Wednesday, May 22, 2013

Hockey: Ax the Tax… Office.

As part of the National-Liberal Coalition's plan to give Australia a small government, the next federal treasurer, Joe Hockey ("conservative, centre right, libertarian") has announced the Coalition's plans to make the Australian Taxation Office less efficient.

In his address today to the National Press Club, Hockey decried the ATO's attempts at being efficient: the next Coalition government will conduct an inquiry into the handling of tax disputes. Once the inquiry finds that the ATO is only trying to fulfil its legal duty of making sure extremely rich tax payers actually pay their taxes, the Coalition will break up the tax office, "so that its policeman functions are separate to its responsibility for administering the tax system". (See here)

"Small businesses work hard for their money and should not be bankrolling government", Hockey said (see here). "Taxpayers are not the enemy. They should be respected".

In a video message to the Australian Mines and Metals Association conference in Melbourne delivered last week, Australia's richest small businesswoman, Gina Rinehart, pleaded that "miners and other resources industries are not just ATMs for everyone else to draw from". (See here)

It's nice to see Rinehart's pleas were promptly echoed by Hockey, almost to the letter.

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By sheer coincidence, during the last few days the subject of tax avoidance has been widely discussed in the media.

In Britain, Margaret Hodge, MP and chair of the Public Accounts Committee, told last week Google's northern Europe boss, Matt Brittin, that his company's behaviour on tax was "devious, calculated and, in my view, unethical". (See here)

"I think that you do evil", added Hodge.

The British equivalent of the ATO, Her Majesty's Revenue & Customs (HMRC) was severely criticized during those hearings.

Lin Homer, HMRC permanent secretary, said the law needs to be changed before Google can be compelled to pay more tax.

Hodge accused the tax authority of failing in its duty and said it should take a tougher stance with Google:
" 'We don't trust your judgment,' Hodge said. 'You have lousy judgment and the people making those judgments aren't fit for purpose'."
Luckily, the Coalition will make sure similar things do not happen Down Under...

Here we'll have no hearings on tax evasion: inquiries here are on those trying to stop tax evasion.

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But, in this most egalitarian country, not all pleas are equally heard. The Salvation Army released today the results of a survey, on 2705 users of the organization's emergency relief services.

Since the Gillard Government (labor, centre left) decided to shift 84,000 single parents to the lower-paying Newstart allowance, there was a 12% increase in the number of those seeking help from the Salvos.

The pleas to reverse the decision receive the usual answer, from both Coalition and Labor politicians: get a job. You know: Australia needs to cut its deficit by sending you into misery, while the richest small businesspeople must not pay taxes. It's a matter of respect.

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The incoming treasurer promised his Canberra audience that "tomorrow will be better" if the Coalition takes power next September.

"I believe that in my heart," he said.

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I'm no cardiologist, so I don't know what his heart says or even whether he actually has one. But I have a functional brain and it tells me that these people don't give a fuck about us. It also tells me who they actually represent. And it ain't us.

It's time you understand this.

10 comments:

  1. Hi Magpie. I'm not quite sure what's going on over at Naked Keynesianism, but I've made no fewer than three more comments since the David Fields's initial response to me yesterday, starting before you asked your question and proceeding to after, most recently this morning before you made your last comment there. For some reason, none of them have been approved.

    Whereas I rather like and respect the folks at that blog, I'm left to assume it's some sort of technical difficulty; maybe my comments are winding up in some sort of "spam" folder? I really can't say.

    To give a quick answer to your question:

    "What if, instead of having its constant capital losing value (as in your example), constant capital increased in value halfway during the production process. Say, it doubled in value: from 800 to 1600 (after you paid 800).

    "The total output is now 1600 + 200 + 200 = 2000. If you can sell your stuff for that and you use historical cost, you evaluate your profit like so: 2000 - 1000 (your actual cost) = 1000. 100%! Not bad, eh?

    "But, at least in this scenario, the "surplus" you get using historical cost, it seems to me, is misleading. After all, come next production period and you'll still need 1600 (the replacement cost!) + 200 to produce.

    "This means that in reality, you only have 200 (the S!) left for you: 20%."


    You're mostly right! Changes to the capital stock have both short- and long-run effects. That is, for that period, the capital appreciation would have the effect of increasing realized profits; in M—C—M', the C affects the M' and not the M, since causality doesn't run in two directions. This is the problem with replacement cost measures of profit; if you're measuring M' against the value of C rather than the value of M, you're not actually measuring profit, which is and always has been M'-M.

    Thus, replacement cost profit is basically as though you're retroactively revaluing the original M. But this is revealed to be problematic the moment you look for context of the capitalist's action. For instance, as I said in my original comment, if the M was bank-financed, then the relation between the money capitalist and the industrial capitalist forces us to recognize the M as the basis for further comparison. Similarly, if you compare the $800 in the example to the miser's $1000, the loss is plain.

    You are correct, though, to point out that in the long run it would be tantamount to a change in the organic composition of capital. Thus, the decline in capital value that hurt the capitalist in this period may actually help him the next, and vice versa. In fact, this is actually a microcosm of the very phenomenon we see in the case of crisis! That is, capital destruction harms economic activity, but sets the stage for another boom.

