For the sake of democracy, please DON’T vote

When I became old enough to vote, I held to the belief that voting was a civic duty. The vote was a hard-earned right by our predecessors, and we would be neglect in our responsibility as citizens if we do not participate in the democratic process by going out to vote.

But voting is just a token gesture toward democracy. It is meaningless unless your vote is backed by proper engagement with ideas and policies at stake. By voting without being sufficiently aware of what policies and personalities you are supporting, you only contribute to the electoral noise.

But you may ask: “Why is this a problem? Surely that represents the current electoral mood of the constituency”.

This would be a valid belief to hold if the voting mechanism was Proportional Representation. But in the UK, and in most countries with elected representatives, you vote for a local representative – your vote does not directly translate into support for the party you voted for. If your elected representative loses by only 1 vote, they would still lose the election. Extrapolate this behaviour across the country, and you will find that a party might come second place in many constituencies throughout

Imagine you live in a strongly Conservative area. You might think – my parents and my grandparents is voting Conservative, as is everyone I know who are into politics. They seem to know what they’re doing, so I guess I’ll vote for the Conservatives also . What this accomplishes is that the constituency becomes even more strongly Conservative, thanks to the follow-the-herd vote of you and others who think like you, making this a ‘safe’ Conservative seat. In case this comes across as an attack on the Conservative party, this same principle also applies to the Labour party (I’ve literally heard a Labour voter say this).

This means that your representative will not have to work hard to earn and maintain your vote. In a safe seat, your representative does not actually have any incentive to represent your best interests. After all, since they are ‘safe’, what do they risk if they don’t actually do their job? Political representatives are only accountable to the people who put them there. In safe seats, this means the political party who selected and nominated them for the candidacy of that constituency. In safe seats, politicians are loyal only to their political party, not to you, the voter.

Granted, the above scenario is a worst case scenario of voters simply following the herd. But picture a more balanced scenario: Imagine you live in a constituency in which 20% of the voters are supporters of the Conservative party, and 10% support the Labour party, and 10% support one of the smaller parties. But the rest of the constituency don’t really care which party gets into power. If these voters don’t vote, the Labour party might realise that there is a huge 60% of the uncommitted electorate for them to engage with, in order to wrest control from the Conservative party. And the conservative party would realise how disengaged the voting public really was.

But if these remaining unengaged voters vote randomly, the remaining 60% of votes gets distributed evenly between the Conservatives, Labour, and the smaller political parties. Thus we might get a total vote of 40% for Conservatives, 30% for Labour, and 30% for other parties. This gives an inaccurate picture of 40% support for Conservatives, when in fact only 20% of the electorate actually support them. More significantly, if support for the Conservative party was to drop by 10%, it would appear as if there was still 30% support for the Conservatives, rather than a more significant halving of their actual support.

This makes it difficult for parties to accurately gauge the popular impact of their policies. The amount of noise contributed by non-engaged voters dilutes the swing patterns of actual electoral support. It also motivates political parties to only engage with the minority whom they believe will swing the vote, rather than appealing to the full electorate.

Such distortions are unfortunately rife in the UK’s political landscape. It allows the large political parties to remain entrenched in power, and contributes to political disengagement amongst the voters, who feel as if their vote makes no difference to the political establishment or their own lives.

So I now urge my fellow voters: If you are unsure who to vote for, please do NOT vote.


The costs of housing policies

I live in Croydon. Like many parts of the country, we are experiencing a severe shortage of quality housing. Yet Croydon Central’s current MP is the Shadow Minister for Housing, Labour’s Sarah Jones; its previous MP was Gavin Barwell, then the Minister for Housing. If these politicians were serious about their jobs, they would do well to acknowledge the actual outcomes of their policies.

Politicians, in order to win votes, will very rarely inform us of the cost of enacting their policies. Some might not even be aware of these effects – career politicians are interested in winning votes, not necessarily helping people. They risk the welfare of their voters when they ignore the economics at work.

As voters, we need to be aware that all policies will always come with unintended consequences. We need to weigh up whether the intended effects of these policies are actually worth the cost of their unintended consequences.

