* Posts by Tim Worstal

1119 posts • joined 12 Feb 2008

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Stop forcing benefits down my throat and give me hard cash, dammit

Tim Worstal
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Re: Misunderstanding Economics

So, a potential employer has a job of work to do that it's worth him paying £100 to have done. It's not worth £120 to have done.

There's someone looking to do a bit of work and they'd do that job for £100 but not for £80.

(We can extend this model to anything we like. Someone's willing to grow and sell a pear for £1 but not for 80p, and someone is willing to buy and eat a pear for £1 but not for £1.20. All economics happens at the margin, so don't worry that this price differences wouldn't affect *your* decision. They will, at that margin, affects someones').

Great, so the two meet, agree, the job gets done and everyone's happy.

Now introduce a "wedge". That's actually the technical term for it. Say we add a 20% tax to those wages that must be paid. The employer will still only pay £100, the labourer will only get £80 and so the job won't get done. The pear won't get grown or eaten. and this is true of us pushing up the wages through insisting upon holiday pay and sick pay etc. Or of VAT, or national insurance, or income tax and so on.

Anything that introduces that wedge between the initial market clearing prices means that some economic activity won't happen.

Now, obviously, we do need to have government of some, however small, size and thus we've got to have taxes. And certainly at low levels what we get in government (a criminal justice system say) is very definitely worth more than the economic activity we lose by paying for it. But that's not true of all sizes of government, of all taxes.

The question is, well, when?

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Tim Worstal
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Re: While this looks fine at first sight

"The employer will simply reap the benefits of any mandated provision's removal."

How?

Currently, to employ someone, the employer adds up all he costs of the pay, the benefits, the taxes that must be paid etc. And then decides whether to hire more or less people. The decision being whether that total package is more or less than the benefits and output of the extra people.

How the package is sliced and diced doesn't (absent tax rules) make any difference to the employer. If you cut the cost of the benefits then the employer is still willing to pay the total sum. And competition would quickly mean that they were again if the benefits were cut.

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Tim Worstal
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Re: @DaveDaveDave

"The answer, as all good economists know is "it depends""

Entirely so.

"In certain of my business dealings (shiny metals) if I buy something from supplier A at half the fair market rate, say 45% of spot, I will expect to get in trouble with the law."

Oooooh, yes, exactly so.

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Tim Worstal
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Re: Negative Income Tax

"The real "moochers" in the Randian sense are the corporations who pay so poorly that many of their workers are on benefits, which means we are funding them."

This isn't wholly and exactly true I'm afraid.

Benefits that are paid only because you have a job could (please note, could) be subsidies to employers. So, working tax credits, the EITC in the US, could be. The general empirical finding is that they're not very much in the UK and about 25% of the EITC is in he US.

But benefits that are paid whether you work or not are not subsidies to the employer. Quite the contrary, they raise the reservation wage and thus act as anti-subsidies.

So, for example, one of the reasons you go to work is to make money to pay for health care. If you're poor, in or out of work, in he US you get Medicaid. Is this a subsidy to employers? No, because you get it whether you're working or not, it's about poverty, not work status/. And he NHS most certainly isn't a subsidy to employers: no one at all complains that they're being subsidised because they don't pay us enough to afford Bupa.

But if one of the things we work for is to afford health care then having free health care, whether we work or not, reduces the need for us to work. And thus raises the wages that must be paid to tempt us into work. That's raising the reservation wage.

Given that the majority of the welfare state does not depend upon working status then there's more of the anti-subsidy than there is of the subsidy to employers.

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Tim Worstal
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Re: Flexibility doesn't exist at lower income levels

"A thought experiment:

Everybody is employed.

Somebody invents a machine that does the work of 10 people.

9 people are now unemployed.

1000 other business units have the same need, and purchase the machine.

9090 people are now unemployed."

OK, we've done that actual experiment. Someone invented the tractor and suddenly we didn't need 40% (circa 1880 or so in UK) working on the land but only 2%.

I'm pretty sure the unemployment rate isn't 38%.

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Tim Worstal
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Re: Flexibility doesn't exist at lower income levels

The answer to that one, as Karl Marx himself managed to get right, is full employment.....

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Tim Worstal
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If the legal requirement for all to enter a traditional employment contract were removed then of course those, employers and employees, who desired to sign such a traditional contract would be able to do so, wouldn't they?

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Tim Worstal
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"Paid holiday won't be replaced by negotiation, because the individuals will have no bargaining power."

Everybody who is currently being paid more than minimum wage has bargaining power, by definition.

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Tim Worstal
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Re: Great idea!

About 50% of the work that Ronald Coase did for his Nobel was on exactly this issue ("Theory of the Firm"). When is the firm the correct structure, when the network of contractors?

