Scrap the FTT, have a Bourse Tax instead
At 10.53 on 20th January 2012, the Telegraph reported on their live blog:
10.53 A German Government spokesman says that an EU-wide financial transaction tax is still the goal, but that there may be a possible bridge with the UK via a bourse tax.
What is a bourse tax?
Frankly, I have no idea beyond speculating that it’s a tax on transactions within a stock exchange. A bourse is an organized market where tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought. The very things which would be taxed under a FTT anyway.
The fact that it is limited to the individual exchanges would mean that it is an attractive deal to the British. However it does raise complications, considering that the largest Pan-European exchange, Euronext, merged with NYSE in 2007. Another large European exchange, OMX is a Scandinavian exchange with activities in Norway. Confining finance and the taxation of finance to the Eurozone will only create more problems than solutions.
However, with the smaller exchanges, such as the Deutsche Boerse, this confinement could happen without angering any non-eurozone interests.
The Relationship between Unemployment Rate and Worker Productivity
This relationship was stumbled upon as I was doing some sampling on the Labour Force Survey dataset for another project.
As can be seen from the Box Plot below, a pattern emerges when output per worker (productivity) is run against the standardised unemployment rate. For the normal unemployment rate (6 per cent) productivity is between 0 per cent and 1 per cent – this is good as the economy is growing.
When unemployment is high, between 7 and 8 per cent, productivity is either negative or stagnant. This can be used to indicate recessions. What is interesting, however, is that when unemployment is very high, 9+ per cent, productivity is also high. I am inclined to suggest this is so due to either a recovering economy or a desire, on behalf of workers, not to become unemployed.
Conditions for the perfect economy
In a report published by HSBC on predictions for the global economy in 2050, there were listed conditions for which create strong and sustained growth. The variables and models are based on the work of Robert Barro: Determinants of Economic Growth: a cross-country empirical study.
The variables are as follows:
- degree of monetary stability
- level of democracy
- the rule of law
- the size of government
- level of education
- health of population
- fertility of population
The perfect conditions for the perfect economic model is: a very stable inflation rate, averaging less than 2%; weak democracy; strong rule of law; a high education level where the average years of schooling is 10; a healthy population and a relatively low fertility rate, but high enough to maintain population levels.
Now, most of these are glaringly obvious apart from, perhaps, the bit about weak democracy.
Barro’s work actually showed that too much democracy wasn’t necessarily a good thing for economic growth (of course it may be the best model for social development). He found that at very high levels of democracy, income redistribution becomes a dominant force, which serves to restrain entrepreneurial endeavours. And democracy places a disproportionate weight on winning current votes, potentially at the expense of future votes, and therefore can hinder the investment required for long-term development.
Overall, authoritarian regimes can deliver economic success if the system manages to set in place the incentives that a market-based system naturally delivers, namely competition and a motivation to drive efficiency.
In short, democracy is good but, like most things, you can have too much of it before it becomes detrimental to your economic health.
