Archive for March, 2011

Saif al-Qaddafi: Artist, Philanthropist, Reformer, Psycho Nutjob

Saw this article over at Foreign Policy.   Qaddafi’s son Saif, fancied himself as something of an artist and was given to subjecting fawning supplicants to private exhibitions of his work. 

I had a bit of a chuckle over a segment from a Guardian review of one exhibition.

Ever since Nero, there has been a depressing connection between bad art and megalomaniac regimes: Hitler the opera lover, architect and painter; Stalin the poet; Tony Blair the rock guitarist.

I remember an ex-Government minister (I can’t remember the name), saying that she used to put a really bad modern art painting in her office on the wall behind her.  She called it her “B—S–t Detector”.  Any new advisor when first introduced to her would be asked their opinion of the painting.  If they loved it she knew she couldn’t trust them to give her genuine opinions.

I love the faces of the people in the picture.  Obviously if you were out to trouser some serious lolly from the Qaddafi Foundation then the correct answer would be “Inspirational! Magnificent!”

So I suppose the LSE, Tony Blair, Peter Mandelson and the rest, thought the paintings were masterpieces as well.

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Of Ozymandias, Detroit, the unions and spending cuts

   My name is Ozymandias, King of Kings:

   Look on my works, ye mighty, and despair!’

   Nothing beside remains. Round the decay

   Of that colossal wreck, boundless and bare,

   The lone and level sands stretch far away”.

  

As the Public Sector Unions marched through London this weekend I thought I would highlight an article I spotted over the water in the Wall Street Journal.   This week the Mayor of Detroit received the latest census figures which showed that the population of Detroit had declined by 25% over the last 10 years.  Shocked, he asked for a recount as these numbers matter – the fewer people he has in the City, the less he receives in Federal and State Government handouts. 

 Detroit at its peak in the 1950’s was the fifth largest city in the United States.  Even in the 1970’s it still had a population of 1.8 million.  Home of Motown music, its big three auto manufacturers, GM, Ford and Chrysler dominated the car industry worldwide.  Today though, the population of Detroit is down to just 713,000 people and its car companies are on life support. 

An article in the Investors Business Daily explains that while bad management played a part in this dramatic decline in the city’s fortunes, the real blame lies with the unions. 

As a parasite sucks the life blood out of its host, the unions over the decades negotiated more and more benefits and restrictive work practices for their members.  Innovation and efficient production was stifled by 5000 page union rules and ludicrous arrangements such as the infamous Job Banks in which laid-off workers signed on, spent all day doing crossword puzzles and then collected 95% of their pay.  The car companies evolved into organizations which were nothing more than huge health-care, pension and make-work programs which just happened to also produce cars.  By 2006 the labour costs for a GM auto worker was about $75 per hour compared to $48 in the Toyota car factories situated in the non-union Southern States, and each GM car came loaded down with $2000 worth of health care and pension costs.

So why do I relate this to the public sector unions march against the Tory cuts?  Well, in economics if something is clearly unsustainable in the long term, then it will be unsustainable in the long term.  In history, nations rise and nations fall.  They become wealthy, but they can also become poorer and the fact that we are born Western and British does not mean that the world owes us a wealthy lifestyle.  We become wealthier, if we produce the goods and services at the price people want to pay.  If we don’t we become poorer.  And if the Government spends more than it takes in, it will in the long run bankrupt the nation.  Taxes and interest rates soar, and the Government has to default on the promises it made to its people.

Yet we continue to pile costs on to the producing sector.  Energy costs are rising due to the government’s ‘Green’ taxes and feed-in tariffs, and feel good employment regulations such as enhanced maternity and paternity benefits make it more costly to produce in the UK and ultimately make us all poorer.  Christopher Booker in the Sunday Telegraph writes that next October, an EU Directive will give temporary workers the same rights as full time workers, costing British Industry an extra £2 billion a year.

 And what of these savage Tory cuts?  Well the spending review last October showed that the government was actually increasing spending rather than reducing it.  What it was merely doing was reducing the amount of increase in spending that the previous Government had planned.  In fact, last week in the Chancellor’s Budget, planned spending for 2014-15 had crept up to £743.6 billion, up from £739 billion proposed a mere five months ago. 

 The Government is in a serious bind.  It has a massive non-producing sector which the producing sector cannot hope to fund.  From millions of public sector workers, to health care, state pensions, entitlements and welfare, it can only keep the whole thing going by paying for it through ever increasing amounts of debt.  It could try to grow its way out of the situation, but that would mean unleashing the private sector by effective deregulation, lower energy costs and low taxation.  A virtual impossibility without leaving the EU and really slashing spending.  

On Saturday the Public Unions marched proclaiming that cuts in spending were neither necessary nor compassionate.  Well last year the Bank of International Settlements put out some very sobering figures about the UK economy, which saw the UK debt soaring to unsustainable levels in the near future. Here thay show Governemnet Debt as a percentage of GDP under a number of different scenarios.

  

 

 

This though is an optimistic picture if you take a look at how Burning Our Money analyzes the true situation of government liabilities.  The official gross National Debt is about £1 trillion, or around £40,000 for every single British household. However, he points out that this doesn’t take into account PFI, public and state pensions, network rail and so on.  The real extent of Government liabilities he argues are currently about £7.5 trillion or £300, 000 per household.

Now given that our entire annual GDP is only around £1.5 trillion, the government has amassed debts of 4-6 times our annual income. You try borrowing that kind of multiple from your friendly high street bank – they’d laugh at you, knowing you would never ever be able to pay it off.

And neither will the government.

