F**k being a banker …

Seriously, so the UK is going to arbitrarily tax bonuses at 50% because they are not “generating real wealth” they are just “rent seeking” (Will Hutton and Paul Krugman feel this way).  Wow.

The decision to pay a wage, or a bonus, is voluntary.  Given that these bankers are creating sufficient value through their work to extract these wages/bonuses why shouldn’t they get their wage/bonus.  They are generating sufficient “wealth” through their activities – or else they would i) get undercut by other labour, ii) not get paid by clients.

Yes the organisations that got bailed out should have to pay back their bailouts.  Yes, we should try to avoid the current moral hazard problem that could exist in the industry (on the basis of the bailouts mind you – which is government intervention). However, shouldn’t the solutions to these issues be focused on the actual issues – rather than arbitrarily attacking bonuses (which will simply be delayed to avoid the tax for those that can afford it).

If we think that the price paid for the financial labour service is out of whack because of some sort of direct market failure then tax it.  If we are trying to work out optimal tax and we find that the supply and demand for these services is perfectly inelastic, potentially shift the tax burden.  But that isn’t what the authors are doing.  They are accusing bankers of being the equivalent of organised crime and then stating that we should punitively attack.  I’m sorry but I find this attitude simply abhorrent.

Seriously, if you have something specifically against bankers, lets apply the logic somewhere else:

UK is going to arbitrarily tax teachers at 50% because they are not “generating real wealth” they are just “rent seeking”

After all, teachers don’t build physical things they just provide a service like the bankers.  If we are going to attack bankers for there being a credit crisis, why don’t we just start taxing teachers more because we “feel like educational standards are too low”.

Update:  Stumbling and mumbling also believes bank bonuses should be hammered.  However, he at least paints his argument out in full and so deserves to be heard.  I don’t agree, but that isn’t really the point ;)

  • Mark Hubbard

    Well, this is what happens in the mixed economy you advocate Matt. All mixed economies are controlled economies, and a controlled economy can only be foisted on a controlled society: you’re either a slave, or you’re free. It appears all NZ’s economist stock have opted for economic systems that enslave. There is no surprise in this announcement at all.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    All economies are mixed, we have to think of these things in terms of degree not absolute.

    “you’re either a slave, or you’re free”

    I’m reminded of the quote “all men are born free yet everywhere they are in chains”. Even if there was no government we would be bound down by something – governments are simply one of many institutions, and in many ways they increase liberty.

    Just because someone supports the idea of a government, any type of government, does not mean they will support knucklehead policies. It appears that in order to do that you have to be British ;)

  • Mark Hubbard

    … or strive for a minarchy. Law, order and the defence of individual liberty from force and fraud, are the only functions of a legimate state.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    The defence of individual liberty is a hard border to define. Sometimes there is a trade-off between the liberty of two individuals in a way that could easily be seen as “unfair” – surely there can be a role for a democratically elected government to intervene in such situations.

  • Mark Hubbard

    … although I could probably be convinced into a 100% tax on state sector teachers: the money could be used to educate the children in a private system that actually had results. :)

  • Mark Hubbard

    Protect from force and fraud. I don’t see much difficulty in that, or where there is, that is why within this ambit it is the responsibility of a minarchy to oversee a civil and criminal justice system for the testing of ‘difficult’ situations.

  • Mark Hubbard

    To continue my last post, I would rather have ‘fairness’ tested in court, than at the whim of a politician or bureaucrat, whose notions of fairness will probably differ from mine. If you have a society founded on the non-initiation of force, ‘fairness’, whatever you mean by that, looks after itself.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    I don’t know. I am of the view that government is the result of an implicit social contract:

    http://en.wikipedia.org/wiki/Social_contract

    And that this contract will function as long as information is transparent and freely available.

    Hence there is a role for a democratically elected government – but also a role for people to explain and discuss policies, so that the costs and benefits can be seen transparently.

    There are too many “co-ordination” problems and “prisoner’s dilemmas” for some sort of social arrangement not to arise, and I believe that government is part of this organic process. It requires checks and balances and criticism – but it is essentially a body built up from the choices of individuals.

  • Mark Hubbard

    Well firstly, you are aware of democracy being a tyranny of the majority? Just because nine out of ten people say they want something, doesn’t make it morally correct they have it (especially when it is the one who voted against it who probably has to pay for it). Every individual of a democracy is sacrificed daily to the needs of the many: which is a wet dream for the social democrats, but in reality a prison.

