Cutting tax on dividends: a mugs game (if you wanted to improve economic efficiency that is)

Image result for death and taxesJust as happens with dividend imputation in Australia, corporate structures are remarkably robust to seeing things from the shareholder perspective, leading Troppo’s self-appointed Chief Economist and Joint Pontificator In-Chief to conclude that tax cuts to dividends offer the worst possible combination of equity and efficiency. Lots more inequity, no more efficiency.

Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut
by Danny Yagan – #21003 (CF PE)


Policymakers frequently propose to use capital tax reform to stimulate investment and increase labor earnings. This paper tests for such real impacts of the 2003 dividend tax cut–one of the largest reforms ever to a U.S. capital tax rate–using a quasi-experimental design and a large sample of U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment, with an upper bound elasticity with respect to one minus the top statutory tax rate of .08 and an upper bound effect size of .03 standard deviations. This null result
is robust across specifications, samples, and investment measures. I similarly find no impact on employee compensation. The lack of detectable real effects contrasts with an immediate impact on financial payouts to shareholders. Economically, the findings challenge leading estimates of the cost-of-capital elasticity of investment, or undermine models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult for policymakers to implement an alternative dividend tax cut that has substantially larger near-term effects.

Fair trade coffee: so much more (or less) than it seems, depending on your point of view

From the latest Journal of Economic Perspectives

Fair trade coffee is a cup half full, according to
Raluca Dragusanu, Daniele Giovannucci, and
Nathan Nunn in “The Economics of Fair Trade”
(Summer 2014, vol. 28, no. 3, pp. 217–36). We are
not persuaded.
The authors barely mention the fees imposed
upon current and prospective fair trade coffee
growers by FLO-CERT, the organization that
verifies and certifies fair trade products. By not
spelling out the fees, the authors may leave readers
with a mistaken impression that the fees are
trifling. Elliott (2012) summarizes nicely the latest
fee structure. For cooperatives of poor producers,
the initial application fee is €525, and fees for the
first inspection vary from €1430 to €3470 depending
upon a cooperative’s size. While certifications
are good for three years, annual fees range from
€1170 to €2770 and include interim surveillance of
growers’ practices. In short, Fairtrade International
requires farmers in low-income countries to pay
thousands of dollars in order to participate in a network
presumably intended to offer poverty relief
to its producer organizations as well as protection
from allegedly ruthless local monopsonist coffee
buyers, called coyotes. The existence of these large
and explicit costs to growers casts some doubt on
the relatively optimistic conclusions of this paper.
As the authors acknowledge, only a small fraction
of coffee grown by fair trade producers is able to be
sold as fair trade coffee, but readers should also
be clear that applying to join the fair trade network
does not guarantee a willing buyer on the other
side of the market. As Fridell (2007) notes, newcomers
to fair trade production are the least likely
to benefit because they cannot compete on an
equal footing with established cooperatives in
an already saturated market. Fridell cites Martinez
(2002), who in turn describes the plight of a certified
producer organization that searched for eight
years to locate a willing buyer.

There’s plenty more here in the whole letter to the JEP.

Metaphor alert on data: should it be anyone’s property?

Prof. Dirk Helbing on the opportunities provided by big data: Will information become the key resource of this century? | T-SystemsMonday’s column in the Fin published as “Debate should be on best-use, not ownership of public data”

Data is in the news but we’re still working out how to think about it. Ladies and Gentlemen, we’ve got the Wrong Metaphor. Let me explain.

There’s endless argy-bargy about who ‘owns’ firms’ customer data – them or their customers? And the government wants access to stored ‘metadata’ on our internet activities – what sites we’ve been to, who we’ve communicated with. Then there’s all that data governments collect through the five yearly census – next due in 2016 – which the government recently wondered aloud whether to scrap. (Should it really cost the best part of half a billion when most citizens could be surveyed online?)

