A great deal of practical change has taken place since this was written. Major surgery is required! (2010)

There is a large agreement that present controls of macro-economies are (mainly) through the use of one of two mechanisms: the variable use of bank interest rates; and fiscal means. The second seems to be out of favour for two reasons: that it puts the “blame” for such actions on politicians rather than on bankers: and because taxation has become a political “brownie point” concept: the lower the taxes one political party promises, regardless of any thing else, the more electable will it become.

(It may be noted, however, that the recent tax refunds in the USA have been given simply because the US dollar was so lowly valued that further lowering of the interest rate was considered impossible: but on this occasion the political gains have been negligible)

But the use of the interest rate mechanism has major practical problems in long-term increasing of a country’s overheads (rents etc are almost never lowered when interest rates fall): but from our point there results a severe ethical problem: should the economy of a country, when it overheats, be put right by effectively making the rich richer and the poor poorer? Should the poor in practice pay for the situation resulting from the over-spending of others?

The theory seems to be that those who have to borrow (not the rich) will reduce their spending when they have to pay more for their borrowing. But why just them? Why do the rich (who do not have to borrow) also have to share in the reduction of spending power?

Surely the amount of money available in one form or another is the significant factor. So why not variable income tax rates? Is it an impossible dream that taxation for incomes should be based on a present, daily rate rather than annual ones?

As mentioned above, the problem would appear to be totally political. Whilst the economists are concerned with inflation and money-flow, (and we do not argue that they are wrong so to be), should the task for controlling such be given to a body without an ethics guideline or committee to guide such? More thought is surely required.

[It is perhaps not without significance that most of the world’s religions give strict condemnation of “usury”.]

End of 2008 note: Very low interest rates in some parts of the world have not produced the quick solutions the protagonists of the interest rate tool have suggested. Why?

It appears to be generally accepted that it is somehow “good” to make a lot of money by receiving high salaries. Or for the individual or organisation or even state to maximise profit.

But is this always or even often correct? The business has to make profits for all kinds of reasons. Even at its simplest to enable funds for research & development and remunerate fairly investors. And yet. And yet….

Is there a difference between the profit for retention / use by the business and the money taken by the shareholders / owners / managers for their own use?

Just what is the excuse for the accountant or the lawyer to charge for an hour well over double what the pensioner receives in a week?

Is there any real validity in the oft-stated excuse of professionals that “somebody has got to compensate them for their long training”? Why? Surely they went into their profession because they thought that their work would be compatible with their intellect and their desires? Not because they would need “compensation”? Did ever a politician or a priest complain that they were not paid enough to cover their hours of training? (Yes, most politicians do serve many boring hours of apprenticeship).

Surely we all know of successful entrepreneurs who supply members of their families with expensive cars: yet pay many of their staff so little that their children have to get school lunches paid for by the state..

How many managers in industry or commerce would refuse to accept the challenge or the power of being main board directors simply because they were not going to be paid significantly more than previously?

(This article is in the process of re-write)

All too often politicians, economists and even worthy committees inform us that the state will not be able to afford to pay pensions in the future. The individual must make his / her own provision.

It is argued that this situation has the beneficial effect of making the individual work hard and profitably and encourage that person to put enough funds into reserve rather than to spend all the available money in short term personal benefit.

This has a whole variety of problems, however. Is the hard and profitable work fair or excessive? Are excessive hours worked, so that family at critical times receive too little of the quality time of the earner, the earner having not only spent excessive time working but also perhaps in travelling to work or putting too much mental effort in so that too little is left when he returns home?

The whole matter of “fair reward” is commented upon in other papers.

However if one concentrates on maximising income to allow high surplus funds for saving, then has the earner given sufficient to society in “voluntary” matters – helping with youth football training, being on school PTAs, organising events for the Macmillan fund, acting as treasurer to some town-beautifying organisation?

To put it bluntly: should encouragement be given for one to neglect others and the wider society simply to maximise one’s own comfort in old age?

The second point that needs challenging is that is bad to fail to save a sufficient portion of one’s income.

Now it is surely self-evident that the childless couple should be able to save more than those with children. The logic of those who argue for maximising personal reserves is then that children should be avoided. But who will then be around to be the workers in future generations?

[To avoid misunderstanding: some of the very nicest people neither have children nor are they driven by the desire to save or make money.]