To begin with, we should understand the fundamental idea behind economics: the interaction of supply and demand. Prices are determined by the interaction of supply and demand, so that when demand increases, prices go up; inversely, when supply increases, prices go down. This explains what will happen if demand or supply goes up or down.

There are two types of demand on housing:
1. Rental
2. Purchase
But there is only one type of supply for housing: actual physical houses.

Using these basic ideas, we can understand some of the secondary effects of government policies on housing – those economic consequences that governments and politicians do not tell you…

Intended effect
Actual outcome
Help to buy
Financially helping first-time buyers.
Increase demand on housing at the lower end.
Cheaper houses become more expensive.
Taxing ownership of 2nd homes
Discouraging ownership of multiple houses, making more houses available for first-time buyers.
    1. Decrease demand for house purchases.
    2. Decrease supply of houses for rental.
    1. Houses become cheaper.
    2. Rents become more expensive.
Increasing stamp duty for expensive homes
Redistribution of wealth.
Decrease demand for expensive houses.
    1. Expensive houses become harder to sell.
    2. Less retirees will downsize.
    3. Less people can move up the housing ladder.
Rent controls/caps
Making rent affordable.
Artificially suppressed prices:
  1. decreases supply of rental houses.
  2. demand for rental units outstrips supply.
    1. Excess demand causes waiting lists for renting a home.
    2. Waiting lists mean rental homes become poorly maintained.
Right to buy
Helping poor people get on the housing ladder by letting them buy their houses at a discounted price.
    1. Decrease supply of social housing.
    2. Subsidise house buying, increasing overall demand for houses.
    1. Shortage of social housing.
    2. Houses become more expensive.
Affordable housing
Providing cheaper homes everywhere new houses are built.
    1. Increase supply of low-quality housing.
    2. Decrease supply of high-quality housing.
      1. New houses are smaller and poorly fitted in order for developers to maintain profit margins.
      2. Good houses become more expensive.
Housing regulations
Ensuring newly-built houses meet a standard of quality.
Increases costs of building houses.
Houses become more expensive.
Landlord regulation
Ensuring rented homes meet a standard of quality.
Increases costs of being a landlord.
    1. Rent becomes more expensive.
    2. Fewer landlords: Shortage of rental accommodation.

The side effects described above is further compounded when the government enacts policies in order to counter the side effects of other policies.

For example…

Renters might be complaining that they are unable to afford to get on the housing ladder because wealthy landowners buying up properties have been pushing up the cost of houses. Thus they demand the government enact policies to discourage this practice by heavily taxing ownership of second homes. As described above, house prices do reduce due to decreased demand for purchased properties, but for every house that is no longer owned as a second property, another house is taken off the rental market. The side effect of decreasing the supply of houses for rent is that rental costs increase. Thus although houses might become cheaper to buy, those struggling to get on the housing ladder are now paying a higher proportion of their income on rent. Resulting problem: high rents.

Now the same renters are crying that houses are too expensive to rent, demanding the government enact rent controls. As described above, this will cause the supply of rental properties to reduce even further, as the excess demand ensures a ready tenant for the landlord regardless of the quality of their housing. Resulting problem: poor quality rental housing.

In order to tackle poor quality rental housing, the government now enforces regulation on landlords and rental houses. The increased bureaucratic cost of complying with regulation means two things: casual landlords withdraw from the rental market, and remaining landlords cut corners elsewhere in order maintain their profit margins. The end result: even poorer quality rental houses, and even longer waiting lists.

From the sequence of cause and effect above, it can be seen that the government’s misguided efforts at appeasing renters’ demands can actually end up hurting renters the most. The intent does not necessarily translate into the outcome. This is not to say that the government should necessarily do nothing. Rather, this is a critique of enacting policies without taking into consideration their outcome, and the problems of tackling the symptom without addressing the cause. As the illustration above demonstrates, tackling the symptom without dealing with the cause only creates more problems than they solve.