As governments gear up their surveillance armoury and we disgorge terabytes of data to Facebook and Google, we’re jealous of our privacy – as well we might be. In our commercialised age, this becomes a debate about who should ‘own’ data. Yet notions of property arose to help us think about and control physical things – like personal possessions and land. Subtle traps await those using the metaphor of property to deal with incorporeal things like ideas and data. Continue reading

Daniel Ellsberg on life and groupthink

HT Paul Monk who cites this as one of his favourite passages. It’s now one of mine. And a nice explanation of how easy it is – whether within an organisation or the caverns of one’s own riotous psyche - to slip into the pathologies of groupthink and self-deception. Somehow this doesn’t quite get the emphasis it should (if it gets any at all) in schools of management and/or government.

The urgent need to circumvent the lying and the self-deception was, for me, one of the ‘lessons of Vietnam’; a broader one was that there were situations – Vietnam was an example – in which the US Government, starting ignorant, did not, would not, learn. There was a whole set of what amounted to institutional anti-learning mechanisms working to preserve and guarantee unadaptive and unsuccessful behaviour: the fast turnover in personnel; the lack of institutional memory at any level; the failure to study history, to analyse or even record operational experience or mistakes; the effective pressures for optimistically false reporting at every level, for describing ‘progress’ rather than problems or failure, thus concealing the very need for change in approach or for learning. Well, helping the US Government learn – in this case learn how to learn – was something, perhaps, I could do; that had been my business.

Daniel Ellsberg Papers on the War, Simon and Schuster, New York, 1972, p. 18.

STEM, Part culture war, part cargo cult: My latest Fin column

The Future of STEM (Science, Technology, Engineering and Math)Here’s yesterday’s op ed for the Fin published as Technology education is about more than funding:

STEM is all the rage in education – that’s Science, Technology, Engineering and Maths. Part culture war against Australian mediocrity, part cargo cult, a principal goal is more money – for universities and school education. It’s hard not to agree. Lateral Economics’ HALE index of wellbeing values Australian human capital at $18 trillion – over three times all other physical and natural capital combined. Growing it puts every other means of enriching our future in the shade.

Still, I smell a rat.

We’ve nearly doubled educational spending per student in the last few decades. That’s funded popular measures with little impact – smaller class sizes – and politico/educational fads some of which have proven disastrous – like whole language learning. If STEM is simply cranked up and bolted onto the existing system, expect business-as-usual, expensive-as-usual disappointment.

Traditional STEM teaching often turns kids off. If they were ever invited into the debate, they’d see the STEM agenda as baby-boomer finger wagging telling them to eat their greens. They’d ask what exciting jobs will exist for STEM graduates. They’d ask what STEM skills will be in demand in ten or twenty years. And we don’t know.

The vast riches of Silicon Valley use STEM skills sure enough. However not only has old-fashioned entrepreneurialism been the dominant input, but the main STEM contribution has been computer coding. While that’s taught in universities, the valley is full of practitioners who’ve mostly taught themselves with the help of free internet resources and their own workplaces. Silicon Valley has embraced data science but no thanks to university courses. Even today, while they crank out stats grads, our universities barely teach data science.

The innovation we desperately need to get STEM right is institutional. In 2010 I proposed a different approach lunching with the secretary of a state Education Department followed by discussions with his senior managers. I suggested we tap into free resources all around. The net is brimming with free resources. Want to learn how to build a website or learn JavaScript? Head to

Second, while teacher training, support and specialisation in STEM should be better resourced, on its own that would achieve very little. The last thing we should do is insist on widespread STEM in-service training for existing teachers – for instance in teaching computer skills – who’d simply go through the motions.

Meanwhile an immediate human resource is students. We should find those already doing it for themselves and empower them to enthuse and teach their peers – not to mention reverse mentoring their teachers. And if we’re to do that, we must make room for it in kids’ timetables and in the recognition they receive – their marks.

However that requires some real transformation of existing routines and priorities. And incumbent organisations find that almost impossible. Much better to seek funding for some new, bolt-on initiative. As we’ve loaded the curriculum with recent enthusiasms and political correctness, what priorities have we jettisoned? Stats was more useful than trigonometry even when I was a kid: Much more so now. But the relative weightings in the maths curriculum haven’t changed in 30 years. I learned more about computer coding in school in the the early 1970s than my kids have done in today’s schools.