Ans: when one is more efficient than the other for the task at hand given the current level of technology.

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James Woods demands $10m from Twitter troll for 'coke addict' claim

Tim Worstal
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American libel law's a bit different.

If someone is a public figure (which I assume a famousish actor would be) then you've got to prove malice as well as untruth. Not quite, not exactly, but that's roughly it.

If Y is not a public figure then "Y is a coke addict" is libel as a simple statement (assuming, of course, that they're not a coke addict).

If Y is a famous figure, public person, then "Y is a coke addict" is not prima facie libel, there has to be that addition of the malice for it to be so.

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Hurrah! Uber does work (in the broadest sense of the word) after all

Tim Worstal
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Re: Potential topic for Worstal...

That's what makes the comment above about reading Smith so interesting. Large parts of WoT are really an explanation of what's wrong with that guild system.

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Tim Worstal
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Re: Potential topic for Worstal...

I don't quite know how many people El Reg has writing for it but I'm sure it's just more than me.....

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Tim Worstal
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Re: Again?

Serious advice about reading WoT (BTW, Theory of Moral Sentiments has some great stuff too). Skip the stuff about silver coinage. there's people out there who've never quite recovered from that.

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So what the BLINKING BONKERS has gone wrong in the eurozone?

Tim Worstal
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Re: Yawn

Well, no:

https://en.wikipedia.org/wiki/National_Recovery_Administration

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Tim Worstal
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Re: The 1930s

"Given that the finance sector was contributing around 25% of GDP before the crash,"

What?

More like 12% or so including car insurance and all that malarkey.

The City, the wholesale financial markets, is more like 4% or so of GDP.

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Tim Worstal
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Re: https://projects.propublica.org/bailout/

Amazingly, this is what Keynes himself became persuaded of.

Vary National Insurance contributions automatically.

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Tim Worstal
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Re: Rescue the banks or the bankers

Bailout as a whole appears to have made money. All that emergency cash from the BoE was paid back yonks ago and the banks were paying real interest on it too.

QE has made a vast profit of course.

Adding up all the N Rock, Llloyds, RBS and so on looks like it will just about scrape into positive figures. Depends what prices they get for the last blocks of shares.

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Tim Worstal
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Re: Sorry for the rant, but...

"consciously using it to hide inflation"

Governments do this all the time. Link benefits to wage growth when wage growth is less than inflation, link them to inflation when inflation is less than wage growth and so on. They're flipped the pensions link at least 3 times in the last few decades alone.

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Tim Worstal
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Re: Sorry for the rant, but...

Ahh....the nub of the argument is that a little bit is a good thing, an excess is a bad thing. Like pretty much everything in fact. Friedman entirely agrees that excessive monetary growth is bad. Yes, bubble, yes inflation.

However, he also argues that when there's more economic transactions around (ie, there's economic growth) we simply need more money around to be able to facilitate those more economic transactions.

A restaurant serving 150 people needs more plates than one serving 50 people.......

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Tim Worstal
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Re: How It Works

"They could just charge less for beer, in Euros, than they do in Italy or Spain or Germany."

That's exactly what is happening. All prices in Greece are being screwed down, one by one. that's what "internal devaluation" is.

The problem is that it's difficult to get people to do this: thus mucho pain to make them.

Much easier just to change the exchange rate. If you've got one of course....

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Tim Worstal
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Re: HOW IT WORKS *

"Derivatives need to be outlawed"

Why do you want to ban the farmer selling his crop to the baker before he's harvested it?

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Tim Worstal
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Re: coming off the gold standard in the Great Depression

People still argue about that. The effect was that the dollar was off the gold standard even if they kept saying it wasn't.....

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Tim Worstal
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There is indeed a piece in that. I'll add it to the pile.

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Tim Worstal
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Re: Rescue the banks or the bankers

"Was the bail out, and partial nationalisation, of banks cheaper than simply letting some of them go bust and paying the depositors?"

Yes. The bailout itself looks like making a profit.

And we avoided the horrendous economic costs of millions losing banking (and their deposits) for a few months while we tried to clean it up, pay them back.

As I say in the piece, I wouldn't have minded some of the shareholders losing a bit more money but that's a different matter.

"Was billions really given to merchant bankers who made a bad bet and then paid themselves bonuses with the money?"

No, not really: the desks that made the bad bets didn't get any bonuses.

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Tim Worstal
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Re: Sorry for the rant, but...

This is Friedman again. Bright bloke, and he says an expanding economy definitely needs an expanding money supply. So, I do tend to go with him on this.....

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Tim Worstal
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Re: On German Economics Between the Wars

"I'm not sufficiently familiar with the economic trends of the time, but I believe that whilst the reparations might have looked like a firm and somewhat punitive response in fair economic conditions, they became untenable as the pan-European situation worsened as time progressed into the early 20s."

Always unpayable. Keynes breakthrough book was "Economic Consequences of the Peace" and he was making that point in, erm, 1919 was it published?

Nearly:

"Because Germany [um, sorry, the Bundesbank... no, wait, the ECB] wanted the Euro to be successful, they turned a blind eye to the massive hole in "

Bundesbank was creaming blue bloody murder about it at the time. Told to shut up by the politicians.

"And just wait for what *could* happen if France gets into difficulty. "

Yep....although I would guess Italy before France.

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Tim Worstal
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Re: Sorry for the rant, but...

"If gold was the basis of the money supply (and was not used in a fractional reserve system), there would be no reduction of the money supply because it would all be real, physical stuff sat there in the vaults. You can't reduce the money supply of gold unless it is destroyed or lost."

True, but that also means you can't increase it. And an expanding economy does need an increase in the money supply. So it's a bit swings and roundabouts.

And I'm very taken by the Cowperthwaite story. I even used it in the obituary of his (not at anywhere grand like the Telegraph of course) I wrote.

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Tim Worstal
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Re: The 1930s

"Is it just me or are Tim's articles getting really good these days?"

Most kind.....now to have that word with hte editor about freelance rates....

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Tim Worstal
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Re: HOW IT WORKS *

"Part of this design was exactly that, though I think he'd recommended 25% as a minimum."

This is the "fiscal union" you see bandied about. So, when one region becomes a cropper and another doesn't (for whatever reason mind) you want less to be paid in taxes from that region and more to be spent by government. You want to be able to vary this by perhaps 3-5% of GDP. It's just the same as running deficit or budget surplus in a nation, same old Keynesian stuff, it's just happening to a region not the entire area within the single currency.

And things like taxes, social benefits, that are 15-25% of the government budget just about do that for you.

some region craps out so less is taken out in income tax, profits tax, VAT, and also more goes in in unemployment benefit, pensions still get paid etc. And so we can get that 3-5% variation through these "automatic stabilisers".

Great. But that does mean that the money has got to flow through Brussels. At that 15-25% of GDP. And that really does mean tha tthe Germans will be paying Greek pensions: which is rather whhere we came in, isn't it?

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Tim Worstal
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Re: HOW IT WORKS *

"The member economies of the EZ are very different , but are they very much more different than (say) California and Michigan,"

Much more different.

And the US has federal fiscal policy to temper the monetary stuff, the EU doesn't. We'd need to be feeding 15-20% of GDP through Brussels to get that sort of effect that the US has.

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The Lazarus Effect: Saved by Linux and Cash Converters

Tim Worstal
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I'm a lot further south in Portugal (if you're coming down to the Algarve over the summer, drop me a line and organise a beer) but yes to Worten. Bought an entirely workable new laptop (hey, not great, but it works 8 months later) for €250 or so.

And Portuguese keyboards aren't that bad. I switch between UK and P no problems. Can't get the hang of German or Czech tho;

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Greece? Zzzz. EU bank says TWEETING can move the stock market

Tim Worstal
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Re: A polite request

Hmm, maybe......

Because I get very confused myself. I usually start out saying it's just a means of exchange and deeply unimportant just to have every crank in the universe leap out upon me with their own definition.

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Tim Worstal
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Re: Is this how it's done?

Well, no, not really. Because if you don't buy the stock yourself then there's no gain. And if there's no attempt to gain then there's no crime.

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The US taxman thinks Microsoft owes billions. Prove it, says Microsoft

Tim Worstal
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Re: These dodges aren't available to Apple

Pretty much but not quite exactly. Tim Cook actually referred to this in one of the congressional hearings, that Apple doesn't do what some other tech firms do.

MS does have some of the US rights to its tech held offshore. Apple has the offshore rights to its tech held offshore and the US rights held in the US. Thus Apple pays full US whack on sales and profits in the US. MS not so much.

This particular and specific case will be being looked at by Apple. But with glee more than anything else.

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Being common is tragic, but the tragedy of the commons is still true

Tim Worstal
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Re: Community Investment Companies (CIC) fit into this somewhere

Hmm. Just an initial thought.

Could well work in the short term. But in the long term not so much. Because we actually want it to be possible for assets to change their use. For, as technology (and population, taste, etc) changes the most valuable use of any asset can change.

Locking in asset use for the long term isn't therefore really what we want to do.

To take two different examples: OK, fine with the idea that Barts has been a hospital site for a millennium now. OK. But imagine that someone had set up a site to deal with horse shit in the 19th century. It was a real problem, maybe someone would have done this. But what if we now had that same central London site locked in as only to be used for dealing with horse shit?

We really do want it to be possible for assets to be sold for new uses over time.

