Madsen Pirie

I posted number 20 of my YouTube videos in the “Economics is Fun” series, completing the set (for the time being). Both Xander and I had great fun making them, keeping them informal and fairly short.  The aim was to show that much of economics derives from common sense, and that ultimately it is about the way we treat each other when we trade together. Atoms and stars don’t change their behaviour when they have new information, so economics can never be a science like physics and astronomy.  The playlist of these videos has attracted tens of thousands of viewers so far, so some people must have like them!

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One of the most welcome parts of the Budget is the reduction of Corporation Tax to 24%, with a clear target of 20% at some stage.  This says that Britain welcomes business.

Secondly, the supplementary top rate of income tax falls to 45%, hopefully on the way towards 40% or lower, telling the world that Britain welcomes enterprise.

Thirdly, the threshold at which income tax is paid rises to £9,205.  This is a further step towards the minimum wage level of £12,500, below which there should be no income tax liability at all.  This tells people that Britain values their work and will let them keep the rewards that it brings.

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I recently posted number 17 of my short YouTubes in the “Economics is Fun” series.  This one is about what happens when we choose others to act for us.  In business when we appoint company directors, it is called the ‘principal/agent’ issue, and we must not be surprised if those directors sometimes act in their own interest rather than those of the shareholders.

In government or civil service, we must recognise that our representatives or officers will maximize their advantage just like everyone else, and that this will sometimes stop necessary and useful reforms from being made.  This effect is called ‘Public Choice Theory’ and shows how those in politics and policy try to better their condition just as those engaged in commercial activity do.

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Britain used to be good for business, but is it still? That was the motion I debated at the Cambridge Union alongside Damian Reece of the Telegraph Media Group, and Willie Walsh, former boss of BA and now CEO of International Airlines Group.

I said it was not, and cited the 50% top tax rate that punishes high earners without raising money, the 28% Capital Gains Tax that drives people to leave investment locked in to yesterday’s business rather than reinvesting it in growth industries.  I pointed to the 25% Corporation Tax, double that of the Republic of Ireland, and to the retroactive legislation used by the Treasury to make decisions of business that were legal at the time illegal after the fact.

Most of all I drew attention to the prevailing culture, fanned by the media, of hostility to achievement.  It is, I said, anti-business, anti-bankers, anti-bonuses, and anti-success.  It castigates those who create the wealth in society.

The House agreed, and our side narrowly won the debate, concluding that Britain is no longer good for business.  Obviously things need to change.

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I just published the 10th of my 20 YouTube videos on “Economics is Fun.”  This one is on taxation.  No, I’m not suggesting that taxation is fun!  What is amusing is the way that it alters behaviour in ways that thwart the tax collectors.  From bricked-up windows to smuggled ciggies, people have found ways to avoid it.

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I have been preparing for the 2012 UK Budget, due to be presented on March 21st.  The Adam Smith Institute has been arguing for more pro-growth supply-side measures, which would basically involve lowering the barriers that inhibit economic activity.  In particular I have advocated raising the threshold at which people start to pay income tax.  It seems ridiculous that we should demand tax from those earning less than the minimum wage.  For a normal working week that is about £12,000.

I have argued this for nearly a decade, but it was only when the Liberal-Democrats put into the coalition agreement a commitment to raise it to £10,000 that any progress was made.  It was to be done in stages over a five-year parliament, but the talk now is that it might be done sooner.

This would make work more attractive than welfare, putting people who are presently dependent on state support into paying jobs.  It would give lower paid people more money to spend, and make it easier and more attractive for small and start-up firms to recruit people.  It would reduce the state’s welfare bill.  All of these are good supply-side measures.

I have to be ready with those arguments and more when the budget comes, either to applaud and defend the Chancellor if he does it, or to criticize his timidity if he does not.

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My series of YouTube videos entitled “Economics is Fun” aims to put across the principles of economics in a fairly user-friendly way.  They are all very short, 2-3 minutes in length, and I really enjoyed making them.  The Adam Smith Institute has been promoting them on the Guido Fawkes website (www.order-order.com), which is widely read by those involved in politics, the media and business, and I’ve had great fun seeing my own face appear alongside Guido’s commentaries!

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Posters advertising my book “Think Tank” (by Biteback Publications) have gone up at Tube stations across London.  This is a first for me, and I’m having great fun looking at them…

The book is on sale at Amazon.

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On Thursday I debated in the Oxford Union, opposing the motion “that Capitalism has failed the poor.”  On the contrary, I said, it was the best thing that had ever happened to the poor, having lifted billions out of subsistence, starvation, poverty and disease.  Capitalism has created the wealth that gives so many opportunities to the modern world.  We didn’t manage to defeat the motion, but we came close!  There were great receptions before and afterwards, and a pre-debate dinner with the speakers and the Union officers.  All in all, it was quite a fun evening.

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Wednesday saw the launch by Biiteback Publications of “Think Tank – the Story of the Adam Smith Institute.”  The party was held in the crypt of St John’s, Smith Square, with about 90 people enjoying prosecco and canapes.  Lord Forsyth made a short speech.  It was a great location, good food and wine, and the publishers reported many sales of the book.

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