From the previous example, the problem of renters not being able to get on the housing ladder is a symptom of some underlying problems. Using basic economics, high cost of houses can be addressed by either increasing supply or reducing demand. However, the government cannot control where people want to live. But they can control where houses are being built. Thus, to tackle the fundamental cause of the problem, the government needs to address why houses are not being built to meet demand.

Perhaps there are building restrictions in place, such as ‘green belt’ designations. Then it might be wise for the government and local authorities to review whether existing green belt designations are appropriate – it may be worth redrawing the green belt boundaries so as to maintain the same amount of green space.

Perhaps the ponderous planning process is holding up the pace of housebuilding. Then the government and local authorities should identify the bottlenecks in the bureaucracy to streamline the processing of building applications and speed up the pace of housebuilding.

Perhaps the planning rules themselves are excessively restrictive. Governments should not rule out reviewing town planning rules by local authorities so that locals can decide what rules best suit their local needs.

Perhaps excessive levies are being placed by the local authority on housebuilders. Local authorities should then review the levies and settle on more appropriate rates that encourage housebuilding.

Perhaps it is more cost effective to build elsewhere. Then governments could identify what costs are discouraging building in the high demand areas. They could even offer financial incentives in the form of tax breaks in order to increase the supply of housing in high demand areas.

However, these are not recommendations. These are just illustrative examples of how governments can tackle problems by identifying the cause rather than just addressing the symptoms. Any good trouble-shooter knows that there is little point dealing with the symptom if you don’t resolve the cause.


Financiers are not just “greedy bankers”

I would hazard a guess that most people have heard the refrain “greedy bankers” to denigrate the wealthy individuals who work in the financial sector. However, how many are actually aware of what these people do, and what role does investment banking actually play in the economy?

Not ‘just’ greedy

To start with, I want to address the idea that financiers are just greedy bankers. Not that they are not greedy… Of course all bankers are greedy, to a certain extent. But so are we all – we all want a bigger paycheck, a more comfortable living, more money to spend on material possessions and creature pleasures such as holidays and haircuts. The only difference with finance is that bankers tend to earn vastly more than us mere mortals do, and they don’t seem to be producing anything tangible or offer a visible service to Joe public. Most people can see that rich individuals produce a product or a service: James Dyson created the Dyson vacuum cleaners; Bill Gates produced the Microsoft suite of software products; Mark Zuckerberg gave us the world-famous Facebook social network; and so on and so forth. So it is an understandable misconception that bankers take money from the world without contributing to it. In fact, bankers and financiers provide a very significant contribution to the economy…

Investing in the economy

Financiers are also called ‘investors’. Traditionally, investors and entrepreneurs with a business plan seek out each other, where investors provide entrepreneurs with the funds to start up a business. This can often be in the form of lending, with the promise of the entrepreneur to pay back the borrowed funds with interest. Alternatively, entrepreneurs sell shares of their business to investors, so that the investor now owns a portion of the new business instead of requiring the entrepreneur pay back the money. As the business develops, investors may gain dividends from being a shareholder, or they may sell their share of the business after its worth has grown. This practice may not be restricted to just one investor – entrepreneurs often float their business on the stock market in the form of IPOs (Initial Public Offerings), where many investors buy a small share of the business, so that all the purchases contribute to the capital fund that the entrepreneur uses to scale up their business.

Thus ‘greedy bankers’ or investors, actually contribute to economic growth by funding the start up of new businesses and funding the growth of existing businesses. In this form of investment, the more bankers there are, the more competitive the rates of investment are. With many investors, demand for objects of investment are high, so entrepreneurs can get competitive rates for their business. The greater the number of investors, the better the rates. The sum effect of all this investment, innovations in technology and provision of services can develop readily, thus the more bankers there are, the quicker an economy can grow.

A certain category of financial institutions, known as fund managers, invest not their own money, but the money they receive from clients. Clients of these funds are people who want somewhere for their capital create a return on investment (ROI), but are not willing or able to perform these investment activities themselves. Fund managers perform the investment activities on behalf of their clients, so that they either provide an attractive fixed rate of return so that the fund managers bear most of the risk, or they take a cut of the profits that the fund generates, so that their profits are directly linked their performance. Pension funds and hedge funds are examples of these types of funds.