What I’m proposing can’t simply be ‘rolled out’. Just as a manufacturer wouldn’t release a new product without extensive design, prototyping and testing, that’s what should happen here. We should draw out in-system entrepreneurs, fund experiments and pilots, fixing or jettisoning the failures, identifying, tweaking and growing successes and rewarding those behind them.

After speaking with the Education Department, I attended a showcase of students’ achievements in IT projects. There I met Ben, a year 8 student. He’d built an iPhone app to hone his brother’s mental arithmetic.

“How do you find maths” I asked.

“Boring! We keep doing the same stuff.

“How’d you like to teach other students to write iPhone apps?


“Wait right there.

I fetched the Departmental Secretary. Here was an opportunity to get going with what I’d proposed. Excited, he summoned his Innovation Chief saying “I want to start on this tomorrow!”

The next year I asked Ben how things had gone. I still have his reply: ”Nothing really went anywhere with my school, didn’t really surprise me”.

The STEM agenda could handsomely enrich our future, but only if it’s part of wider transformation which, though it would cost nothing, offers a richer prize than any amount of new STEM funding.

Postscript: the interview of the blogpost of the column on this page with the mp3 here.

Public goods morphing through the ages: the case of Abbotsford Convent

Restoration work at the Abbotsford Convent is ongoing. Picture: Derrick den HollanderThe people at Abbotsford Convent asked me to pen a ‘shout’ for their fundraising campaign. I’d recently been on a tour of the place, and though I’d been there before and wandered around curiously, on the tour I was transported by a Big Idea, though those who’ve read my stuff here will know that the Big Idea is just a variation on my general way of looking at the world – as an ecology of public and private goods. So I told them I’d write them a bit more than a ‘shout’ and write them a ‘foreword’ length piece which, having been published in Their fundraising brochure, Heritage Reinvented – Let’s Finish The Job, duly appears below.

I’ve already given to the fundraising campaign, but would be happy to match anyone else’s donation up to an additional $1,000. Just email me on ngruen at gmail and I’ll send you instructions.

From economic textbooks to informal popular usage – public goods are supposed to be provided by governments, private goods by the market. But that’s never been true.

Though he never used the term, economics’ founder Adam Smith put public goods at the centre of the good society. Smith asked where social mores came from – for they’re the glue that holds together groups of people from families, firms and football teams right through to the family of nations.

His first book, The Theory of Moral Sentiments answered that social mores were an emergent property of life itself. Culture in this schema is an emergent public good. So too is language. And governments built neither.

Another emergent public good is religion. It binds its adherents together. And particularly in Europe, religious institutions provided all manner of public goods from arts patronage and the preservation of learning and heritage to poor relief, from schools to hospitals.

And so when I went on a tour of Abbotsford Convent I saw miracles of translation – across continents and across the millennia. The French Order of Our Lady of Charity reached across the oceans investing some of its vast reserves of capital – of treasure and knowhow – to build a public good institution for the nascent colony of Victoria.

Yet before long that investment was stranded, increasingly anachronistic in a changed world in which religion had declined and governments were dominating public good provision.

As Abbotsford Convent’s potency in providing public goods atrophied, a burning question arose. What would we make of its legacy?

The site made a promising investment for private property development. But privatisation would also compromise much – though not all – of its public good value. Or it could continue in the ownership of a proud community, eager to rebuild and reinterpret its role as provider of public goods.

Ten years on, how thankful we all are that the latter, more immediately difficult course was chosen.

I don’t know about you but I’ll be giving generously to this appeal, grateful for the vision and love of others stretching back through 2004 to the founding of the Order of Our Lady of Charity in seventeenth century France.

Lentil as Anything: a good name for a very delicious vegetarian café inhabiting some buildings from the old convent.

