Tag Archives: Taxation

Poor people cause all problems

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Once again, the UK government shows the contempt with which poor people are viewed.

From today’s BBC news, the home affairs select committee have reported:

Pub happy hours should be banned and supermarkets stopped from selling alcohol at a loss in order to combat drink-fuelled disorder, MPs have said.

This has been on the news all day, with various organisations coming out in support of the idea that alcohol should cost more. Even the British Beer & Pub Association are in favour of the idea (but this is because the cheap beer promotions are costing them money, not because of any sense of civic duty).

Now, there is no doubt that drunken behaviour is a problem. I am not saying it doesn’t cause trouble within communities and within families. I am sceptical of the scale of the problem – I don’t think it is in any way worse now than it was when I was a teenager, when we had the same claims being made. However, given that large amounts of police resources are being thrown at the problem, you’d think it would have had some effect. Personally, despite what the tabloids claim, I have encountered a lot less drunken violence on a night out now, than I did 15 years ago, but this may be an deviation from the norm.

What does confuse me though, is how in Hel’s Kingdom making it more expensive is a solution?

People who get drunk in pubs and fight are the problem. People who have become alcoholics and steal to fund their addiction are the problem. How does making supermarket alcohol more expensive solve either one?

In reality, all it does is impact those less able to afford the drinks – arguably making theft increase – and like all stealth-taxation, it disproportionally impacts the poor. Even moderately wealthy people are going to be immune to an increase in the price of supermarket alcohol (I am biased, I rarely if ever drink so never buy it in a supermarket). Most people I know will buy a bottle of wine or two when they do their weekly shop. They are not causing the problems but will be most affected by the changed price and, in lots of cases will simply have to do without something they enjoy

The people who are causing problems – largely irrational youngsters – will remain unaffected. They will still have a disproportionate disposable income and still be willing to spend it all on a night out. They will still be immature and the most affected by the alcohol. They will still fight and cause public disorder.

The only people who will suffer are those who are already poor. Are they the only ones who cause trouble?

Sometimes I feel like we live in an odd parody of a medieval fiefdom. We have a wealthy class “Lording” it over the poor who are legislated like chattel. Poor people have the least say in how society treats them and are, generally, the ones blamed for the failings of society.

Rather than treat alcoholics, provide better outlets for the energy of youth and better health education, we regularly fall into the “make it cost” more trap. Rich people can pollute the planet, strain the health service, fight in the streets (etc), but Odin Forbid that the serf’s consider it.

I cant wait until we get the renaissance.

Banks Fumble, Taxpayers Punished

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The current “banking crisis” has been pretty hard to ignore of late, but here in the WhyDontYou ivory towers, we have tried. Partly this is because both of us are in (largely) economy immune employment sectors and partly (mainly) because neither of us can really fathom the nonsense being thrown about in the news. Given that both of us are required by profession to be mathematically astute (yes, really) it could be taken to imply that the average citizen would be even more lost.

With this in mind, it is entertaining to watch the news about the crisis when it pretty much only shows scared-to-death financial experts going on about weird ways of selling things you dont have (short selling) and how important the banking risk takers are to society. They are so important that the rest of society has to protect them should their risk taking go wrong. Being ignorant of the financial wizardry, this strikes me as being totally insane, let alone unfair. This post (long, sorry) is pretty much a way for me to let off steam about something that is destroying peoples lives and, basically, really annoys me. I would welcome your comments and feedback on my take – if I am wrong, please educate me.

There are two headline examples today (in the UK at least) – The UK Government take ownership of the crap part of Bradford & Bingley, after selling the good bits to a Spanish bank; The American government fails to secure a $700bn line of funding for its banks to keep them safe. (Neither are good news items. Neither are going to reassure people that their future is safe. Do not mistake a light tone here for a lack of concern)

Some Background

UK first. Starting about 20 years ago there was a big rush for building societies to become banks – changing from being basically there for a group of people in one area (eg. Bradford, Halifax) where everyone who paid in was a member to becoming a limited company, where some of the members became shareholders. In the process, especially throughout the 1990s the drive was on for these banks to press hard and return massive profits for the shareholders (often a tiny subset of the Building Societies membership). At the time (and in principle it still does) this seemed a good idea. Most people got a bit of money (sadly for most of the members this was just a bit – around £100) and a few people got lots and lots of money. Everyone was happy.

From this, there was a drive in the finance sector to target more and more high risk trades, where often the winnings were large beyond the avarice of mortal man. City bonuses in the millions ceased to be newsworthy and sales of high end sports cars went through the roof. Being a “risk taker” became the nicest thing you could say about someone. We (the public) were dimly aware that there was a risk it could fall down on the bank (Barings) so we accepted the ostentatious lifestyle of the successful. For some reason we were convinced it was down to skill and intelligence rather than basically throwing dice and hoping for the best. These were people who worked hard predicting the markets and had a rare skill in knowing where the trades were. Or so we thought.

Hidden for most of the time were the downsides to this.

Insane wages in London made the already insane prices there spiral out of control. People began to think that paying £750,000 on a one bedroom apartment was a “good investment.” In turn, this priced even well paid people out of the city, so prices near London went up (often even faster if it was commutable and “nice”). For the last ten years it has been impossible for anyone on less than twice the average wage to even think of buying a house in the south of England, without a hugely fiddling their application – so they did. People overstated their income, understated their expenses, and took insane repayment terms hoping they’d get on the gravy train before they had to pay the capital. Lots of these people had “normal” jobs and were not aware that they were bearing the same risk that the Ferrari driving millionaires living in central London appartments had. The public never benefited from the wins so, rightly you would think, assumed it was safe from the risks.

Wrong. (More on that in a minute)

A similar story in the US (I assume, I have no idea of the background). From my visits, the gulf between rich and poor in America vastly outstrips that in the UK. I have always thought that if you were filthy rich, there is no better place to live than the US, but if you were penniless poor the UK wins. Rich people in America are really rich. I am amazed the poor survive one day to another.

In recent years, the risk loving traders have really had a few field days in the US. Massive windfalls made rich people richer. They took huge risks, which often paid off. People applauded them for having the guts to risk so much, making it hard to condemn them for their salaries and bonuses. As with the UK, most Americans had some fallout from this (house prices going up for example) and people begin to think that property is the best investment, so take some personal risks to buy a house. In turn the bank takes a bit of a risk lending to them, but often at crippling interest rates that will see the bank get its money back in spades.

Eventually, as everyone with hindsight knew it would, the whole system explodes. That is the thing with taking a risk, sometimes you get hurt.

Here is where my understanding and reality part company.

Current events

I have always thought that you took a risk, gambled something for example, sometimes it would pay off and other times it wouldn’t. Some risks are “low risk”: for example, betting that a tossed coin will land on either heads or tails rather than its side is quite a low risk bet – you are a lot more likely to win than lose. Some are “medium risks”: betting on heads in our example. Some are “high risk”: betting the coin will land on its side. They all make sense to us and we live with this sort of understanding on a day to day basis.

The world banks have paid their “High Risk takers” absolute fortunes because they take high risks. This is fair. If I bet £1000 on the coin landing on its side and I won, I would expect to win big, if I bet £1000 on the coin not landing on its side, I would expect to win a tiny amount simply because I wouldn’t expect to lose.

For most of the last two decades, the amazing thing is the risks have (on the whole won). The coin has landed on its side a lot. People have won big.

The problem is people then forgot what a risk it was. If you win something that is high risk enough times, you forget that it is high risk and assume the opposite. The merchant banks have been so successful with high risk ventures, they forgot that “high risk” meant dangerous and plowed more and more money into it. They still throw around the terms, they certainly still paid the bonuses, but everyone assumed it would never happen.

Then the coin came up tails and everyone lost. Everyone who had bet big, lost big.

