

Veblen, T: The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions (1899).

#economics #taxes # finance #history #veblen #consumer society #production #marketing

Why taxes are good for you #6: The best thing for an Enterprise Economy

As we approach the end of this series, we could not resist two more arguments which have always irritated the “taxes are evil” lobby. If only because we haven’t met one of them who has come up with a convincing counter argument. And the first should be beloved of all: taxes are a superb way to control inflation. As Britain and the US began to gear up for the Second World War the sheer enormity of the spending needed ran the risk of runaway inflation. It was Keynes in How to Pay for the War who saw the answer. Taxes, he argued would not provide the money; they would suck excess cash from everyones’ wallets , thereby keeping prices on a relatively stable trajectory. The US applied a similar philosophy in its own way [1] The economy grew at unprecedented rate, bringing prosperity to all. And there was a an even more significant side effect, which led to prosperity lasting for decades thereafter.

Because in both Britain and the US, vast defence spending contracts generated an equally vast ecology of institutions, government departments, University research labs and the rest. All beavering away at new discoveries, new ideas and shiny technologies. No wonder the years 1945 -1970 are remembered so fondly as times of progress and prosperity . Names like Rolls Royce, Boeing and McDonnell Douglas are just the tiniest iceberg tips. If you want to know more, trying kicking off from the site of the US’ famous famous DARPA[2] a seed bed for an almost fractal cornucopia of new ideas. Even things we use today like GPS, the internet, and advanced semiconductors are all horses from this stable. By contrast, the economic ascendancy of western countries only really declined after the tax and regulation reforms of the Thatcher-Reagan years when Proud Finance finally crushed Humble Industry.

Why does this all work? Because ultimately the State is able to take a risk which private enterprise capital cannot. We don’t blame them: this is not a moral failing, just a question of numbers and distributed risk. Its true that in some countries private banks have a much more supportive relationship with their local industries: but these tend to be lands where such innovations as Regulations and Industrial Planning are celebrated, and not seen as wicked socialist evils. Leave aside the fact that taxes pay for the roads, hospitals and schools which provide entrepreneurs with a ready supply of able workers. Their real benefit is to create a vast pool of opportunity in which enterprise can afford to reach losses and profits in turn, and keep coming back for more. After all-what use is a football club without a League to play in? We will be revisiting these and other thoughts in the last of our series. Hold on to your seats.

[1]https://www.federalreservehistory.org/essays/wwii-and-its-aftermath

[2]https://www.darpa.mil/research

#fiscal #tax #financialisation #keynes #second world war #inflation #research and development #history #economics

Pity Rachel Reeves-but Britain’s problems are as dreadful as everyone else’s

Pity poor Rachel Reeves, Britain’s beleaguered Chancellor of the Exchequer (that’s what we call our finance minister). According to Larry Elliott of the Guardian, [1] she faces some agonising choices as she tries to prepare November’s Budget. Being a British Chancellor has never been all beer and skittles. And Larry’s dissection of the fiscal and financial constraints she faces , to say nothing of organisations like The Office for Budget Responsibility (OBR) or the Bank of England breathing down her neck is as succinct and percipient analysis as you will get of the economic landscape of Britain today.

Or any where else. All the advanced nations seem to be in dreadful trouble at the moment. The USA, France, Italy: even the once vaunted Germany and Japan seem be in the same mire of rising debt, financial constraint and absolute inability to deliver the rising standards of living, education and health which their citizens had come to expect. Why do finance ministers suddenly seem so powerless?

They can still control some things of course: fiscal policy , debt issuance, regulatory frameworks and co-ordinating policy with Central Banks. What lie outside their control are immense things like global capital flows, stock market volatility, commodity prices and private investment decisions. At the time of writing over 80% of the world’s investment capital is in the hand of things like Hedge Funds, Sovereign Wealth Funds and Family Offices, as well as less shady entities such as pensions and mutual funds. And this has had very real consequences. For us Elliott’s key paragraph was this rather neat summary of the history of the world in the last twenty five years:

……..the big moves in inflation in recent decades have been globally rather than domestically driven. There was a long period in the 1990s and early 2000s when globalisation led to much cheaper imports, especially from China. More recently, the main reason inflation shot up above 10% was the sharp increase in gas and food prices caused by the war in Ukraine. Trying to hit a specific inflation target using the blunt instrument of bank rate is a mug’s game.

Which raises the question: is the Nation state still the best vehicle to deliver the thing its citizens really need? It’s a big question and the answer may not come down to a simple yes/no. But if it is to succeed, the nation must be immensely strengthened and reformed. Who will do it?