The positive impacts of speculation

There is another form of investment that comes under heavy fire: Speculation on the stock market, which can be investment in the shares of businesses, or in the form of physical commodities such as wheat or oil. There are two ways bankers speculate on the stock market: going long, and going short.

Going short is the somewhat counter-intuitive practice of selling high first, in anticipation of a slump or a crash, and then buying back the stock/share after the prices have dropped. This is obviously a highly speculative practice, and many critics argue that it is highly immoral for bankers to profit from the others’ losses. However, we need to understand the role speculators play in this process. Markets crash or slump when there is a drop in demand for a share/commodity, which can be triggered by worldly events. Crashes tend to be severe because the suddenness of the drop in demand tends to snowball into a sudden loss of confidence in the market. So when bankers buy low, they are in practice increasing demand for that share/commodity, arresting the fall and cushioning the crash. Conversely, when bankers sell high in anticipation of a fall, they are actually increasing the supply, in effect reducing the price prior to the event that triggers the crash. This not only helps to reduce the severity of the crash; it also serves as a signal to the market that prices should be lower. This mechanism is what provides liquidity to the market that helps to level out the fluctuations of the market. Thus bankers do not cause crashes, but they can and do profit from them, and more significantly, the liquidity they provide to the market cushions the impact of crashes, reducing the loss for everybody else.

Going long is the traditional method of buying low with the anticipation of an increase in price and then selling it high later. This is more intuitive to comprehend, but the nature of how this practice contributes liquidity to the economy is identical to the practice of going short, only in the reverse direction. But the speculative nature of this practice becomes more pronounced with the advent of high-frequency trading (HFT), which has been facilitated by the advent of electronic computing. High-frequency trading provides the ultimate in market liquidity, by using computers to facilitate trades between investors and markets at very high frequencies that can only be achieved electronically. It comes under heavy criticism for not seeming to provide value to a business, which has been likened to gambling. However, the liquidity provided by HFT helps both investors and entrepreneurs. Investors who suddenly need to recover their investment at short notice would benefit from this liquidity, in being able to rapidly find other investors who wish to purchase their shares. Businesses alike are able to sell shares rapidly to increase their own liquidity, or to buy back shares or additional stock from their excess liquidity. This form of benefit is not easily measurable in tangible assets, but most businesses who participate clearly benefit from this type of service, with a much lower risk of going into insolvency.

Putting their own capital at risk

It is particularly important to note at this point that throughout all this profiteering, financiers are risking their own money, or the money of their business/clients. Yes, it is a profit-making business, but profit also comes with risk of loss. As all forms of investment are inherently speculative, financiers can and often do experience losses. But what is significant is that the risk is borne by the investors, not by the general public. When bankers speculate irresponsibly, the loss is not normally passed on to the public. In case you cannot tell, I am taking the position against the bailing out of the banks during the 2008-2009 financial crisis.

Bankers bonuses

Many members of the public are disgusted by the seemingly obscene amounts bankers appear to receive in bonuses. It is difficult to comprehend how someone’s bonus can be equal to, or even greater than their annual salary. This stems from a misapprehension of bankers’ pay structure and the profits they bring to the business. Bankers’ bonuses are in effect their performance-related pay. As in most competitive industries, a significant proportion of bankers’ earnings are linked to their performance. A trader in an investment bank might earn an £80,000 salary, but if they brought in £10million to the bank that year, a bonus of £100,000 is only 1% of the profits they contributed to the business, even if the bonus is larger than their basic salary. If the trader under-performs, they will not receive that kind of bonus. High-performing investment traders know how much they bring to their employers, so they expect to be paid proportional to what they are able contribute to the business. So when a misguided attempt by the EU to regulate bankers bonuses stopped bankers from receiving a bonus greater than their salary, basic salaries for these bankers went sky high. The sad effect of this misguided attempt to curb bankers’ pay is that it ended up increasing the amount of bankers’ get paid without actually having to perform.