Oddly, this came as a shock. The great and bold risk takers were mortified. Nothing hits a herd as fast as panic and the trading centres of the west are no different. Contagious fear spread everywhere and a generation of “risk takers” who actually had no idea about risk were the most affected. The less scrupulous traders saw a chance to strip the foundations of fragile structures and asset rich, stable organisations took a massive hit (Bye, bye HBOS). The wonders of a free market allowed short-selling and a few scares to destroy a company with solid resources – can you imagine how scared the rest must have become.

Risk?

So, in the interests of a free market, the government steps in and saves the companies. The government spends billions of the taxpayers money to rescue institutions that have, basically, gambled themselves out into the street.

This is where I am confused.

In the UK, the government has reportedly taken over a £50billion debt on behalf of Bradford and Bingley. That is effectively £1000 per person so that the demutualised, risk taking, company can survive. Although we were not aware of the risk we were taking, nor did we share in the rewards, everyone of us in the UK was involved in the gambles these people were taking.

The US has the same problem. The $700bn bail out (good idea or not) is a phenomenal sum of money. The high flier financial wizz-kids and their high risk lifestyle would cost every one of the 300 million people in the US over $2000. For someone on federal minimum wage, that is 321 hours work – 40 working days – to save the rich from becoming poor (I know it is not quite that simple). Instead, the poor get a little bit poorer. Wonderful.

The US must be the only modern democracy where funding the rich bankers is a more appealing proposition than giving healthcare to the sick. That confuses me.

To confuse me even more, the news today had lots of talking heads on both sides of the Atlantic saying how it might seem strange but it was vital that the taxpayer (poor) bail out the bankers (rich) because. Often simply because. Sometimes there were vague, dire, warnings about the economy, but most of the time it was just a simple statement. We have to do it.

Why?

I don’t doubt that letting one or two banks slip will cause even more panic which will destabilise the economies, but if the US has $700bn and the UK has £20bn going spare, then surely we can weather some rough times. When the average person on the street still has money for shops to take off them, then the economy will still work. In my mind that is where the salvation needs to be pointed.

Equally odd, is this new definition of risk.

If I gamble my house on a high risk deal and lose, I lose my house. Will the government bail me out? (Well, in the UK we have social housing but that is different) It is unlikely. For me, betting on high risk stocks is just that – high risk. I stand to gain but I also stand to lose everything.

If a bank gambles the houses of 20 million people and loses, well they really lose nothing. Poorly paid staff will get laid off but the “risk takers” are immune. The organisation is immune because as long as it cries loudly enough the government helps. For the banks, betting on a high risk is actually risk free. They will either gain a lot, or lose nothing.

Why is this acceptable? Why is this considered normal? Why are we still hearing that it is all down to the taxpayers to save these banks? Why not claw back the multimillion bonuses? Why not fine the fund managers? Why are they allowed to gamble without risk, yet still be thought of as “cool” risk takers?

Crime and Punishment

The most sickening thing about the whole deal is not just that the taxpayer has to suffer.

If, through negligence or design, I caused someone to lose out to the tune of £1000 there are laws that would punish me. If I gambled £1000 of someone else’s money without their knowledge and lost it, I would expect the police to visit me and to end up in jail.

It seems, however, if you do it with enough people then not only does the government step in to cover your debts, but you dont even get punished. In the middle of the credit crunch, UK stockbrokers were still getting massive Christmas bonuses (just not as massive… poor things).

While it often smacks of unscientific voodoo, I accept what the “finance experts” say and that the state has to prop up these failing institutions. However, why should the people who have caused this problem be allowed to walk away? If, for example, the fund managers and directors of each organisation were to be fined in proportion to their participation, the rescue plan’s tax burden would be a sweeter pill.

Alternatively, if this heralds a new era of tightly controlled financial markets, where crazy risks are punished, and these people are not simply able to start ripping the world off again in a few years then, again, it becomes a bit more acceptable.

I think the problem is, this will never happen. The hint that the US bail-out would be followed with government involvement meant that the Republicans stood against the great George Bush and turned down the bill (*). It seems the only way a rescue plan will be approved is if it carries no strings or punishments. Basically, the bankers are free to risk all our money without having to worry…. (Slightly better over here, where we are more accepting of government control and oversight).

