Berkshire Hathaway Shareholders Meeting, a photo by timbu on Flickr.

Companies have these advantages to encourage investment and promote growth.

However, one might argue that this should apply to individuals, too.

Imagine if every individual automatically owned a “personal” company (i.e., at birth I would have been made sole director of Thomas Widmann Ltd.), and all their work took place through their company (it would be illegal for companies to employ people rather than other companies). In this scenario, everybody would need to decide when to take profits out of their personal company instead of investing the money (which would be tax-free).

With the move away from direct employment towards self-employment, this is increasingly becoming a reality for a large number of people, so perhaps it would be worthwhile making this approach universal.

After this change, it would be possible to completely abolish income tax, because employment would then always an issue between two companies, and all that would be needed would be company taxation and taxes on withdrawing profits. I guess many people would let their personal companies own their house and their car and let their personal company provide free meals to its employee in order to minimise tax and VAT, but that would be a good thing as it would just be levelling out the playing field (which is currently distorted in favour of companies and rich people).

At the moment, most rich people have companies (or charities) to lower their tax bill, so giving everybody a VAT-registered company would basically just give normal people the benefits that the rich currently enjoy.

gold cast bar, a photo by hto2008 on Flickr.

He’s arguing that Gordon Brown wasn’t an innumerate idiot when he sold most of the UK’s gold reserves at a ridiculously low price, as most people had assumed.

What he really did was trying to salvage the banking system:

It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was.

[...]

Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain’s gold, forcing the price down and allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations.

If true, this puts the gold sale in a completely different light. It was perhaps after all the right thing to do at the time (although I wonder whether bailing out a few banks would actually have cost more than the value of all that gold today), but why didn’t Gordon Brown afterwards try to strengthen the banking system instead of letting them continue their merry games until the system finally crashed in 2007?

Euro, a photo by aranjuez1404 on Flickr.

However, one might argue that this reform was partly responsible for the current euro crisis.

In any area using one currency there will necessarily be areas doing well and other areas doing badly. Normally one would expect the rich areas to have higher salaries, pensions and prices, so that the poorer areas can compete through lower costs.

However, by ruthlessly cutting the costs of doing business, Germany and several other countries in northern Europe have made it almost impossible for southern Europe to compete. In the old days, they would from time to time have devalued their currencies, but now that they can’t do that, they have a real problem. Cutting salaries and pensions (as for instance Greece is doing at the moment) is hardly a great solution, because it makes the local economy grind to a standstill.

I believe Germany (and other high performers in the Eurozone) should accept that they’re benefiting a lot from the euro. If it didn’t exist, lots of European countries would have devalued their currencies drastically, and businesses would be leaving Germany in huge numbers.

I’m half German, so I think I’ve got the right to say that Germany — because of what happened there in the 1930s — has a moral obligation to prevent other countries from sinking into the kind of situation that leads to the emergence of fascism.

My preferred solution would be putting up German salaries and pensions (perhaps by 20% or so). This could be very popular in Germany (“you’ve worked hard, so we think you deserve a pay rise”), and it would immediately make it much more attractive to place a business in Greece or Spain instead of Germany. However, the markets would probably immediately react by lowering the exchange rate of the euro by approximately the same amount, so it’s likely that German products wouldn’t actually get any dearer outwith the EU, which means that unemployment probably wouldn’t rise too much in Germany.

An alternative would be creating eurobonds, as suggested by George Soros and others.

I don’t really care what Germany does, but I’m sick and tired of hearing Merkel lecturing the southern Europeans to become Schwäbische Hausfrauen. I have tons of Swabian housewives in my family, and while they’re absolutely wonderful people, I really don’t think the solution to the Eurozone’s troubles is to turn Greece into a Mediterranean Schwabenland.

As I wrote 2½ years ago, it would be interesting to see something similar for European countries.

I was reading The Economist’s featured article on innovation pessimism yesterday. It’s very interesting, and definitely worth reading.

Before I read it, I said to my beloved wife that it isn’t very surprising if innovation is grinding to a halt, given how scientists are underpaid and ridiculed while footballers, reality TV stars and mediocre musicians are treated like demigods, and youngsters spend their time on their phone and on Facebook rather than reading books and newspapers.