Burning Our Money then unhelpfully points out that not only will we be handing over huge bundles of cash, paying interest to Chinese bondholders, we will also each year have to pay the unfunded pensions of all of Brown’ Public sector workers (32bn by 2015-16), make the payments on his PFI contracts (10bn pa by 2015-16), as well as pay the unfunded state pensions (79bn pa by 2015-16).

In a report for the TPA he illustrates this in a graph which takes these payments out to 2015-16.

I am not sure I would want to see what his chart would look like if he took it out to 2030, as did the Bank of International Settlements or what it would look like if interest rates were to rise to any great extent.  The unions say that cuts in spending are neither necessary nor compassionate.  Well, maybe like that Detroit Mayor, a future Prime Minister could one day be staring at a bunch of charts, wondering whatever happened to a once great country.

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More Non-Doms. Time to break out a bit of Thatcher

I remember a couple of years back on one of my stays in the UK, the talk around the dinner table was of “Bankers” and some people called “Nom-Doms”.  How it was shocking how much they earned and how they should all just pay their FAIR SHARE in taxes.  I didn’t really know who the “Non-Doms” were at the time, but to me it just sounded like an attempt to create a stage villain.  A group of people the Government could point at and say “look this mess is nothing to do with us.  It’s them, it’s all their fault”. 

So my interest was tweaked when I read on the Adam Smith Blog , that the Government is to again raise taxes on the Non- Doms. 

“non-domiciled individuals, especially those who have been resident in the UK for many years, (must) make a fair tax contribution” – and, in this case, ‘fair’ means “increasing the existing £30,000 annual (remittance basis) charge (RBC) to £50,000”, regardless of a particular taxpayer’s actual level of income.

What’s more, it turns out that the government’s decision isn’t a revenue-raising manoeuvre; as Eamonn pointed out in the Wall Street Journal earlier this month, “the non-dom tax raised £162 million in its first year; but … the exodus of those 16,000 (non-doms) cost the Treasury £800 million,” a fact that will not have escaped Whitehall policy planners. Why, then, would the government increase the RBC by nearly 70%?

The creation of stage villains for the populace to throw rotten tomatoes at is a political tactic as old as government itself and wealthy foreigners have always been easy targets.  As envy is one of the vices which afflicts all people to a greater or lesser extent it is easily exploited by politicians who want to appropriate money and power in the name of redistribution and fairness.  It permeates much of Socialist / Marxist thought which divides the world into the oppressed and the oppressor, the haves and have-nots.  In this view the economic pie is fixed, and therefore someone with a large portion of the pie can only have it at the expense of the rest who necessarily must have smaller portions.

The Big Government redistributer takes £100 from A’s slice of the pie and gives it to B.  There is no change to the overall size of the economic pie as it is fixed.  The only consequence is that B now has a FAIR SHARE of the pie. 

Of course, those of us on the on the Free Market side of the fence don’t see the economy in terms of being a fixed pie and sees the unforeseen consequences that Governments’ actions can have.  The Government is grossly inefficient at distributing resources and ‘A’ may have used that £100 in a far more productive way than ‘B’.  ‘ A’ may also change his behaviour.  Why work so hard when the Government can come along and take away your hard earned money?  All this will negatively impact the economy and both A and B will be worse off.

Putting the Non-Doms in the fiscal equivalent of the Public Stocks didn’t just mean that the Treasury lost £800 million.  The reduction in the number of rich Non-Doms in the country mean that there are now 16,000 Saville Row suites that haven’t been made, 16, 000 less gardeners that haven’t been employed and 16,000 Land Rovers still left unsold in the UK Dealers.  And as many of these Non-Doms had businesses in the UK, that’s a lot of receptionists, graphic designers and sandwich makers out of a job or with a reduced order book. 

In an article by Allister Heath in Cityam (H/T Daniel Mitchell) he talks about the steady outflow of people and wealth from London.

Contrary to what has repeatedly been claimed by the monopolists, the City is losing out to other jurisdictions in the race for people. Even though there is very little office space, housing or vacancies in schools in Switzerland – the Swiss are reluctant to expand – there has been a relatively large influx of London financiers to that country, especially from hedge funds and energy and commodity trading firms. It is the wealthiest, most senior individuals who are leaving. Figures from the Swiss Federal Migration Office tracked down by Channel Four reveal 383 UK citizens working in banking and financial services moved to Switzerland in 2010, up 28 per cent on the previous year. Taking the overall banking, insurance and consulting sectors, including IT, 1,379 Britons were given permission to work long-term in Switzerland in 2010, up 29 per cent. This compares to a rise of 14 per cent for non-UK citizens, though a chunk of the latter will also have moved from London.

The Swiss Funds Association estimates that 20-25 UK hedge funds have set up offices in Switzerland over the past year alone. Switzerland has also witnessed an inflow of Russian oil traders, including Rosneft and Bashneft; several other teams have recently left London for Geneva or Zurich. TNK-BP is opening a trading arm in Geneva; it will be based a short walk away from the third, fourth and fifth largest trading firms in the world. This is a blow for London, which for the first time since the late 1980s is losing its lead in the trading of physical crude and oil products.

Globalisation is not just about buying cheap Chinese goods: it also limits the state’s powers to over-tax or over-control its citizens. Britain needs to wake up to this new reality, and fast.

 Now for some vintage Thatcher.  I love the word games of Simon Hughes who in his question to Mrs Thatcher made the claim that relative poverty had increased under her administration.  Much as if Warren Buffet taking up residence in your rather exclusive private road, would suddenly inflict severe relative poverty on the residents there. 

Enjoy.

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