Guess what. The EU subsidies on dairy products, introduced at the start of this year, are GONE.
Now US, step up to the plate and dump yours. Or are we going to move into a situation where the United States is more protectionism than Europe …
Category Archives: Euro/UK economics
Chelsea’s transfer ban and the potential for player hold-up
FIFA have punished Chelsea by banning them from the signing new players in the next two transfer windows after they were found guilty of inducing Gael Kakuta, a France youth international, to breach his contract with Lens in 2007. The decision means that Chelsea will not be able to add to their squad until January 2011.
Fifa’s regulations on the status and transfer of players state in Article 17, paragraph 4: “It shall be presumed, unless established to the contrary, that any club signing a professional who has terminated his contract without just cause has induced that professional to commit a breach. The club shall be banned from registering any new players, either nationally or internationally, for two registration periods.”
How will this ban affect the incentives of current players registered with Chelsea? The club, being unable to sign new players, will be desperate to hold on to what they already have. The current players, knowing that the club cannot look elsewhere to replace them, will be in the driving seat when it comes to contract negotiation as they can effectively ‘hold-up’ the club to meet their demands.
The precedent for such bans being enforced is not strong, however, with Roma having their ban reduced to one summer transfer window (arguably the less important transfer window in a season) and Swiss club Sion currently appealing their two window ban.
On penalty cash rates
Scott Fullwiler from New Economic Perspectives (ht Economists View) describes some issues he has with the “negative interest rate” idea being put forward by Willem Buiter , Greg Mankiw , and Scott Sumner
Now I have previously put my foot forward and said I agree with this idea (here and here) and I still feel the same, let me describe why with reference to Dr Fullwiler’s post.
Low prices and anti-competitive action
Over at Anti-Dismal, Paul Walker states the following when discussing anti-competitive action against Intel:
The whole point of market power is to raise prices, and thus profits. But how can Intel be accused of anti-competitive behavior when it was giving “hidden discounts” to computer makers? A real anti-competitive monopolist, with real market power, acting in a truly anti-competitive way, would be in a position to raise prices, not lower them.
However, they are being attacked for predatory pricing – which means the “high prices” we are discussing have to be compared to the appropriate counterfactual.
At some level prices have been falling because of improving technology – so looking at the CPI figure is not exactly what we want to do. We want to look at what Intel is supposedly doing to cause the complaint of predatory pricing. Now Intel is suspected of predatory pricing because it is giving kickbacks (and so effectively lower input costs) to people who use their chips.
If doing this is sufficient to prevent the entry of some competitors (because of significant fixed costs of entry – something that seems descriptive of the micro-chip industry, both from setting up factories and getting downstream firms to integrate your product), and thereby keep prices higher than they would have been in the case with competition, then it is a legitimate complaint.
Another way of viewing it is – has Intel set itself up in such a way that it credibly commits to the threat of a new entrant. If we can make this case predatory pricing could exist.
Now I am not saying that the this is necessarily what is happening – but in a global industry with only 2 (maybe 3 
) firms it is definitely worth looking into. Personally I believe that there could be economies of scale, or that it makes sense to have a “benchmark chip” which Intel currently has patent over. But there is a genuine case for an anti-trust case study here.
UK continues to dig a bigger economic hole
In a sign of the times, the government in the United Kingdom is talking about increasing the top tax rate from 40% to 50% to fund part of their burgeoning budget deficit. A few points about this they may have forgotten:
- High income earners are likely to be more responsive to an increase in tax rates (at the margin) – as a result, by increasing tax rates at the top, we are pushing our most talented workers out of the labour force,
- The deadweight loss of taxation increases at a faster than linear rate – implying that for each 1% of tax we add we get a greater level of lost surplus than for the previous 1%.
- Highly skilled labour is more mobile – as a result, a lift in tax rates for the highly skilled will lead to them moving overseas. When the UK does this it is a good thing for countries like Aussie and NZ – but not for the UK.
- Highly skilled labour is able to “move income about” more easily. For example, if the corporate tax rate remains well below 50%, highly skilled individuals may find ways to set up companies and shift part of their income into the corporate tax bracket (Note this relies on being able to include a lot of spending as a business expense methinks). When this occurs corporate tax take will rise, but the increase in income tax revenue will be much weaker than expected.
- An income tax is also a “tax on business” – the relative split depends on the “incidence of tax”. As a result, a lift in the top tax bracket implies that there will be more pressure on firms that hire skilled labour – not really the best move when these industries are already credit constrained …
- By increasing the tax on income we will drive down the incentive to invest.
- Skilled and unskilled workers are complements – by reducing the incentive to hire skilled workers, you also reduce the incentive to hire unskilled workers. As a result this will drive down demand for unskilled workers, lowering wages and increasing unemployment.
Thank goodness economic policy in New Zealand makes more sense 
The Times joins in the fun. And the Guardian illustrates that it doesn’t understand point 7 (among other points).
France’s novel approach to the wage bargain: ‘boss-napping’
In the face of increasingly uncertain economic times, the latest trend in France is for workers unhappy with their company’s position on labour to boss-nap,. Boss-napping entails workers disappointed with redundancies or payouts taking their bosses hostage as a bargaining tool! Recent kidnappings have involved 3M France’s industrial director and Sony France’s CEO and HR director.
Unfortunately it seems that the tactic is working, with 3M France’s industrial director being released after signing a deal which offered more favourable treatment for the 110 employees who faced losing their jobs. I’m not sure of the validity of such a contract made under duress over there – I doubt it would stand up here – but hey, they do things differently in France.