So should the main determinant on available funds in our old age be based simply those we have privately saved up, whatever the cost to family and society?  This is the heart of ethical-economics consideration.

But further: where does the actual money to pay out pensions come from? Is there a mystical cake, which is available with ever-flowing funds marked “institutions”? Or is there just one cake available for funds from which pensions are paid: largely being paid by current consumption, but the decision on how to share this cake between state and “private” pensions is simply a political matter?

For example: a shopping centre was owned by the state: rents for the shops, the “overheads” built into pricing, were duly determined, presumably for the public good. But then it was sold off to a pension fund: whose statutory duty is not to the public interest or the public good but to maximise income for its members.

Let us be quite clear: savings in pensions etc are worth nothing unless there is money around to take over those savings. Imagine someone has put £100,000 over many years into the purchase of gold bullion: but then earnings drop to such an extent that there is simply no available money to buy such “luxuries”. The £100,000 becomes worthless.

The gold bullion (i.e. the pension) are only of value if at the time the pension is to be paid out there are those people available to purchase the item.

Hence the important thing in the provision of pensions is surely not the past activities of the pensioner but the earning power of the generations around when the pensions are being paid out.

Once again, there seems that very little thought has gone into formulating current pension ideas.

(to be continued)

(note: this was written in 2003)

There appears to be two official American attitudes towards Global warming: the second, wholly laudable, is that alternatives must be found - and quickly - to present global warming producers. After all, when a former American President said that within 10 years they would get to the moon: they got there. So they should be able to accept the challenge to replace the causes for global warming.

BUT: the first, the initial reaction, is deeply worrying. Nothing can be accepted if, in the short term, it affects wealth production.

Now this is where those who believe in ethical economics must clash with politicians: though not, it may be said, of many business leaders.

Of course, much depends on the concept of morality: is short-term financial profitability more important than the long-term good of the planet?

Now we accept that the American constitution is completely a-religious. Yet while there is the huge American church-going public we cannot understand why this situation is accepted. The Jesus of the gospels, so theoretically important to the American public, seems to have been far more concerned with the abuse of financial power than ever He was with the Kingdom of God.

Which should take priority? The ethical case - if it is such, and we know of no-one arguing that the long-term good of the planet is not an ethical matter - or the economic, the short-term benefit of the few, the American producers / wasters who represent a very small percentage of even the present world population.

At present there is no definitive answer: for there is no accepted discipline of ethical economics. But surely there should be!

…

House pricing causing major difficulties has very simple origins: irresponsible governments and banks who have in the past for popularity and financial reasons let house prices rise well above inflation rates.

In some parts of the world - for example in Spain and the USA - there is an additional reason: the oversupply of houses. This causes house prices to fall, but is (was) obviously foreseeable by any government who controlled in any way planning/building controls.

The other, seemingly opposite, reason, is that in the UK: a continued use of high interest rates which together with excessive house pricing (caused by governmental failure to control these) has meant that many house purchases have become unaffordable.

(There is a rather stupid and amoral/immoral argument that in the case of the UK interest rates should have been higher in the past to make the houses unaffordable earlier. But the discussion on interest rates is elsewhere in this site) .

The reason is that governments felt that it would have been unpopular to not allow house pricing to run ahead of inflation. Accordingly they failed to take preventative action (for example by putting high capital gains tax on excessive house sale gains).

Banks gave firm financial encouragement for their staff to lend high amounts without any thought that this might be in the long (or as it happens) medium term bad not only for their customers but also for the banks themselves.

All that was needed was simple ethical thought, a study of the past, and a little common sense.

Have we any short-term solutions? No. We do not simply because we are not seeking to be a short-term economic site. Historically there would not have been current problems if there had been a better interaction between ethics and economics. In the future, should ethics and economics interact in the actions of government and banks then this situation will not repeat.

The situation of Rented Private Houses

…

As a practical example of the interrelationship between ethics and economics in a none-too-obvious area one can consider the cost of home rents.

There are three core factors which determine these rents: the capital costs to the landlord; the costs of interest charged to him in funding such (or loss of interest should he self-fund): or the reasonable “return on capital” expectation; and the marketing factor: what one can expect to be paid as rent.

The first of these is very awkward and contains many political quandaries: but the basic point is that the price of land, which is a major determinant on house costing, is freely determined: whilst the supply of this land is strictly controlled by government. Now this simply makes very difficult and damaging sense in economic terms: either supply and pricing should be strictly controlled, or they should both be “free”.

