Save the economy! Stay on the dole!

April 4th, 2015 § 0 comments § permalink

Alex Harowell has an interesting post about the economics of unemployment at AFOE.

In a strong economy, career paths tend to stay within a specialism, developing increasing experience and skill, and hence steadily increasing productivity. Or if somebody switches careers, it’s more a case of reculer pour mieux sauter, taking a temporary setback to end up somewhere more productive.

That doesn’t work in a recession. People who lose their jobs in bad circumstances are more willing to accept a new one, even with much worse pay and prospects.

In the long term, this is often a Bad Thing, both for them and the economy. They get onto a different career path, one coming more from desperation than choice, and will find it hard to switch back:

The unemployed are suddenly driven off their optimal productivity path, and are usually under pressure to take any job that comes along, no matter how suboptimal. Until they get back to where they were before the crisis, on their new paths or on their old ones, the economy will forego the difference between their potential and actual production.

The long-term cost of this depends on how desperate the unemployed are to take just any job that comes along. It’s better for the economy if they stay unemployed for a while before returning to a high-productivity career, rather than getting locked long-term into something less productive.

i.e. it all depends how society treats the unemployed. If you cut benefits, treat the unemployed like shit, and hussle them into whatever job is available (UK), you set the country up for long-term under-productivity:

If the unemployed sit it out and look for something better, you would expect a jobless recovery and then a productivity boom – like the US in the 1990s. If the unemployed take the first job-like position that comes along, you would expect a jobs miracle with terrible productivity growth, flat to falling wages, and a long period of foregone GDP growth. Like the UK in the 2010s. And if your labour market institutions are designed to prevent the information destruction in the first place, with a fallback to Keynesian reflation if that doesn’t cut it? Well, that sounds like Germany in the 2010s.

* lets ignore the fact that people may choose lower-paid (i.e. less productive) work for non-monetary reasons. Everything else works out much the same

How not to diagram company ownership

March 17th, 2015 § 1 comment § permalink

I’ve seen some truly awful infographics of corporate ownership structures. I’ve even occasionally perpetrated them. But this image is a classic of the genre:

Pretty convoluted, huh?

It’s from Muddy Waters, a much-feted research and short-selling firm. They are arguing that French conglomerate Bolloré owns a lot of itself through intermediate companies. We’re looking here at Financière Moncey, an indirect subsidiary of Bolloré, and the point is to show “how complex the relationships actually are” among these structures.

Look a bit more closely, though, and you’ll see that most of the complexity is artificially added. The diagram is just the same structures repeated again and again and again.

Here it is again, with all the repetitions deleted:


Fair play to Muddy Waters for figuring out the ownership structure. That kind of structure is painful to make sense of, and it’s easy to miss the circular ownership.

But they do seem to be deliberately exaggerating the complexity. Presumably the point is to show that things are so complicated that only their analytic genius can make sense of it. It goes with some snarky digs at analysts in the report itself — “BOL has likely been misunderstood because the complexity of its structure makes it infeasible to use Excel to estimate the percentage of circular ownership“. Much as I enjoy their approach, I wish they could make their point without, well, muddying the waters.

Increasing hedge fund bosses’ tax bills

February 27th, 2015 § 1 comment § permalink

I’m always pleased when campaigners about tax avoidance manage to find concrete examples of what they want changed. It takes a lot more knowledge and work, but is much more likely to have some impact in legislation.

So it’s great that 38 degrees have zoomed in hedge fund managers claiming their income as capital gains rather than wages. This not only gives them a lower tax rater, but makes it easier for them to claim numerous exemptions. The end result can be tax of just 12.7%.

Last week they released a report on the topic. It’s written by my friend Mike Lewis, and estimates the tax cost of this ‘loophole’ at £700 million per year.

38 degrees’ proposed solution is to explicitly treat payments to private equity employees as salary. That’s probably the right position for them to take — it’s a good change that might plausibly be implemented.

Personally, though, I’d prefer a much more radical change. It’s abhorrent to tax labour so much more highly than capital. This is something that brings out my inner socialist. The low rate of capital gains tax just shows that the system is rigged in favour of capitalists and against workers.

Psychological pricing beyond $9.99

February 8th, 2015 § 0 comments § permalink

The psychology of pricing goes way further than just setting prices a few cents below a whole number.

Products that are recreational or luxurious benefit from rounded prices: Consumers were more inclined to buy a bottle of champagne when it was priced at $40.00 rather than at $39.72 or $40.28. However, for purchases that are utilitarian—a calculator, in this experiment—participants were more likely to buy at the higher non-rounded price.

Presumably we now associate non-round-number pricing with products competing on price. And that doesn’t mesh well with luxury goods, making them seem less rather than more desirable.

Real estate and shell companies in the New York Times

February 8th, 2015 § 0 comments § permalink

The New York Times has just turned out a long, worthy article on New York real estate owned through shell companies:

On the 74th floor of the Time Warner Center, Condominium 74B was purchased in 2010 for $15.65 million by a secretive entity called 25CC ST74B L.L.C. It traces to the family of Vitaly Malkin, a former Russian senator and banker who was barred from entering Canada because of suspected connections to organized crime.

Last fall, another shell company bought a condo down the hall for $21.4 million from a Greek businessman named Dimitrios Contominas, who was arrested a year ago as part of a corruption sweep in Greece.