In case you think I write this defence of bankers because I somehow benefit from it, I can assure you that I neither work in the finance sector nor am I paid by anyone who works in that sector. But I can disclaim that I did spend a short spell in fintech (financial technology) and personally know people who do work in the banking industry.

Donald Trump vs David Cameron

So I recently came across a video, a publicity stunt by Donald Trump in his role as President of the United States of America. He allowed press cameras access to record a meeting that he chaired on the subject of the DACA immigration policy (Deferred Action for Childhood Arrivals). In this meeting were attendees from both the Senate and the House of Representatives, including members of both the Democratic and the Republican party.

Putting the subject of discussion aside, the event reminded me of a similar publicity stunt pulled off by David Cameron in 2015. He allowed press cameras into a cabinet meeting, with headlines declaring “Inside Downing Street Cabinet Meeting”, British politicos were tantalised by the prospect of witnessing an actual discussion taking place within the United Kingdom government’s Cabinet.

What struck me most about Cameron’s “meeting” was that it was really nothing more than a publicity stunt. He took advantage of the press’s curiosity to give a speech that was directed more at the public than to the cabinet. Nobody else said anything. There was no evidence of David Cameron chairing any discussion. Not even the speech contained anything of substance – it contained nothing but airy-fairy platitudes full of good intent but nothing to do with how they are going to be achieved, or what actions the government can/should/could take. And at the end of his pathetically short speech, he got rid of the cameras, presumably so that they could get actually “get on with business”. We never got to witness an actual cabinet discussion. They might have been drinking champagne for the next hour after the cameras left, for all we know.

In comparison, Trump was brief and business-like with his introductory speech: he thanked everyone and introduced the subject of discussion within 30 seconds. He explained what the three goals of the discussion was, and opened the discussion by highlighting some of the known issues. The discussion kicks off at 6 minutes, starting with a Democrat Senator. Discussion then proceeds to go back and forth between different attendees, from Democrat to Republican and back again. Trump is both in control of the meeting as well as actively participating in the discussion.

This should not have surprised me. After all, Trump was an accomplished businessman long before he became a start of an over-dramatised reality television programme.

In comparison to Trump, Cameron’s attempts at publicity just showed that he was all about publicity rather than substance. I had always thought that Cameron was shallow, but to have so much less substance than Trump, was certainly eye-opening.

Granted, the entire hour might have been carefully scripted and set up for show. There’s no doubt that the speeches were carefully thought through and probably even scripted beforehand by every participant, but the fact is: members from opposing sides of the political debate participated in the discussion. There was none of the mud-flinging that we see in public politics, even in the shameful publicised debates in Westminster, which more resembles monkeys battling it out than it does civilised debate.

I did not like Trump, and I still do not like Trump. But it does look like he is doing a decent job in his position of office so far. What do you think? Watch the two videos below and let me know your thoughts.

David Cameron chairs meeting (2 mins):

Donald Trump chairs meeting (54 mins):

Perceptions of the left-right political spectrum

Hate arises because we project our prejudices instead of actually trying to understand others.

The left-right political division: most of the hate and division arises because we fail to understand others the way they understand themselves. Many of us are guilty of projecting our prejudices on those we disagree with.

How the Left identifies itself

Everyone who identify themselves as belonging to the liberal Left cares for the poor and downtrodden. It sees itself as embodying progressive and liberal values. It sees the government as a tool to better society. Many also have an agenda to address societal issues at the global level, rather than at a local level. Left-wingers tend to identify the inequality caused by capitalism as an evil outcome that needs to be addressed, by curbing the greed of the wealthy, and by providing a generous welfare system for the poorest in society.

Liberal Left-wingers are willing to discard societal traditions because they believe that traditions are cultural baggage that  hinder progress. They believe in liberalising cultural norms and dispelling cultural taboos that result in segregation and discrimination. They believe that everyone should be given equal treatment, and some even believe that the affirmative action should be taken to rectify past oppression.

In summary: Left-wingers are progressive when it comes to social values, and interventionist when it comes to the role of the state.