    But that aside, without a written constitution, such as a constitution for New Freeland ( http://www.freeradical.co.nz/content/constitution/index.php ) how do you actually hold government (gravy chain politicians and bureaucrats) to the social contract? (And don’t say every three years at election, because in my almost thirty years of voting, I have never had a government that represents ‘me’).

    The social contract is too vague, too liable for game playing and stacked toward those in control of the levers of state (and the tax take) – power: the answer is in a republican minarchy based upon a constitution for New Freeland. And that is nothing like we have now. So long as I initiate force on no other, I can do as I like, without fear or hindrance from a single politician, government department or bureaucrat.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    Not being a political scientist I am not in a place to deem “optimal governance” in that sense.

    All I know is that I’d want the same constraints and focus on any institution, government or private. As a result my personal interest will always be on “how do incentives make this social relationship happen” and “what would happen if something changed”.

    Furthermore, as an economist I see all institutions, government or no, as evolved from some organic process – and the relative failures of markets/governments need to be viewed within these evolutionary lines.

  • Mark Hubbard

    Not being a political scientist I am not in a place to deem “optimal governance” in that sense.

    Just as central planning of economies will always fail, as it always has, because the central planners simply are never in a position of having all the information (to not even begin on bias), so no group of politicians or bureaucrats will ever achieve ‘optimal governance’. Indeed that notion is a nonsense: your idea of optimal governance, in terms of how much your life is controlled, will be nothing similar to mine. So who should we slant the playing field toward?

    Again, a minarchy with a constitution such as I have mentioned is the only way to achieve an optimal outcome, assuming freedom from tyranny in all it’s guises is the optimum.

    What I have described above, is the major weakness with your argument in your remaining post. I say this because this debate is getting interesting, however, I have a business trip Friday and Saturday, and now I’ve got to get half an office of records packed into my car. Other than to say I find it a pity that economists seem bereft of philosophy, and insight: the importance of mans’ quest to be free, and how only one economic system is consistent with that. Where are the Renaissance-men economists?

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    “Indeed that notion is a nonsense: your idea of optimal governance, in terms of how much your life is controlled”

    I wouldn’t say so.

    There are always groups of individuals, which form institutions, which will have a negative impact on other peoples lives. If the government is being used as a conterveiling institution in such situations we could say that there is “an optimal level” for governance.

    This is very much what I suggested in this article:

    http://www.tvhe.co.nz/2009/09/29/freer-markets-freer-people/

  • Mark Hubbard

    If the government is being used as a conterveiling institution in such situations we could say that there is “an optimal level” for governance.

    According to whom?

    According to Sue Bradford’s optimal level, that institution would be nationalised, it’s CEO flogged monthly for being a ‘rich prick’, which is a move away from freedom, obviously. Your approach requires a group who can lord power over the rest (even when elected by a tyranny of the majority – or especially so): a free society is when no government has that power, nor is in a position where it can ultimately change the rules so it can have that power. You assume an all-knowing and benign government; I put it to you that doesn’t exist. The major strength of the constitution I have linked to is that it protects individuals from government.

    You only need a legal system to sort out issues such as you have described, and precepts such as the non-initiation of force (and fraud) and my already mentioned constitution of New Freeland. Objective law, as opposed to a system founded on subjectivism which is what you are advocating.

    … another box to the car.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    “According to whom?”

    According to me, according to my world view, according to anyone who has any conceivable positive view of government as an institution. Government must be viewed in the same lens as other institutions, that way its differences can be more fully appreciated.

    “a free society is when no government has that power”

    That power evolves from somewhere. If the current democratic government does not get it then individuals will align to give themselves that power in a different situation.

    “You assume an all-knowing and benign government”

    I never, and have never, assumed this. I have talked widely on government failure, constantly attacked government policies, and have said that policies always need to cross a large threshold because individuals understand their welfare better than any arbitrary institution.

    “You only need a legal system to sort out issues such as you have described”

    Externalities? No legal system, and no set of contracts, can be complete enough to solve that. And if it is – then we likely have a substantial government in order to enforce and analyse such issues.

    “Objective law, as opposed to a system founded on subjectivism which is what you are advocating.”

    The distinction is not so clear, whenever any policy or decision is made it is subjective, even “in the law”.