What a wonderful world.

(*) This adds an ironic twist. I strongly think that the Republican party expect to lose the next election. McCain/Palin are their idea of a joke. They know the country and the economy is about to tank, and the war in Iraq has gone badly. If they lose the election, Obama will be handed a hospital ball of a presidency. Unless he is truly Odin’s chosen one, come the next elections people will still be smarting from the economic crisis and will be ready to turn to the Republicans once more. Taken in this light, both Bush’s plan to asset strip the country, and the parties refusal to do something that (on the surface) benefits the public makes sense.

Can you be too cynical?

Smug and Selfish

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I often wonder about terms like “left” and “right wing” and how well they actually describe people. When you look at different nations the terms mean even less. For example in the US “Left of centre” is still reasonably “right wing” by (traditional) UK standards and weirdly we have a left wing government which is implementing more right wing policy than any in living memory. So I wonder, do the terms still mean anything?

It gets even more confusing when I apply them to myself. Personally, I exhibit left and right wing traits. More than that, I mix wanting to be filthy rich with wanting the general standards of society to be improved. Are these reconcilable? I have no problems with government taxation (I actually think tax is a GOODTHING™®) but the thought of government interference with my life is abhorrent. One area where I was concerned that I had strong left-wing tendencies was in the newspapers. Out of habit, I read the Guardian newspaper each Saturday, which is certainly a “leftie” newspaper. Fortunately, today I find myself seriously add odds with some of its other readership. Maybe I am still a “right winger..”

In the “Money” Supplement, there is a section where people write in with a problem and others give advice on how to solve it. It is normally pretty cheesy stuff about which fair trade presents they should buy for some wedding. Today it was about some one who was struggling to cope with the increased petrol costs and was asking for advice as to how others cope.

As you may have imagined (if you’ve ever read the Guardian), the responses were nearly all along the lines of “it serves you right for driving a gas guzzler” and “Stop whining, there are people worse off in Nigeria” (or where ever). One even suggested the questioner doesn’t “have to live 25 miles from [their] place of work.”

What self satisfying, smug, arrogant nonsense the answers are.

Infuriatingly, this is typical of a certain group of the UK society, most of whom are Guardian readers… They appear to be of the opinion that the massive fuel price rises are a GOODTHING™®© because it will combat climate change and (as most are well off enough to not actually be affected by the increased prices) any side effects are easily tolerable. This is not a “socialist” view point as the whole set up massively disadvantages the poor over the wealthy. Like most things, there is the assumption that a some of money which one person feels is insignificant must be insignificant for everyone else – yet at the same time it carries the idea that the increase will make other change their lifestyle to one the first person feels is “better.” It really annoys me.

Take an example of some one I know very well. This person is very hard working but, to be honest, not very well off. Earning low end of the average wage, this person has to pretty much accept any job offered to them. At the moment, they work 32 miles from where they live. The area is not well enough serviced by public transport to make that viable and, like most people, they own a car that is a few years old (and is used for family tasks at the weekend). Now, with today’s prices they are paying £1.19 per litre of fuel. The round trip journey is 64 miles, and is a mix of traffic. Their car is reasonably economical but, because of the nature of the journey, they rarely get better than 30mpg from it. As a result, each day they are using 10 litres of fuel per day. The simple journey to and from work is costing them nearly £3000 per year. Shocking. This is a only a £600 a year rise over last year, but when you live close to the margins, £600 means an AWFUL lot.

Now everyone has choices. My friend has choices. They could change jobs, but there aren’t any closer. They could move house, but being poor they cant afford one closer to work, they could cycle but it would take hours and they’d have no where to change at work, they could change cars to a more efficient one but (again) they are poor and cant afford a new car.

Switch the example to me. I am not rich (far from it, sadly), however I am better off than my friend. I drive a much more un-economical car to work (albeit a much shorter distance). I live a less environmentally friendly life and, to be honest, if you try to change me through taxation you will leave people like my friend destitute on the streets before it has any effect on me.