How the Left sees the Right

Therefore, this is how many on the Left interprets the Right: as being in opposition to every ideal the Left stands for. Many Left-wingers think that Right-wingers are authoritarian, regressive, and selfish.  They see the Right as only being interested in personal wealth rather than societal well-being. They think that conservatives only manipulate the government for personal interest, as opposed to societal interest. Many even interpret the nationalistic agenda of some conservatives as indication of the backward selfishness endemic to the Right.

How the Right actually identifies itself

However, Left-wingers very rarely ask: How do Right-wingers identify themselves?

Conservative Right-wingers believe society has come this far because of the traditional values which have guided them in the past. Thus they believe in making incremental changes rather than revolutionary changes, to minimise the unintended consequences arising from implementing societal changes too rapidly. They also believe in small government because they value the liberty of individual choice, over more interventionist forms of government because of the danger of oppression. Thus many conservatives believe in voluntary charity rather than state-enforced charity.

Capitalist Right-wingers believe in freedom of choice for economic reasons. They see free-market capitalism as the best way to incentivise innovation, entrepreneurial spirit, and wealth generation. They believe that the real socio-economic problem is actual poverty rather than inequality, and that wealth creation will improve the life of even the poorest of society. Many believe that the poor should be given incentive to improve their lives, even if it results in short-term pain.

In summary: Right-wingers are conservative when it comes to social values, and libertarian when it comes to the role of the state.

How the Right sees the Left

Right-wingers believe in small government. The converse, they believe, is that Left-wingers believe in big government. Most right-wingers oppose what they perceive to be the Left’s attempt to encroach upon individual liberties, such as the freedom of conscience, the freedom of religion, the freedom of speech, the freedom of choice… They believe that left-wingers want to use the force of the state to impose their ways on society.

Comparing the Left and the Right

Both the Left and the Right believe in the role of government. Both the Left and the Right desire the best for society. The differences are disagreement over how this can be achieved. Here are some of the similarities and differences…

 1) Both the Left and the Right believe in compassion and helping people.

The Left believes in helping the poor directly, whilst the Right believes in incentivising them to achieve this themselves. The Left believes that the government should intervene wherever people are in danger of making poor choices, whilst the Right believes that individuals are best placed to make their own decisions. The Right believes that generous welfare provides an economic incentive toward poverty and unemployment, whilst the Left believe that generous welfare is necessary to prevent poverty.

 2) Both the Left and the Right believe in fairness.

The Right believes in equal rights and starting points, whilst the Left believes that inequality of outcome is usually a result of inequality of opportunity. The Left believes that a fair taxation system means heavier taxation on the rich, whilst the Right believes that fair taxation means taxing everyone the same rate.

3) Both the Left and the Right believe in prosperity.

The Left believes that unfettered market forces have potential to do great harm, whilst the Right believes that market forces are more efficient than centralised decision-making. The Right believes that the profit motive incentivises operators to improve efficiency, whilst the Left believes that profit margins reduce efficiency. The Left believe that the rich attain their wealth by exploiting the labour of the poor, whilst the Right believes that wealth is not a finite resource and that it is created every time productivity improves via human innovation.

 4) Both the Left and the Right believe in the value of liberty and oppose authoritarian oppression.

The Right believes that increasing government power reduces individual liberty and increases the scope and danger of government oppression, whilst the Left believes that gaining power and representation in government is the best way to oppose government oppression. The Left believes that the state has a duty to actively promote liberal ideals, whilst the Right believes that government intervention on social issues is illiberal and oppressive.

 5) Both the Left and the Right care about the environment.

The Left believes that the environment needs active protection and that proactive government policy is required to drive through progress on improving environmental protections, whilst the Right believes that the environment is very resilient and that human intervention on a massive scale has the potential to cause even more environmental damage than it purports to solve. The Right believes that progress of technological innovation naturally leads to improved environmental standards, whilst the Left believes that market-driven progress is not only too slow, it often goes in the wrong direction to increase environmental damage.

 6) Both the Left and the Right believe in human rights.