This is not the place to go fully into the case for freeing the supply of land: though in truth this is seldom made, sometimes for selfish reasons (’not in my back yard’), sometimes because modern regulations make it very hard to built low density housing, sometimes because the desire for ‘pristine’ countryside outweighs the desire of people not to necessarily live in tight proximity with others.

All we would suggest is that we take a closer look at deserted villages in from the past. Because they have not had large concrete foundations etc they have become re-cyclable. Could it be that modern building regulations are taking a very wrong view of the longevity of houses? There is surely little in history which would suggest that most houses being built in the first quarter of the 21st century will still be standing in the 22nd. So why make them so difficult to demolish? Why not assume that perhaps those locations will be wanted for other purposes?

But when house rents (or capital costs) are too high just who benefits? Surely, yes, the one who sold the land or the building. But the one who has (or chooses to) rent? Is the net result that either he has too spend too much of disposable income on rent or demand too high income for the good of both the economy and of those who purchase his services. (to be continued..)

Most taxation and economic decisions are made by the well-off: largely following representations made to them by the powerful and in the interests of the affluent and influential.

But isn’t it time that the interests of the poor: those basically living on state pensions, the farm labourer, the widow, the disabled, the student, etc, were also considered: perhaps even given a greater help than the rich and the near-rich?

Let’s take two examples: taxation of alcohol: and house rentals: and consider the background and the effect of present economic and fiscal policy.

Alcohol. There are two main features of the duty levied on alcohol: and the first is the concept of “taxing sin”.

“Taxing Sin” is an accepted principle: to cut down on the use of the motor car, which pollutes the atmosphere and causes global warming, increase taxation. To reduce cigarette smoking, increase taxation. But: there are several objections to this: firstly, that it is a misuse of taxation: to make something inherently good (the common sharing of wealth for the common good) be allied with something conceived of as bad. It’s rather like asking for Remembrance Sunday to be funded by a levy from drug barons and pimps, rather than by poppies… Should state costs be funded by what is sinful? Without the very concept of state funding becoming sullied?

Secondly, it punishes in direct proportion with the poverty of those receiving the punishment, not in proportion with the thing being punished for: and thus it does not fulfill a basic concept of taxation: fairness. The British duty on a bottle of wine is say one minute’s earnings of the high flyer: but a couple of hours income of the pensioner. Is it right that this “sin” be punished one hundred times harder on the poor rather than on the rich?

Thirdly, what is this “sin”? It is sinful to have 2 wives in the U.K.: but not in Saudi Arabia: whereas in the latter country taking a wee dram is a serious offence, whilst in Scotland??

Fourthly, what is the effect of “taxing sin”?

Is there any evidence that this has any significant effect on the well-off? Tobacco, for example, is also highly taxed: but does that cause the wealthy tycoon, who effectively pays £30,000 of his annual cost of cigars of £40,000 in taxes, to reduce his smoking? Does it fairly reduce “sin” for all? Or just reduce “sin” amongst the poorer?

Rather, might it not put up the cost of living for basic pleasures extortionately for the poorer: the basic pleasures which the rich take for granted: those who frequently recoup any increased costs by increasing their own fees or charges: while decreasing the quality of life for the poor? Those who might often be less well off if the did not believe in at least modest greed?

There are surely far more ethical objections to the concept of “taxing sin” than ethical positives.

But then we come to the second main feature: taxing alcohol because it is a major fundraiser for the UK government.

Yes, but from whom?

This comes down to a fundamental point: should taxation come from each according to his ability to pay, or be levied on a semi “Poll-tax” basis?

If the latter, then it is reasonable that the couple buying a bottle of vin ordinaire to have at their 55th wedding anniversary supper should pay the same amount of duty as the stockbroker does when buying a bottle of Chateau d’Yquem to celebrate the end of another day..

No, to get the cost of living down for the poor and allow them to have a pleasant life style demands an elimination of alcohol duties. Just why should our poor be so much more penalised in buying alcohol than the Spanish poor? Present duties are monstrously unfair to the British poor, whilst having scarcely any effect on the rich.

All too often one hears the phrase “tax burden”

But surely one must pose the question:-

Is taxation a “good” or a “bad” thing? This is a fundamental question which is too often ignored for the sake of political expediency.

The primary purpose of taxation is to gather money together to enable things to be done for and by the public which the individual can - or should - not finance or control.