    All welfare views are normative so there is no way we can agree here.

  • Mark Hubbard

    Government must be viewed in the same lens as other institutions

    What?

    Government is like no other institution, especially in countries like NZ with no written constitution to contain it. It is both thief, and policeman. Our government can impose a 70% tax rate on me tomorrow, and I can’t do anything about it, because I can’t choose to be ruled by another government tomorrow. With any institution in a free society, I get stiffed, my ‘freedom’ gets trampled, I can simply choose to deal with a competitor.

    This is precisely why the individual needs, more than anything, protection from government, which is the wellspring of tyranny in the powers it has assumed, sanctioned by a tyranny of the majority.

    Again, despite your protestations to the reverse, or made worse because of them, you have a benign view of government, and governments are not benign. As proof, I cite history. The freer a people from their government, the better the society that has existed (assuming a non initiation of force principle as fundamental).

    … another box.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    Full quote:

    “Government must be viewed in the same lens as other institutions, that way its differences can be more fully appreciated.”

    So we need to look at how government functions in an institutional framework so we can understand exactly what ways government fail, and in what situations there are issues.

    Missing the second half of the quote completely changed what it said.

    “As proof, I cite history. The freer a people from their government, the better the society that has existed”

    As proof you cite conjecture my friend, there is no evidence for that.

    As I have said I do not have a passive view of government, I view it in the same way I view any organisation of individuals. However, as a result I see that there are costs and benefits from this organisation – and as an economist my sole goal is to discuss the costs and benefits to inform society.

    I mean no disrespect but I am not going to discuss this anymore. It is neither the point of the post, or an area where I think I can add value. We are merely discussing different value judgments – and no amount of typing words will change the way either of us feels on those :)

  • Moz

    Why is half a bonus the same as half a wage? Are you trying to make the point that the banker is likely to lose more from this tax than the teacher earns in total?

  • http://www.tvhe.co.nz Matt Nolan

    @Moz

    :P

    I was merely making the point that an arbitrary wage cut on a working group we tend to feel more sympathy for would not be taken as well. Change the 50% to 10% if you like ;)

  • Mark Hubbard

    As proof you cite conjecture my friend, there is no evidence for that.

    The contention was ‘The freer a people from their government, the better the society that has existed':

    Examples:

    South Korea v. North Korea
    USA/Australia/Uk/’West’ v. USSR
    USA/Australia/Uk/’West’ v. China

    I could go on for as many countries have existed. In summary:

    Democracy v. totalitarian governments of all hues.

    My point proven irrefutably.

    … and as an economist my sole goal is to discuss the costs and benefits to inform society

    There is no philosophical responsibility in this? If you were to place ‘freedom’ under benefits, then you would be moving toward laissez-faire and away from mixed and controlled economies and thus peoples: how can you do any type of analysis without a philosophical framework?

    Your ‘freer-market’s post linked above is moving along these lines, but it is not freedom for freedoms sake, mans most precious quest throughout time, it is just pragmatism, and I get the feeling if you thought totalitarianism was more efficient you’d advocate that, and again for the choir, you do impose a benign government in your solutions, because you keep wanting government as the principle lever to ‘fix’ most ills, whereas a philosophical framework holding freedom as the principle would be keeping government out of our lives.

    With no philosophical framework you risk being, at worst, nothing more useful for me than being able to analyse the cheapest shovel to dig my own grave with, or have some totalitarian dig it for me. At best, you risk ending up advocating a hotch potch of contradictory policies, like Bernard Hickey does, with no systems approach for guidance, because no guiding position as to how to live a life: and surely, economics is about only that – how we are to live our lives.

    I mean no disrespect

    None taken.

    It is neither the point of the post, or an area where I think I can add value.

    With no philosophical framework, instead the worst sort of pragmatism, you ain’t adding no value to my life anyway, because you keep shoving Nanny State right squarely in my face.

    No disrespect intended :)

    My car is packed, the road beakons.

  • Mark Hubbard

    Oh, Democracy v. totalitarian governments of all hues …

    We now need to move beyond democracy …

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    Just to quickly nudge a few points that are contentious :P

    “Democracy v. totalitarian governments of all hues.

    My point proven irrefutably.”