The Right believes that rights are acknowledged by the government, to recognise individuals’ rights to self-determination, whilst the Left believes that rights are given by the government, to sanction actions and statuses. In practice, this means that the Left wants their standards of human rights to be enforced by the government, whilst the Right does not want the government to stop individuals acting according to their conscience.

 7) Both the Left and the Right oppose monopolies.

The Left believes that capitalism inevitably leads to monopolies and that government intervention is required to either break-up the monopoly or nationalise the industry to prevent the abuse of that monopoly. The Right believes that monopolies can only survive by relying on government support (whether political or financial), because abusive monopolies is unable to survive competition from the free market.

 8) Both the Left and the Right believe in peace and national security.

Some believe that strengthening a nation’s internal security and border checks are the best way of improving national security. Others believe that interventions in foreign conflict are necessary to quell the violence that would otherwise spread to other countries. There is disagreement over which position is Left-wing and which position is Right-wing. (For example, here is a left-wing article arguing against left-wingers who are opposed to foreign intervention:

In conclusion

Much of our disagreement and division arises from our refusal to see what the other side actually has to say for themselves, what motivates them, and the reasoning behind their beliefs. But the Left does not want to steal from the rich. And the Right does not want to oppress the poor.

Neither the Right or the Left are evil. There are selfish career politicians and self-interested players on either side, just as there are well-intentioned but misinformed activists on both sides, but neither movement is intrinsically evil.

How do I identify myself?

I do not identify closely with either the Left or the Right. But I am willing to use a few labels to describe my beliefs. These labels describe my position, not my motivation. I explain why I hold to these positions below…

I am progressive: I am not concerned about preserving traditions or conservation of cultural values. I believe traditions should be discarded if they prove to be a hindrance to social improvement, but should otherwise be retained in order to avoid unintended consequences. I believe cultural values have a role to play in holding society together, but understand that not all cultural values are equally beneficial, and that some may in fact be harmful.

I am a capitalist: Because the profit motive incentivises innovation and rewards success, and because every instance of socialism has demonstrably failed by destroying the economy whilst to doing little to improve the circumstances of the poor. I believe the free market is the far from perfect, but it is still the best way of fostering economic development and prosperity.

I am libertarian: I want individuals to take more responsibility for their own actions, so that they can take credit for their successes and learn from their failures, rather than disparage themselves for their successes and blame others for their failures. I would prefer to educate people so that they can make up their own mind, even if it is evidently a bad decision, rather than force a decision upon them.

I am a pragmatist: I have no ideological commitments to any of the above labels. I care only about producing results. I will change my position on any of the above labels if they can be demonstrated to be inferior to its alternative. In short, I am a centrist.

The foolishness of Keynesian stimulus

Does increasing public spending end up increasing the tax intake?

The economics of Keynesian stimulus:

  1. Spend more money on public services than tax intake
  2. People earn more money and spend more money
  3. More money earnt and spent means more tax intake

Result: win-win… right?

Theory vs practice

Assuming everyone is taxed at 40%, let’s see how this plays out…

Under balanced budget conditions:

  1. For every £1 earned by taxpayers, 40% is taxed = 40p
  2. Tax money is spent on public sector employees
  3. Public sector employees earn 40p for every taxpayer’s £1
  4. This 40p is in turn taxed at 40% = 16p
  5. This 16p is recirculated back into the public sector

Using Keynesian stimulus:

  1. For every £1 earned by taxpayers, 40% is taxed = 40p
  2. Through borrowing/printing money, the amount of money available to be spent on public sector is increased by 50%
  3. Public sector employees earn 60p for every £1 of taxpayer’s earning
  4. This 60p is in turn taxed at 40% = 24p
  5. This 24p is recirculated back into public sector


Observation 1: Even with very heavy overspending, the recirculated 24p tax intake is still much less than the 40p initially taxed.

Inference 1: Tax intake from recirculated from public sector spending will always be less than the public spending, which means that private sector tax is required to make up for the shortfall.

Observation 2: Heavy borrowing does not create more tax income than is initially taxed – every 20p of borrowed spending results in only 8p increase in income tax.