However, after reading the article I’m sitting here wondering why the advent of the computer age hasn’t led to an upsurge in productivity. The article in The Economist doesn’t really answer this and optimistically hopes that we’re just seeing a temporary blip before productivity and GDP starts skyrocketing again.

However, I can’t help thinking that perhaps it’s something else. It used to be the case that manufacturers would produce new and better products all the time, so that you needed to upgrade your old product. The new one would often be more expensive because of the improved functionality, so prices would go up, and because salaries were index-linked, they would rise too, and everybody would get richer and richer. These days, innovation mainly goes into products that don’t cost much. If you’re using Facebook, you’re always using the latest version. It’s not like people will laugh at the old Facebook in your living room, and you’ll feel obliged to buy a new and better Facebook. So there is no cycle of rising prices and salaries, just a cycle of new and better products at the same price as before.

I’m also wondering about the effect of globalisation. In the old days, developing countries would acquire the old technology of the rich countries just as the latter were creating new products. If this pattern had still been in existence, the outsourcing of manufacturing to India and China would have gone hand-in-hand with the rise of computer programming exclusively in the West. In other words, we’d be exporting computer programs to them while importing manufactured products, and the rich world would remain ahead. However, now programming can be done just as easily in Asia as here, and we don’t seem to be developing anything new that we’re better at than them. Surely the consequence of this will be that we can’t maintain much higher salaries in the West in the longer term, which will be a very painful adjustment.

Finally, I can’t help thinking that a larger and larger part of humanity is essentially redundant. Of course some people will need to work in menial jobs that cannot be automated (yet), for instance producing food or collecting rubbish, and other people will have very rewarding jobs on the top, creating entertainment (music, TV and smartphone apps) for the entire planet. However, a lot of people in the middle aren’t smart enough to be at top but won’t be needed in farming and production. Are we perhaps getting to a situation where we need to create jobs simply to keep people occupied and the economy ticking along? Should we abolish unemployment benefit and similar welfare payments and instead give entrepreneurs a lot of money simply to employ people? Or should we just introduce a citizen’s income?

The release of data from the 2011 census in England and Wales makes for interesting reading. (Scotland’s census won’t release any equivalent data until some time next year.)

One thing I found very interesting is how different London is. It’s not immediately obvious when you read the bulletins how big this difference is, because they haven’t published the data for England and Wales without London. However, it’s a relatively simple calculation to work this out, so here are a few of the statistical indicators, showing first London, then England and Wales without London, and then England and Wales including London. (I was thinking about excluding Wales from the table, but it was easier to leave it in, and most of the time Wales didn’t seem to be too different from non-London England.)

London is a wonderful city, and part of its charm is that it’s a truly global city.

What is important is for Londoners to realise that they’re living in a place that is very different from the rest of England and the UK. For instance, Westminster politicians have to be careful not to propose policies based on what would work in the neighbourhood they live in when they’re in London.

Also, one should seriously consider making London independent (or at least a devolved nation inside the UK).

The front page of today’s Economist is dedicated to a story about what would happen if Britain left the EU.

I can easily understand the attraction for people and businesses in Greater London (a.k.a. South-East England): London is to a large extent the capital of the world, attracting headquarters, finance and court battles from a lot of global companies and billionaires. To some extent London is to the world what Switzerland is to Europe.

The kind of policies that would suit London would include almost unlimited immigration (because the high cost of living would ensure that most people would only want to go there for a decade or so), low corporation tax (because it’s better to get 1% tax from all global companies that to get 30% from a select few), privatised health care and universities (because of the number of temporary immigrants and because of the generally high salaries in London), and leaving the EU and getting free-trade agreements with the rest of the world (a position called “Freeport Ho!” in Going South).

On the other hand, the ideal policies for Scotland, Wales, Northern Ireland and non-London England are in general quite different. In general, social-democratic policies (such as though pursued by the SNP in Scotland) would probably be quite popular, and it would make good sense to be a full part of the European Union.

The distance between the needs of London and the rest is so great that it gets incredibly hard to govern all of the UK efficiently.

As I wrote in a recent blog post, “[t]he current state of affairs is a bit like if the Switzerland and France had formed a union at some point and had moved the capital, the company headquarters, the politicians and the media companies to Zürich, with the result that both parts of the union were being run based on what was best for Zürich. I doubt most of France would have flourished in such a scenario.”