[1] Rachel Reeves is the face of this budget. But the really big decisions are not in Labour’s hands | Larry Elliott | The Guardian

#economics #history #inflation #rachel reeves #UK #Germany #France #finance #money #capital

Stock markets: a crash waiting to happen?

Photo by John Guccione http://www.advergroup.com on Pexels.com

Predictions of imminent and terrible stock market crashes are as cheap and common as chewing gum. That’s why we wouldn’t take them seriously at all if they didn’t really happen sometimes. With dreadful consequences, like the ones of 1929 and 2007-2008 for example. And so when an expert as prescient as Larry Elliott of the Guardian offers a warning, we have to sit up and take notice. [1]

Elliott builds his case carefully, first noting that the chances of the next crash increase the further we move away from the last one. He points to slowing US job creation, rising unemployment and inflation as signs of underlying problems, while the stock market continues soaring away to record levels. We at LSS might have taken even that in our stride were there not so many worrying parallels with the situation in 1929 just before the Wall Street Crash. That summer the economy was starting to show signs of downswing too, while the markets reached giddy new heights Then, as now wealth was concentrated in relatively few hands, making the rich responsible for a disproportionate amount of consumer spending. As Elliott points out

30% of the wealth of Americans[is] accounted for by shares. Since share ownership is concentrated among the better-off, the US economy is relying on the Wall Street boom continuing, and for the rich to carry on spending their gains.

If they stop, the downturn will be very sharp indeed; as it was in 1929.

And this is where our take on Elliott’s article becomes slightly disquieting. He rightly notes that American policy is sharply divided over what to do. Jerome Powell and the Federal Reserve want to leave interest rates where they are, to bear down upon inflation. As President Trump rightly adduces, this could bring down the Stock Market at any time. However, although the President’s idea of cutting interest rates might preserve the equity boom a little longer, it risks dangerous problems with Bond markets as inflation takes hold. For US Treasuries are not just bits of paper. They are still the prime benchmarks for setting lending and borrowing rates around the world. If foreigners lose confidence in US Treasuries, their own bond and equity markets will fall too, In turn dragging Wall Street into the crash the President so badly fears. Damned if you do; damned if you don’t. We do not envy him his choices.

[1]https://www.theguardian.com/commentisfree/2025/sep/25/us-stock-market-trump-wall-street-financial-crisis-federal-reserve

#economics #finance #shares #bonds #wall street crash #markets #depression

If all the wealth in the world were shared out, what would happen?

Many decades ago, we often used to hear the argument “if all the money in the country were shared out, everyone would only get 20p” A tiny sum, which could not make any difference to daily life. This was the UK in 1973, Perhaps it was true then, there. Is it true of the world as a whole today?

The statement itself is a cognitive howler: because it equates wealth with money, carefully avoiding the inclusion of all the goods, capital infrastructure(IT systems, railways, etc.) and productive resources such as factories that make up the wealth of the world, which is best expressed as GDP. When we set out to find what that was, the best estimate was from the World Bank,[1] who put it at $105 trillion in 2023. Now, the population of the world is around 8 billion (8×10⁹) people. What would happen if we found a way to share that GDP among all of them? The answer is: everyone ends up with an an income of $13 125 a year. Which surprised us greatly. Instead of being insignificant, its actually quite a lot. Let us explain why.

That same world bank defines four categories of national income by GDP. Low: $1 135 or less. Lower Middle: $1 136-$4 465. Upper Middle: $4 466- $13 845. High: $13 846 and anything above. There is enough wealth in the world to raise everyone almost to the level of high income countries, certainly to the very top of the middle range.

Now there may be very good reasons why this cannot be done. Some are practical. Some are moral. But if it were done, what difference might it make to such issues as mass migration, educational attainment, and the overall level of demand in the world economy? Let alone health, security and basic nutrition. Just a thought.

[1]https://ourworldindata.org/grapher/gdp-worldbank

#wealth #GDP per capita #economics #inequality #migration #health #geography #economics

Is all the money in the world running out?

Is the United States of America about to go bust, the way that previous empires like Spain and Britain did? Critics point to astronomical levels of government debt ( it’s now a whopping 123% of GDP) and ballooning trade deficits. Exactly the opposite to the US position just over one hundred years ago when it elbowed aside Great Britain to make Uncle Sam the dominant world player. “Ah”, counter the critics” if you have the world’s reserve currency you can issue as much debt as you like. And the fact that America has independent institutions makes its bonds the safest bet in the world for foreign investors”. So-no problem then? Perhaps. The trouble with debt is that it’s OK until it isn’t. As interest rates start to rise (as they have been doing for some time) the rising costs crowd out all sorts of fiscal flexibility. Especially on crucial issues like defence, health and education. As for the United States much vaunted institutions- recent events have put their independence in very great doubt indeed. [1]

But before we heap all the opprobrium on poor old America, don’t forget everyone else is doing it too, Japan is running debt at an eye watering 250% of GDP: while in France things are so bad , there are even rumours that they are flirting with an IMF bailout[2] If stalwarts such as they are in such deep trouble, what hope for less prosperous nations? The answer, chillingly, is not much. According to a report by Schroders [3] the levels of sovereign debt around the world are so high that they represent a real risk to future investment, growth and healthy trade. In effect the repayments will come to stifle most normal economic activity. Though the authors are careful not to go quite this far, what worries us is that if this activity slows, then there may be a real risk that many nation states may become structurally unable to ever repay their debt. If sovereign bond markets cease to function there is no real stable credit, In effect. all the money in the world has run out. The political, social and military consequences of that would be interesting indeed.

[1]https://edition.cnn.com/2025/08/29/economy/trump-fed-turkey-argentina

[2]https://www.theguardian.com/world/2025/aug/27/france-on-the-brink-political-crisis-economic-francois-bayrou

[3]https://www.schroders.com/en-gb/uk/institutional/insights/sovereign-debt-dynamics-the-alarming-backdrop-to-rising-geopolitical-risk/

#sovereign debt #USA #japan #france #economics #finance

Why the Crash of 2028 was worst of all-and why we should have seen it coming

Croydon January 11 2029

Looking back to the events of last autumn they were so very huge and happened so very fast it is still hard to believe they occurred at all, let alone been seen coming. But no market crash happens out of the blue . The causes of had been building up for years And just like 1929 and 2008 they were centred on the property market. With one new deadly ingredient: climate change.

By 2024, 2025 at the latest, it was clear that accelerating climate change was posing a systemic risk to the balance sheets of insurance companies.[1] [2] Vast areas of housing and other real estate close to coasts and along river valleys were becoming too vulnerable to justify the potential payouts, however astronomical the premiums .But spurred by President Trump’s tax cuts, house prices soared: and people extracted money to binge on one last great consumer boom. Yet after the series of giant hurricanes in the Gulf in the summer of 2028 , it was not surprising that several insurers went effectively bankrupt: and others required government help of such size as to seriously weaken the dollar and cast doubts on the value of US Treasuries. Suddenly everyone paused spending. And as potentially uninsurable houses represent no value at all the property market turned down. Just as in 1929 and 2008,a collapse in spending followed, turning the situation from downturn into recession and recession into depression in a few short months. Stock market crashes and massive bank failures followed by the same inexorable logic as in those earlier years. And this time there was no way back

For unlike 2008 there’s no benign community of co-operating nations to pool resources to the rescue. As much due to the efforts Trump administration as anyone else , the world is now divided in to hostile trading blocks. It is in the interest of each to see others fail, as they accrue power and status thereby. So China laughed as its American rival staggers to final ruin , opening a sure and bloodless way to Taiwan. But worse still, unlike previous recessions there can be no return via the normal business cycle. Climate breakdown is the norm: and the conditions it has produced cannot go away, at least in our lifetimes. We ignored the warnings because it was said to do anything about climate change would be bad for business and spoil our prosperity. How ironic that sounds in view of the poverty we must all now endure. Forever,

[1] https://www.mckinsey.com/industries/financial-services/our-insights/climate-change-and-p-and-c-insurance-the-threat-and-opportunity

this piece by pitilla clark of the Financial Times is well worth jumping the paywall:

[2]https://www.ft.com/content/9e5df375-650d-492e-ba51-fb5a34e6ddd6

#global warming #climate change #financial markets #stock market crash #investor #economics

Gold is King!: Did we actually get something right?

Last October (LSS 26 10 24) we published a fanciful piece which purported to come from June 2025. In it, we suggested that US President Donald Trump had raised tariffs to 60% on China and 20% on the rest of the world. (nah, impossible-ed)The resulting disquiet in the bond markets general loss of confidence in US assets and a fall in the dollar, seriously affected its status as the world’s reserve currency. In such circumstances we couldn’t in all honesty see any alternative to gold as the de facto reserve, with all the obvious disadvantages that brings. You will forgive us a modest cough, gentle readers, if we suggest that our little blog, for all it got wrong, seems oddly prescient if you fast forward( or back) to April 2025, a full month ahead of our crystal ball gazing!