Inference 2: Keynesian stimulus will never increase tax intake sufficient to pay back the amount borrowed, much less cover the borrowing costs.

Bottom line

Under Keynesian economics, you borrow money to pay public sector workers more. Your workers are then taxed, and this goes back into tax. But taxation is always a proportion of income. So you will always pay the public sector more than you tax them. Which means that even under Keynesian stimulus, you need private sector economic growth in order to increase the amount of money available to spend on public services.

Shouldn’t the rich contribute more?

Richest 1% pay 29% income tax. How much more can we expect the rich to contribute?

Shouldn’t the rich contribute more?

How much the rich contribute

Rich people already contribute more. How much more? Here are some rough statistics of how much tax is contributed according to income bands (from 2012, United Kingdom)…


Some take away points:

  • Top 1% contribute more than a quarter of all income tax
  • Top 10% contribute more than half of all income tax
  • Bottom 50% contribute only a tenth of all income tax

I have met many active Socialists who maintain that the rich should be taxed even more. To this I ask the question: What are the consequences of doing so?

What happens when you tax the rich more

The thing to remember is, rich people are mobile. They have the resources to up-and-leave if the conditions do not suit them. When rich people leave, the phenomenon is called capital flight. They will take their income with them, so the UK completely loses their income tax contributions. They will take their existing wealth with them, so they don’t spend in the UK economy. They will take their businesses with them, so the UK loses jobs. They will take their resourcefulness with them, so the UK loses their social contributions. The effect of capital flight is not only less tax for the treasury, but also lost social opportunity, lost jobs, and less investment in the economy.

Socialists can and do argue that increasing tax on the rich will not drive ALL rich people away. That is true – it is always a matter of degree. When you tax the rich a little more, maybe some of the rich will flee, but not all. But the more you tax the rich, the more rich people will flee the country.

In economics, there is a concept called “diminishing returns”. It describes how doubling the effort does not double the output. For every 1% increase in tax, the increase in tax intake is less than the previous 1% increase in tax. Increasing the highest level tax rate from 45% to 50% produces less increase in tax intake than increasing the tax rate from 40% to 45%. This is because the higher the tax rate, the harder business and individuals will work to try to avoid or even evade tax, so it will be much harder to convert the numerical increase in tax rates into an actual increase in tax returns. Thus the higher you try to raise the highest level tax rates, the more it will cost to implement it.

At some point, increasing the tax rate on the richest will result in less increase in tax intake than the losses caused by capital flight. How much more tax can you extract from the rich, before you start losing more than you gain? Given that the richest 1% already contribute almost three times as much as the poorest 50% of the population, how do you know you’re not already losing tax intake from increasing tax rates?

Flat tax vs rich tax – which is fairer?

Imagine the extreme end of taxation fairness: that everybody is taxed at a 20%, regardless of income levels. Even with such a flat tax, the rich will still contribute significantly more than the poor. After all, 20% of £20k (£4,000) is a lot less than 20% of £150k (£30,000). Not only can we all agree that such a system incentivises people to try to earn more, it is arguable that this system is the fairest of all: if you earn five times more than the average person, you pay five times as much tax.

Now imagine the extreme end of socialism: Nobody earning under £40k is taxed, but any earnings over £40k is taxed completely, so that nobody earns over £40k. It’s not hard to understand that very few indeed would bother trying to increase their income or their productivity beyond the £40k that their hard work can generate. So if someone had an earning potential of £500 a day, they’d have very little reason to work more than 16 weeks a year, if all the earnings on any of that additional work would be taken away. So it’s not too hard to see that taxing the earnings of the rich to the highest possible level actually results in an incredibly low intake of tax from high earners.

Obviously, most socialists would want something in between the above two extremes, a compromise between putting the bigger tax burden on the rich and incentivising people to earn more. Where this point is, is the matter of dispute.

Perhaps, instead of increasing the tax on the rich, we should take the poorest out of income tax altogether? After all, according to the 2012 data, if we stop taxing the poorest 47% of taxpayers, you only lose 9% of all income tax.