This offer can’t last: in fact it won’t last and is off after Friday 20th Feb. NG

Yanis Varoufakis travels economy class

Embedded image permalinkI’ve occasionally raised the issue of the class people travel on planes on this blog – and business class as conspicuous consumption. Anyway, I have just been made aware that Yanis Varoufakis’s shuttle diplomacy is being done economy class. Good on him. (I’m naturally disposed to give him a weekend with the Troppo Mercedes, but, apart from the irony fuse blowing on the Troppo dashboard at the mention of the Mercedes and Varoufakis, winners of this honour always travel first class to take possession of the vehicle – in this case fresh from the Kazakstan panelbeaters - so Rooter the hotted up FJ is being made available – Yanis is a former New Australian in any event, so he will almost certainly be more simpatico with Rooter that with the Merc. But I digress.)

Others in the politicians’ hall of honour include Barnaby Joyce, [an incredulous reader draws my attention to this story which rather undercuts Barbaby's economy credentials] John Hewson (as I recall at least during the 1993 election – in which he also took taxis rather than Commonwealth Cars) and Peter Walsh. There are no doubt lots of others – including me – flying economy when they’re entitled to business. This is the place to mention them. It’s also a place where we can note that that apostle of poverty, chastity and obedience, Cardinal George Pell, travels first class.


Vox pop journalism as a system of domination: Syriza edition

When the French and Russian Revolutions occurred, the existing order asserted itself through the intervention of foreign nations. Recognising this, and decrying it is not to endorse either revolution, but to note how powerful and self-reinforcing systems of domination are.

A much more trivial example is the minority government that emerged in Australia in 2010. I thought some of the things that occurred offered excellent opportunities to do some worthwhile resetting – of our parliamentary procedure for instance. They offered the prospect of restoring to Question Time some semblance of democratic utility. But somehow the surrounding forces that had produced the old equilibrium managed to wrest the same result from the procedures introduced by the new parliament.

This interview with Australian Greek Yanis Varoufakis shows us our bankrupt institution of vox pop journalism as a similar system of domination. The most basic cause of the simplistic bombast one sees in this interview is that it sells – it arouses emotions (which are the engine of engagement well ahead of reason) and it keeps things simple and personal. It’s Greece versus the Troika. Varoufakis verses Merkel. It’s ultimatums, struggle. Someone wins. Someone loses. It’s responsibility and fiscal conservatism versus naïve utopianism etc etc. Never imagine that some new kind of meaning might be forged in an exchange of views – the only task is that of fitting the interviewee – however reluctantly, however invidiously, into one of numerous pre-ordained pigeonholes.

In this interview with ‘broadsheet’ journalist of some intelligence and, one imagines repute – one who would imagine herself as a thoughtful, well briefed journalist not overly simplifying or sensationalising – Yanis Varoufakis tries to explain himself. He seems very lucid to me. But his attempt to put his case is constantly frustrated by the interviewers’ resolute instance on not listening to him and seeking to engage with him on his points – or to simply allow him to get his message across. Of course a good interviewer will help shape the conversation, but she’s going to dominate it. He’s going to have to answer her questions.

What’s the ultimatum? Will he deal with the Troika, etc et. Now in some circumstances this makes some sense. When the interviewee’s technique is built around obfuscation, some gotcha questions or insistence on ’yes’ or ‘no’ may be in order. Here Varoufakis is trying to explain a whole different way of seeing things (which it isn’t my purpose here to defend). My point is that he isn’t obfuscating. He’s seeking to explain himself – which he does with great clarity and according to the rules of journalism and political communication which is to say, he keeps things simple and illustrates with examples. So he asks the interviewer if she’d recommend that someone took the help of a friend if the friend was offering to lend them money to pay interest on a debt they couldn’t repay.

Anyway the interview goes on – Varoufakis is remarkably calm and lucid throughout. He does get angry, but it doesn’t contaminate the mood of the interview as it would if I were in his position. And the incomprehension just rolls on. How sad. How unfortunate that whole professions can manage to arrive at a modus operandi so antithetical to achieving what they would regard as their objectives. Still, journalists wouldn’t be the only profession in that position would they?

The interview of the blogpost: