Sunday, 22 July 2012

Holding them to account

Presumably economic predictions require economies to be mathematical in their behaviour. But are economies mathematical entities? Surely they are not. For example, even though the Laffer curve is inexact, it is assumed to be some kind of semi-quantitative economic law. Semi-quantitative law? Is that good enough?

Fiscal policy, budget deficits and so on - it seems to me that too many people are too convinced they understand this stuff well enough to make predictions. Yet maybe economies are not even understandable in a quantitative sense at all because cause and effect are too complex and non-linear. Economies are not mathematical structures, but if not, then what are they? Are they chaotic?

In many ways I think we’d be better off if our economic ideas were to be subsumed within accounting. Do the accounts, draw the graphs, eyeball them, stick a finger in the air and draw your conclusions. Often you’ll be wrong if you try to predict the future, but maybe with a bit of good fortune only partly wrong.

So for me, the absolute prerequisite for any economic policy is that it should improve transparency and make the accounting simpler. Say we begin with taxation. For our political health, if for no other reason, taxation could be much simpler- much simpler for everyone.

Over the past year or so I’ve become convinced by MarkWadsworth’s blog and others and in my non-economist’s simplicity that LVT or Land Value Tax is the way to go. Replace the lot with LVT and open your arms to transparency in the national accounts.  

To me, the economic arguments for LVT seem strong, but I tend to see the argument more in behavioural terms. That’s just my take on it, because if I believe in anything, I tend to believe very strongly in the malign influence of complexity. It is absolutely essential that we understand ourselves and what we are doing. Unfortunately we don't and it's largely our fault.

Excessive complexity is bad news. It is used to promote and entrench unearned advantage, an unwholesome, unfair and destructive situation.

People of my age have seen this for real in the inflation of house prices. Personally we tended to miss out on this because of work-related house moves at the wrong time, but many people of my age saw property inflation melt away their mortgage in relation to the value of their house. A capital gain which was never earned or taxed.

Next is government borrowing. It seems to me that MMT guys have something important to say here. I’m not wholly convinced by what they say, but again they seem to be promoting a simpler way of looking at economics by concentrating on national accounts. What actually happens to the money? In their eyes, money is simply an accounting token, a record of who owes what to whom.

So forget economics. We’d be better off with transparent and radically simpler tax and national accounting – better off voting on the accounts rather than empty promises.


WitteringsfromWitney said...

Agree with your views on LVT and a simple tax system.

Only problem with voting on the accounts is that by then the damage has been done? Far better for them to provide an estimate and of where all the money they wish to take from us is to be spent.

Simple analogy: would you employ someone to do work for you without an estimate and then argue the toss afterwards when your money has been spent?

Simplistic argument, I know, but surely the principle holds good?

Anonymous said...

I respect Mr Wadsworths' views and yours and I confess I have not studied LVT in-depth, but I smell over-simplification here.

So we list the parcels of land - say about 30 million of them and then we assess them - how? - Google Earth maybe. Then we argue the toss in court over say 5 million of them - probably the most valuable and tax-worthy - and after 20 years we might just start to catch up with the present system. Not a cheering prospect.

A K Haart said...

Witterings - an estimate to which they are held accountable would be fine by me.

Roger - as I understand it, the Land Registry would be the starting point.

To me, the current tax system seems designed to confuse, so whatever the difficulties, I think we have to support a more transparent one.

James Higham said...

Oh, Mark will love you for that. :)

A K Haart said...

James - it may only be a one off!