Because the recent IMF report [1] suggests the very dangers to which we so modestly adverted you. are now real. Of course, the IMF is not perfect; it too will have its biases and unconscious assumptions like everyone else. But it is compiled by some of the sharpest and most knowledgeable financial minds on the planet, which is why their arguments should be at least engaged with respect. Which is why one aspect highlighted by the Guardian among others [2] has caused us particular disquiet. The writer points out that in the panic after COVID 19 got going back in March 2020, and the famous “dash for cash” it was only the Fed rescuing the US Treasury that prevented a total rout. However:

The real concern here is not technical dysfunction in treasury markets or the mechanics of the Fed, which are the bedrock of the global financial system. It’s about the politicisation of the monetary-fiscal nexus under a Trumpian regime that is fundamentally hostile to the norms of liberal-democratic governance. When even the dollar is no longer a safe haven, what – or who – can be?

There are signs already that gloom can be overdone. As we write these words, Mr Trump and his acolytes appear to be signalling a weakening of their stand on China. While his latest stance on Ukraine suggests bets on his resolve on any issue may be misplaced. In which case the world may breathe a little more easily. Stocks rose yesterday: and gold has fallen back, a little. We are not economic experts nor financial advisors. But as humble citizens with an eye for History we have to at least ask: how long can the dollar, and US Treasuries stay on top of this sort of thing goes on?

[1]https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025

[2] https://www.theguardian.com/commentisfree/2025/apr/22/the-guardian-view-on-the-imfs-warning-donald-trump-could-cost-the-world-a-trillion-dollars

#donald trump #USA #china #IMF #world trade #gold #bonds #equities #economics

Information Inflation: when the internet acts like a debased currency

Pump more money into the economy and you get inflation. It’s a lesson as old as time. The Roman Emperors of the Third Century successively put less and less silver into their coins, slowly debasing the currency. The result? Everyone needed more coins, and so the value of each unit fell. It was the same in the famous case of Weimar Germany where bank notes carried astronomically high face denominations, but were worth no more than than the paper they were made of.

Is it the same with information? The internet, news media, social media, feeds, all churn out a torrent of information. In such circumstances it becomes increasingly hard to know the value of any one piece and many people just give up trying. All information, any information, becomes worthless and people fall back on bartering local knowledge and techniques. We didn’t have this idea first of course: authors such as James Gleick [1] and Nicholas Carr have more than touched upon it. [2] Think how so many people choose to believe the facts that suit them. That is a perversion of the brain.

It’s interesting to see this convergence between information science and economics. If facts act like money, then they too can be debased. People who throw out streams of data, designed to flood, overwhelm and mislead are the greatest inflationists of all. If they can do it with data they can do it with currencies too.

[1] James Gleick Information: A History A Theory A Flood

[2] NIcholas Carr The Shallows: What the Internet is doing to our Brains

#inflation #information science #currency #economics

In a world without a reserve currency, Gold is King

It is June 2025, and the world has learned that it no longer has a reserve currency, a role hitherto held by the US Dollar. The chain of events which began with the election of Donald Trump by a disputed majority in the Electoral College (readers will recall he lost the popular vote) have now reached their logical conclusion. You will also remember how attempts to enforce the result by the US Supreme Court could not be accepted by some States who alleged, with some justification, that the Court was no longer an objective and unbiased institution, Their de facto secession, pending a recount, undermined the integrity of both the US Treasury and Federal Reserve. Meanwhile, attempts by the Provisional Trump Administration to impose import tariffs (20% on all comers, 60% on China) have only led to a retaliatory fire sale of Treasury Bonds and other US assets, which led to this morning’s news of the suspension of dollar convertibility. The United States of America (or rather the three new nations into which it seems to be splitting) is no longer at the centre of the world’s financial system.

But, as of this summer of 2025, do we still have a world financial system? Attempts by the BRICS nations to set up their own reserve must end in failure. The lack of transparency in their systems(one or two are more or less open kleptocracies) mean that no one dare trust them to hold their money . The Euro area is too small and fragmented to possibly bear such a role, and their can be other candidates. How can world trade now be anything more than a slightly sophisticated form of barter?

Yet there is one measure by which value is judged. And always has been. Gold has been prized as the ultimate yardstick of worth by humans, and has been by for millennia. It is transportable, it is tradeable, and its price is known at once by everyone in the market. History suggests that world trade works best when most reserves are held by a single, hegemonic power(think Britain before 1914 or the US before 1971) But even if the world’s gold is diffused across the vaults of many competing nations and empires, it can still provide a standard against which everyone can measure the value of their trades. Expect its price to rise now for the rest of 2025, and perhaps even more next year.

#US dollar #world trade #BRICS #reserve currency #gold