Greens announce greater income redistribution: What does it mean?

I have been remiss talking about this election – as I am a touch bogged down.  My apologies – I’ll try to write about things when I see them.

As a result, here is the Green’s plan to increase the level of income redistribution.  From the Stuff article:

  • 3 per cent – of taxpayers affected by the Greens new top income tax rate of 40 percent on every dollar earned above $140,000
  • $500m – the extra revenue raised every year from their new tax rate
  • $620 million  – raised from hiking the trust tax rate to 40 percent and limited tax avoidance through trusts
  • $60 – a week extra in a Childrens Credit, which would extend the In-Work TAx credit to parents currently ineligible
  • $2,200 – in a Parental Tax Credit over ten weeks for new born babies whose parents don’t get Paid Parental Leave.

The Greens are a left-wing party, and they are suggesting greater redistribution through the tax-benefit system, and less work testing for benefits.  That is consistent, good good.

Of course the costing are not perfect, but political party costings never are.  At least, on the face of it, they aren’t blatantly ridiculous.

Update:  Good post by Seamus Hogan here.  I’m surprised we made so many of the same points without communicating – there must be a strong econobond going on.

Now as they are a political party they are keen to talk up the benefits, but I thought I should note a few countervailing factors here:

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Crowd funding, Trade Me and Network Externalities

Very exciting news last week that New Zealand’s first two equity crowd funding platforms have been licensed. See PledgeMe’s (henceforth PM) blog announcement here and Snowball Effect’s (henceforth SE) FB announcement here and the FMA’s announcement here.

Exactly what role crowd funded equity will play in NZ is going to be very interesting to watch:

  • Will it fill a gap in the market and mean businesses get funding that they otherwise wouldn’t have? or
  • Will it merely substitute existing funding channels but provide a ready made army of brand ambassadors for the companies that receive funding?

I imagine it will be some combination of the two, but that’s not what I want to talk about. I wanted to briefly touch on how the market structure for crowd funding platforms might evolve.

We’ve had two licensees accepted and I have read somewhere that there are another two before the FMA (plus one combined peer-to-peer lending/equity crowdfunding platform). The question I have heard a few times is whether we can sustain 5 platforms and if one will rise to the top. In this regard, I have heard TradeMe given as an example that one platform will win out.

I’m not sure this is right.

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Common sense, economics, and beliefs

I see Scott Sumner has come out saying that we shouldn’t necessarily judge economic outcomes on whether they meet a “common sense” test, giving the example of an individual looking at social security.  Bryan Caplan has criticised this, claiming the common sense is the foundation of all reason and stating that in the example Scott gives by stating the Scott is only making the argument by making the assumptions sound more plausible.

I’m not going to come down the middle in this, I’m going to disagree with both of them.  The focus on an individual decision regarding something that effects only the individual (superannuation) misses the point of common sense beliefs – and isn’t the best way for Scott to make his claim regarding the difference between “truth” and “plausibility”.  Remember, beliefs include our beliefs about others – and how this corresponds to (and can be valued as) aggregate action.

I’ve written about common sense and economics before. To quote wikipedia.

Common sense is a basic ability to perceiveunderstand, and judge things which is shared by (“common to”) nearly all people, and can be reasonably expected of nearly all people without any need for debate

As a result, common sense is a theory of belief formation – not just beliefs regarding your own actions, but beliefs regarding the actions of those around you.

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The equation for happiness

As the world starts to move from focusing on growth to wellbeing a group of neuroscientists decided to test people’s brains to check whether ‘happiness’ occurred as predicted. The BBC reports that they found

“We can look at past decisions and outcomes and predict exactly how happy you will say you are at any point in time,” said lead author Dr Robb Rutledge from University College London.

The experiment tested decisions under uncertainty, which is a well-researched topic in economics. The best model we have at the moment derives from Kahneman and Tversky’s development of prospect theory. Read more