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Tim Worstal
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Re: RNLI

The RoI think is easy enough: back at founding it was all the UK. and it covers the I of Man as well: which it should do of course, because that's where it was really founded. But Lord of Man's Lifeboat Service doesn't have quite the same ring (that being what the Queen is when she's there).

Trinity House (the lighthouses) was also, at least until recently, all British Isles for the same historical reason, the date of founding.

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Tim Worstal
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Re: RNLI

Top notch there, top notch.

And the only economic story I know is that the RNLI did take government funds at some point. Really not sure whether that was 1970s or 1870s tho;. But they soon stopped. They found that they were losing more than £1 in donations for every £1 they were getting from government.

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Tim Worstal
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Re: Logical management?

But it's necessary to show that corporations are utterly focussed on that short term. And I've not really seen any evidence of it. As far as I can tell the human organisations with the longest planning horizons are still those large corporations. Exxon, Shell, etc, take on projects with 40 year lifespans, plan out to 50 and 60 years into the future.

Other than pension actuaries I don't actually know of anyone else who is that long term.

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Tim Worstal
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Re: 5000 years

Indeed....and one of the earlier and more interesting examples of economics beating whatever the politicians might care to enact. Wages went up because labour was more scarce, the law be damned

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Tim Worstal
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Re: 5000 years

"It is interesting to speculate what will happen when a virus appears that is as lethal as Ebola and as infectious as influenza."

Wages go up. That is what happened with the Black Death....

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Tim Worstal
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Re: Big Society

"So for those of us who live in cities or large towns (the great majority) voluntary solutions will not work because there are too many people."

Possibly. Although it's remarkable how small the actual living unit is, even in those large towns. Neighbourhoods really do exist.

As to how to determine what will and will not work all I can suggest is the suck it and see approach.

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Tim Worstal
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Re: Revolutionary Stuff

"The community limitations of 2 to 3 thousand have been broken by social media / internetworking,"

I think to an extent that is true. One of the times when I agree with Marx: the means of production determine social relations. So, new technologies can change the optimal sizes of organisations, say.

Entirely happy with that.

How much that change changes things I'm not all that sure. That we can all Twatter each other is true, but I would need some serious convincing that this makes, say, organising the management of deep sea fishing stocks easier.

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Bitcoin fixes a Greek problem – but not the Greek debt problem

Tim Worstal
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Re: QE

That Greece was spendthrift is correct. That's how they got into the mess. But it's the euro that won't let them out of the mess.

Finland wasn't spendthrift at all. But Nokia fell over, forestry products business declined: and yet they've got the same problem, they've got to have that internal devaluation because of the euro.

What went wrong isn't really the point. It's that when something goes wrong the euro doesn't allow monetary responses to it (interest rates, QE, exchange rate changes etc).

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Tim Worstal
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Re: QE

Not quite. The purpose of QE is to make people stop holding government debt and go and buy corporate debt. Thus lowering the yield/price companies have to pay for borrowings. This will/should increase their willingness to invest.

The aim is to get growth from the investment channel, not the consumption one.

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Tim Worstal
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Re: QE

"Was it simply that all Germans believe that inflation (even 2.1% inflation) causes Nazis?"

I'm not sure I would try to explain it to Angela in exactly those words but pretty much, yes.

I would perhaps more gently point out that the Bundesbank hasn't quite caught up with Milton Friedman's pioneering research (this really was where he made his academic bones, along with Anna Schwartz) in A Monetary History of the United States. Umm, 1963 I think?

The Federal Reserve *caused* the Depression. Not just didn't alleviate it, but made it happen. And the German insistence that that's not what happened is why it's all been so much worse in the eurozone.

And that really is about it I'm afraid. The Bundesbank, and thus much of the ECB, is about 60 years behind the intellectual curve.

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Attention dunderheads: Taxpayers are NOT giving businesses £93bn

Tim Worstal
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As an accountant therefore you know that capital allowances simply are not a subsidy, yes?

And as I repeatedly say, I am not an economist.

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Tim Worstal
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Re: off-topic article request - Grexit

Indeed it is. Somewhere in there

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Tim Worstal
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Re: The Truth of the Matter is this...

Umm, no, not really. Life expectancy of the lower classes at birth was about that, sure. But life expectancy of someone at 14 or 16, about when they would start work and be paying taxes for a future pension, was rather higher....

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Tim Worstal
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Re: @Tim Worstall

That's about right. But then I applaud them for doing it (not the hypocrisy of course). Because people tax dodging lowers (yes, lowers) the rates the rest of us have to pay. Government watches people avoiding and realises that they'd better not raise rates because more will do so.....

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Tim Worstal
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Re: It''s simple?

"Any profits paid to individuals would be taxed at their normal tax rate. "

That's pretty much what some countries do do. And pretty much everyone does that with interest.

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