Unfortunately, very few people seem to be interested in independence for London (although Kelvin MacKenzie is getting close). Fortunately, we have the option of making Scotland independent in two years’ time, which at least solves the problem up here.

The unionists seem to be in a tizzy about the prospect that Scotland will be forced to join the euro, so let’s have a rational look at the most likely scenarios.

To start with, it’s entirely possible (perhaps even likely) that Scotland will be allowed to inherit the UK’s opt-out. In that case, Scotland will have a formal right to remain outwith the euro indefinitely.

However, what happens if Scotland has to let go of the opt-out as part of the renegotiation of the membership terms? It’s not like Scotland would have to introduce the euro at once. Before any member state can introduce the euro, the convergence criteria have to be fulfilled:

1. Inflation rates: No more than 1.5 percentage points higher than the average of the three best performing member states of the EU.
2. Government finance:
   1. Annual government deficit: The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. If not it is at least required to reach a level close to 3%. Only exceptional and temporary excesses would be granted for exceptional cases.
   2. Government debt: The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Even if the target cannot be achieved due to the specific conditions, the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.
3. Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM II) under the European Monetary System (EMS) for two consecutive years and should not have devalued its currency during the period.
4. Long-term interest rates: The nominal long-term interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states.

Currently the UK doesn’t pass any of the tests apart from the last one, and as far as I can tell, the same would apply to Scotland at the moment. Therefore, Scotland wouldn’t be allowed to join the euro at first, even if the people of Scotland so desired.

It is of course possible (and probably also desirable) that Scotland will fulfil (1) and (2) in the longer term, but criterion (3) requires a deliberate step that Scotland can decide not to take.

This is how the Swedes have managed not to join the euro — they’re technically obliged to join the euro, but they have chosen not to join ERM II, which means that they cannot join. Scotland can do the same, even if it’s against the spirit of the treaties.

Finally, by the time the Scottish economy qualifies to join the euro, the European Union and the euro might have changed beyond recognition, and it is entirely possible that there will be a strong desire to join the euro by then.

It’s definitely not anything to worry about at this stage.

While I enjoyed parts of the book, I don’t think I can really recommend it: it reads a bit like some articles strung together with a bit of editorial glue — there are too many repetitions and a lack of a coherent narrative to make it readable.

I also think they lack a scientific approach. If I had decided to explore whether Britain was developing a third world economy, I would first define a series of tests to distinguish a first world economy from a third world one, and I would then apply the tests to the British economy.

However, they’re generally just chatting along, and it’s not really clear whether they think it’s London, England, Britain, the EU, the English-speaking countries or all of the first world that is facing relegation to the third world.

They’re also variously criticising Britain for doing things differently from most EU countries and bemoaning the influence of the EU over the UK.

The over-all impression is basically two Englishmen sitting in a pub, convincing each other that the country is going down the drain and that everything was much better in the old days.

In spite of the shortcomings, there are quite a lot of interesting tidbits in the book, and I did enjoy the historical sections outlining the UK’s gradual decline since the industrial revolution, so if you’re a fast reader, it might be worth spending a few hours skimming through this book.

I’ve often wondered why tuition fees and bursaries in England are determined by parental income when the students in question are adults and therefore aren’t the parents’ responsibility any more.

However, today I happened to read this article which explains that parents are expected to help their children with their education costs until they turn 25:

What most parents (whether separated, divorced or still together) are probably not aware of however, is that if their child embarks upon higher education, then as the child’s parents, they have a legal obligation to continue to support that child financially from age 18 until the child turns 25. [...] This is known as aliment.

If the parents refuse to do so, the kid can take them to court:

What this means in practice, is that a student child who perhaps feels that they are not receiving as much, if any, financial support from their parents as they require, has the option to instruct a solicitor of their own to take either or both parents to court and to seek a formal award of aliment in their favour.

If this is also the case in England, at least I now understand how they can take the parental income into consideration.

As far as I can see, children of many divorced couples can milk the system, however. University fees and bursaries are decided solely by the income of the custodial parent (normally the mother) in the case of divorced couples, but the child can take both parents to court to refusing to help financially. So in theory, if the main custodial is poor and the other parent is rich, the student can get reduced fees and a big bursary, and in addition they can sue their rich parent for extra money.

It’s not an ideal system. I’d prefer everybody to be treated as full adults from their 18th birthday, and looking at parental income for adult children should be abolished.