How, in the real world, do things like increase fuel prices have any real effect on changing people’s destruction of the environment?

In a similar manner to increasing alcohol tax, forcing shops to up the price of “party drinks” and the like, it has no real effect on the people clamouring for it. All it does is massively disproportionately punish the poor. You don’t even have to be rich to ignore these measures, because the poor will break before the middle classes begin to suffer.

Back to my rant about the Guardian. It is nice to think there is a whole swathe of supposedly “Left wing” Guardian readers who are happy to see poor people suffer even more because it massages their “climate change guilt.” No wonder the Labour party have become right wing neo-Nazis.

Who funds the cost of terrorism?

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On the BBC there is a news/vote item about the “spiralling costs” of airport security. Apparently the airports industry is complaining that complying with the security restrictions imposed by the government (or the US government in some instances) is destroying their profits and they want the Government to contribute to offset some of the burden. The BBC writes:

The aviation industry has said it can no longer afford the spiralling costs of security at Britain’s airports.
Costs have risen by 150% since new security measures were brought in after the 11 September attacks in 2001.

Security now costs a quarter of major airports’ income. Airports cover all security costs themselves, but say this is simply not sustainable.

The industry now wants the government to contribute, but ministers insist the aviation industry must foot the bill.

Since the 11 September attacks, the government has introduced restrictions on hand baggage, a ban on liquids on board and, more recently, measures to move vehicles further away from terminal buildings.

It is interesting that the airports feel having to abide by government legislation is not something they should have to pay for, it strikes me as being the same as if car manufacturers decided to make the government pay for seatbelts, but that is a debate for another day.

Likewise, the idea that losing a bit of profit to improve upon safety is a “Bad Thing” is open to all manner of arguments – you could easily complain that airports only spend a quarter of their income on security…, but I will leave that as well.

Oddly, I will also avoid the farcial nature of the security measures – they are, by and large, pointless and designed for nothing more than pandering to peoples crackpot fears, but I will rant about that another time. (Phew 😉 ) I will even leave the nonsense comments alone today.

The main thing which piqued my interest, were the options in the vote. Before you shout at me, I know these “votes” are more for fun than anything else, I haven’t taken it seriously – however, the news debate on TV, Radio and online seems to realistically consider these three choices as the only options.

Who should pay for airport security?
The aviation industry
The government
Passengers

The survey has most voters saying “The Government” and this has been reflected by the TV news coverage and the comments attached to this news item. Personally, I would have said it is the aviation industry’s responsibility but I am used to holding a minority viewpoint.

The issue I have with the choices here, and this is something which is often reflected in public debate, is the crazy idea that the Government has “money” in any realistic sense.

It strikes me that people seem to be massively unaware of the fact that making the government pay for something (even the constant stream of “Public Inquiries” we seem to need now) actually means everyone pays for it. If, for example, the UK government is forced to subsidise the airports, the money will either come from reducing other sectors of public funding (so we get worse hospitals or roads for example), cutting back on the money given to local authorities (so we pay more council tax for example) or by increasing the basic tax rates – so we pay more. What ever the option, it is the population of the country who will lose out.

Comically, the airports are on shaky ground here, as they do not bear the full costs of airport security really. Since 2001, the charges levied on airlines and travel operators has increased to offset the costs of anti-terror methods – which in turn has the effect of either reducing their profits or translating into higher travel costs. So in effect, the passenger has already been paying for the costs and now the airports want more.

Really, there are only two choices as to who bears the costs – the public as a whole, or people who use air travel. Personally, given that choice, I think it realistically has to be the people who chose to fly. Shame really. I fly a lot. 🙁

Annoyingly, despite some of the claims that all the measures are in response to demands by the UK government this is not the case. In some instances they are extra measures that the US government has demanded, in some they are demanded by international organisations. So, in effect, we have to subsidise the fears (real or otherwise) of foreign nations. Such is life, post-Empire…

[tags]Philosophy, society, culture, air travel, Security, Terrorism, Government, Industry, Taxation, Airlines, Airports, Flight Safety[/tags]