This kind of story tends to leave me a bit confused. Isn’t it already a cliche that luxury New York (and London) real estate gets bought by dodgy businessmen and Russian oligarchs? I’m still glad it gets written, because sometimes the journalists will turn up something actually criminal, and the attention increases the chances of getting real estate sales subject to tighter “know your customer” rules. But I don’t really see why people outside the niche of corruption-tracking should care

…and not to yield: Ulysses of the bond markets

February 4th, 2015 § 0 comments § permalink

Dsquared posts on Crooked Timber, asks only Greeks to comment. Comments thread predictably explodes into erudite snark, notably Joshua W. Burton’s take on Tennyson’s Ulysses:

. . . Come, my friends,
‘Tis not too late to seek a newer deal.
Push off, and sitting well in order smite
The hounding Euros; for my purpose holds
To sail beyond the market, and the wrath
Of all the western banks, until I die.
It may be that the Gulf will buy us up:
It may be we shall touch the Cayman Isles
And see the great Onassis, whom we knew.
Though much is taken, much abides; and though
We are not now that strength which in old days
Moved oil and cargo; that which we are, we are;
One equal temper of expatriate wealth,
Made weak by various new reporting regulations, but strong in will
To strive, to seek, to borrow, and not to yield.

Total closing tax haven subsidiaries

February 1st, 2015 § 0 comments § permalink

Total, the French oil major, is closing its subsidiaries in tax havens. At least, that’s how the PR runs. So far there is nothing official on the website, and their statement to Le Monde is anything other than definitive. ‘Tax haven’ can mean anything you want it to, as can closing a ‘certain numnber’ of subsidiaries.

Still, it’s a step in the right direction, and PR moves can inadvertantly lead to real changes. If nothing else, it’ll be interesting to see the list of subsidiaries which they promise to reveal in March.

D^2 on Greece

January 26th, 2015 § 0 comments § permalink

D-Squared expects Syriza to play chicken with the ECB — “present them with a fait accompli on the debt default, and gamble that they will not have the nerve to take measures which might have the effect of forcing Greece out of the Euro“. But Europe has had several years to get used to the threat of a Greek default, so will be able to contain it relatively easily. So Syriza either wins concessions or gets booted out of the Euro, but neither approach hurts the rest of Europe that deeply.

Tax morale

November 29th, 2014 § 0 comments § permalink

Would you dodge taxes, if you were sure you could get away with it? Absolutely you would, according to standard economic theory:

In the benchmark economic model, the key policy parameters affecting tax evasion are the tax rate, the detection probability, and the penalty imposed conditional on the evasion being detected.

But that doesn’t match reality, argues this paper on so-called “tax morale”. All but the slimiest of us have some inclination to pay up. If we didn’t then tax revenues would be far, far lower than they currently are.

Some economists have attempted to measure this. One way is to look at what gets paid in the absence of enforcement. There is absolutely no enforcement of the church tax in Bavaria, but 20% of people pay anyway. Or you can assume that migrant entrepreneurs bring attitudes to tax with them. In the US, there’s an 8% gap in tax evasion between Nigerian-owned and Swedish-owned companies.

Turkey, Iran, Oil, Gold

November 17th, 2014 § 0 comments § permalink

Trade with Iran is one of the underlying themes of the corruption scandal which is engulfing Turkey. Sanctions on Iran led to it being excluded from the SWIFT network in March 2012, making it hard to send payment to Iran. But Turkey wanted to buy Iranian oil. So they figured out a dodge. Oil purchasers would deposit money at Turkey’s Halkbank, now at the centre of investigation. Iran would use this money to buy physical gold, which could be transported to Iran.

The entire deal infuriated the USA and others. While it was an open secret, the practitioners went to some lengths to conceal it — apparently involving Chinese front companies. Still, it’s plainly in the trade statistics:

We see a huge rise from March 2012 — when SWIFT blocked Iran — before a sudden collapse in August that year. The numbers are huge — the peak is over $1.8 billion dollars.

What happened in August 2012? Perhaps it’s linked to Obama’s Executive Order 13622, which brought gold under US national sanctions on Iran. This did not directly affect Turkey, but could have been twinned with similar pressure by American diplomats in Turkey.

What seems to have happened, in part, is another level of indirection. The gold, according to media reports, started being routed through UAE. Here’s how it looks in the trade statistics — a perfect match for the chart above.

[for more detail on this story, you could do worse than look at this report from May]

Why has this open secret turned into a corruption scandal now? Foreign Policy

While the gas-for-gold scheme may have been technically legal before Congress finally shut it down in July, it appears to have exposed the Turkish political elite to a vast Iranian underworld

KRG oil in Texas

September 3rd, 2014 § 0 comments § permalink

The slow progress of oil tankers makes for a nice change from the jackhammer pace of news. Disputes about Kurdish oil exports have been pottering along for months, following the movement of a few tankers around the world.

So we have the SCF Altai, which has apparently been running oil between Ceyhan and Israel since June.

And across the Atlantic there’s the United Kalavrta, which has been loitering off Texas while Iraq and Kurdistan slug out ownership rights in court. Once the court ruled against Iraq, the tanker promptly turned off its tracking beacon, and is now presumably unloading as quietly as possible.

Could tax inversion work for tech companies?

July 22nd, 2014 § 0 comments § permalink

‘Tax inversion’ mergers are an increas