    Except you said that less government always leads to better outcomes, and always leads to more freedom. Comparing dictatorships to democracies does not prove this for the spectrum of limited governesses

    “There is no philosophical responsibility in this? If you were to place ‘freedom’ under benefits, then you would be moving toward laissez-faire and away from mixed and controlled economies and thus peoples: how can you do any type of analysis without a philosophical framework?”

    Economists are predominantly utilitarians. If you search for utilitarianism on the blog, or look under the “philosophy” or “methodology” tags you’ll find heaps of stuff we’ve written about it.

    As I have said, we believe that individuals should be able to make choices and make the best choices. However, groups of individuals can constrain each others ability – and the evolution of a government can be seen as a solution to that. One big example of this is of course, externalities.

    The size and level of government should be an issue for debate of course. But it is a subjective issue of value, and as a result there will always be debate that cannot be resolved.

    “My car is packed, the road beakons.”

    Ciao

  • Mark Hubbard

    Not Ciao yet … I leave early in the morning … and for the record, I know how to spell beckons …

    This is getting interesting.

    So as an economist you see your job informed, your framework for analysis, on that most dangerous moral relativism, utilitarianism.

    Definition of same: ‘Utilitarianism is the idea that the moral worth of an action is determined solely by its contribution to overall utility: that is, its contribution to happiness or pleasure as summed among all people… Utilitarianism is often described by the phrase “the greatest good for the greatest number of people”‘

    Great to see you up to your neck in the messy business of morality, though it’s a pretty dangerous matter to apply a lethal pragmatism to your morality as utlitarianism does.

    For a start it’s a tyranny of the moral majority, and on top of that you must have some pretty squeamish notions about how to define ‘happiness’. I wonder when you’re determining the optimal level of government involvement in an economy and the lives of individuals in it, how you manage to relate this to the greatest happiness of the greatest number.

    If I don’t agree with the morality of the majority, then your analysis is part of the immoral process enslaving me to the ‘happiness’ of that majority, for you are giving Nanny State the justification of my slavery to her, and them: yes?

    Burrowing down to the next level. Twenty years ago the private sector was larger than the State sector, so your analysis would have considered the happiness of that sector as the majority, I assume. After nine years of Aunty Helen and Uncle Michael, and no guts yet from Key to break the cycle of a bigger and bigger State, we now have basically one person working in the private sector having to pay for the life of one state sector worker or beneficiary. With the loss of private sector jobs through the recession, yet only what, perhaps 200 voluntary redundancies across the entire State sector, indeed, with hiring in Treasury, the State sector payroll having probably grown in real terms as well as proportionatly, it may well mean the group of people living on the State tit is now the largest group on our slave society. Thus does your analysis change to implement outcomes that are now ‘optimal’ to the happiness of this greater group? That would be the utlitiarian approach, yes? Because your other problem must be that ‘happiness’ is relative. Ms 16 Year Old DPB Mum’s happiness is served by Nanny State taking my efforts and giving it to her, yet this is conversely the source of my madness, and a utilitarian approach doesn’t take into account my happiness, only that of the ‘greatest number’.

    Again, with no philosophical framework putting the pursuit of life, liberty and happiness’, that is an individual’s freedom to live as they like, unhindered and unbound by an over-regulating, over-legislating State, necessitating a morality of man qua man, and all this as the foremost urge driving a civilised society, it is surely impossible for you to navigate this moral minefield you are surely stuck in? Showing why one of the curses of the modern age is moral relativism, of which you are an instrument?

  • EbolaCola

    “because I can’t choose to be ruled by another government tomorrow”

    Ohhh grow up Mark, you live in a mild free market(ish) social democracy. If you want to live without government try Somalia.

  • http://www.tvhe.co.nz Matt Nolan

    @Mark Hubbard

    I would definitely suggest having a look at what I put down as an economists way of looking at things. Without going through all the philosophy links the quickest way to do this is to look at the new readers section:

    http://www.tvhe.co.nz/for-new-readers/

    There are a number of points in those posts. However, the main point is that economists use the utilitarian framework to define issues and discover trade-offs – not to make conclusions about what policies are right.

    If I make a conclusion I am stepping out of my strict economist boots and apply value judgments to my utilitarian framework. This is the important thing here – utilitarianism provides an awesome way of framing an issue, but it isn’t until you provide your own value judgments that you can reach policy conclusions.

    Now it seems our value judgments differ, which is perfectly fine. But no amount of commenting on this blog post is going to change these respective value judgments methinks ;)