At an extreme, perhaps, is defence. Would it be right for the air forces, navies and armies of this world to be funded other than through taxation? Or a similar situation with regards to the judiciary?

[Some "public good" items are in "grey" areas: and subject to political whims: the choice between what should or should not be publicly funded or controlled (being a political matter) is not for consideration here; though we do point at the motives which determine the decisions.]

Unless we wish to be totally removed from society (and this is in practice impossible) then our duty – and our privilege – is to share in the provision of things for the public good through our making our fair contribution to taxation.

Exactly which method is used for taxation – who and what is to to be taxed – is debatable but still subject to various ethical considerations. What surely is deplorable is the way in which the very concept of taxation is often reviled and used as an undesirable.

However the concept of just who should pay taxation and how much relatively they should pay is a fair question.

And one which is almost unanswerable.

Before considering further, however, just one example of a possible misuse of taxation gathering methods.

Take the taxation of alcohol and consider the background and the effect of present economic and fiscal policy.

There are two main features of the duty levied on alcohol: and the first is the concept of “taxing sin”.

“Taxing Sin” is an accepted principle: many environmental bodies who wish to reduce the use of the motor car as it pollutes the atmosphere and causes global warming call for an increase taxation of cars and fuel. To reduce cigarette smoking, the medical bodies request an increase in tax on tobacco. But: there are several objections to this: firstly, that it is a misuse of taxation: to make something inherently good (the common sharing of wealth for the common good) be allied with something conceived of as bad. It’s rather like asking for Remembrance Sunday to be funded by a levy from drug barons and pimps, rather than by poppies… Should state costs be funded by what is sinful? Without the very concept of state funding becoming sullied?

Secondly, it punishes in direct proportion with the poverty of those receiving the punishment, not in proportion with the thing being punished for: and thus it does not fulfil a basic concept of taxation: fairness. The British duty on a bottle of wine is say one minute’s earnings of the high flyer: but a couple of hours income of the pensioner. Is it right that this “sin” be punished one hundred times harder on the poor rather than on the rich?

Thirdly, what is this “sin”? It is sinful to have 2 wives in the U.K.: but not in Saudi Arabia: whereas in the latter country taking a “wee dram” is a serious offence, whilst in Scotland??

Fourthly, what is the effect of “taxing sin”?

Is there any evidence that this has any significant effect on the well-off? Tobacco, for example, is also highly taxed: but did it cause the wealthy cigar-smoker to reduce his cigar purchasing? Does it fairly reduce “sin” for all? Or just reduce “sin” amongst the poorer?

Rather, might it not put up the cost of living for basic pleasures extortionately for the poorer: the basic pleasures which the rich take for granted: those who frequently recoup any increased costs by increasing their own fees or charges: while decreasing the quality of life for the poor? Those who might often be less well off if the did not believe in at least modest greed?

There are surely far more ethical objections to the concept of “taxing sin” than ethical positives.

But then we come to the second main feature: taxing alcohol because it is a major fund-raiser for the UK government.

Yes, but from whom?

This comes down to a fundamental point: should taxation come from each according to his ability to pay, or be levied on a semi “Poll-tax” basis?

If the latter, then it is reasonable that the couple buying a bottle of vin ordinaire to have at their 55th wedding anniversary supper should pay the same amount of duty as the stockbroker does when buying a bottle of Chateau d’Yquem to celebrate the end of another day..

No, to get the cost of living down for the poor and allow them to have a pleasant life style demands an elimination or major reduction of alcohol duties. Just why should our poor be so much more penalised in buying alcohol than the Spanish poor? Present duties are monstrously unfair to the British poor, whilst having scarcely any effect on the rich.

To return to the basic question of who should pay tax.

It need hardly be mentioned that most taxation and economic decisions are made by the well-off: largely following representations made to them by the powerful and in the interests of the affluent and influential. Thus existing practices are not necessarily right.

Ideally all should pay, since all benefit.

But this does depend both on the ability to pay and the methods of money being obtained. There is a separate “topic” on the latter, so the discussion on that subject will not be duplicated.

But surely the ethical situation is quite clear: those who earn or have a lot of money should be content that that money has not been earned just for themselves but to allow them to share fairly that income with public good requirements: i.e. To pay a reasonable proportion of those takings as tax. Just to try to keep all that money for themselves is not an ethical stance.