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  2. Also, re: your request for similar papers:

    Basically, this debate has been raging on for decades, and the TSSI side of things has been extremely vocal and eager to rebut critiques — so the beauty of it is, there's really no shortage of formal argument to read.

    For example, the Mongiovi piece Prof. Vernengo linked actually got a direct reply from Kliman.

    There are basically a zillion of these back-and-forth threads floating around, involving not just Mongiovi but Foley, Laibman, Veneziani, and others. Kliman and Freeman are probably the most keen to spar for the TSSI side of things, but Carchedi and a few others throw their gloves in from time to time. Also, I was going to mention it in the conversation, but I also find a lot of worth in Rob Bryer's take on the transformation problem — his POV is not explicitly TSSI, but rather that of an accountant, and to my reading he appears to have independently come to the same conclusions as the TSSI, using a slightly different vocabulary.

    Hope that's helpful!

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  3. Oh, hey: Matias has basically come straight out and given a reason for not including my comments. I'm... not sure how to feel about that.

    I guess there must be some real bad blood on the subject, but I dunno, I thought I was being perfectly polite. Hell, it's not like I'd run my mouth off when here I've been recommending Naked Keynesianism to people for years.

    I had genuinely hoped to explore any specific complaints they had with the example I gave, but I guess it's just so self-evidently absurd that discussion is off the table. Or something.

    Really, really disappointed.

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  4. Thanks for the comments, Hedlund.

    I'd rather we leave the subject of Naked Keynesianism out.

    I'll check both Mongiovi's paper and Kliman's reply, although the paper I'm really interested in, for my own reasons, is Bryer's.

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    RE: replacement vs historical costs.

    The thing with historical cost in my example is that it, too, can give a biased estimation of costs (in my example, it _overestimated_ profits.

    In this, historical costs is just like replacement costs in your example.

    In other words, one cannot systematically, as an invariable rule, use a single cost definition (replacement or historical) in all occasions: if one systematically uses a cost, one is bound to get a biased estimate of profits.

    There is an accounting principle for these situations ("accounting conservatism").

    Check here carefully:

    http://www.accountingcoach.com/terms/C/conservatism.html

    I guess the doubt I have is that if Kliman uses historical costs _systematically_, as an invariable rule (as he appears to be doing), his estimates of profits could be systematically biased.

    Whether it's biased upwards or downwards it's the thing. If it's biased upwards, then there isn't much for him to worry about: he could be underestimating the tendency of the rate of profits to fall; but if it is biased downwards, it could be a big problem for him.

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    Beyond this problem, and considering that what limited exposure I've had to the TSSI comes basically from blogs, I find it disturbing that it's often hard to tell TSSI bloggers from Austrians (of the Mises, Hayek and Schumpeter variety): the same talk about the need during crises/recessions for capital/creative destruction, for just one example.

    Well, I'll cheat. I'll give another example: the idea that the "underlying" (as I think was the literal expression I once saw) cause of all capitalist crises is the tendency of the profit rate to fall; while all other causes are "proximate" (kind of trigger, or catalyst).

    If there is a _need_ for a "proximate" cause in order for the "underlying" cause to act, then (1) the "proximate" cause is a necessary condition, (2) the "underlying" cause is not a sufficient condition.

    What, then, makes the "proximate" and "underlying" causes any different?

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    Replies
    1. Oops. Where it says:

      "The thing with historical cost in my example is that it, too, can give a biased estimation of COSTS (in my example, it _overestimated_ profits."

      It should say:

      "The thing with historical cost in my example is that it, too, can give a biased estimation of PROFITS (in my example, it _overestimated_ profits."

      Delete
  5. I'd rather we leave the subject of ###FIGHT CLUB### out.

    Understood. Feel free to delete that third comment!

    The thing with historical cost in my example is that it, too, can give a biased estimation of costs (in my example, it _overestimated_ profits.

    There is an accounting principle for these situations ("accounting conservatism").


    I think it's questionable to say that it overestimated profits; if a capitalist advances an amount of money equal to 1000 socially necessary labor hours and gets back an amount equal to 2000, then that's a concrete profit. True, it says nothing at all about what happens in future periods, but I'm not sure why it should have to.

    I am not an accountant, myself, so I can't speak from any authority, but the accounting principle you've linked seems to be referring to valuing unsold inventories to estimate future profits. To that extent, if the current cost of the inventories is less than the cost it took to make them, then this is precisely the example I gave: essentially a case of capital loss. On the other hand, in your reverse example, I guess it wouldn't show the one period of inflated profits. So you're right, it treats the cases asymmetrically. But when all's said and done, these are still estimates; that is, when the sales revenues are realized, then there's no case of over- or underestimating profit anymore, since you've got a concrete figure for it. (Though an unethical accountant might still over- or under-represent them, I suppose.) And it's those concrete figures that are generally being investigated — e.g., in Kliman's 2011 The Failure of Capitalist Production.

    Beyond this problem, and considering that what limited exposure I've had to the TSSI comes basically from blogs, I find it disturbing that it's often hard to tell TSSI bloggers from Austrians (of the Mises, Hayek and Schumpeter variety): the same talk about the need during crises/recessions for capital/creative destruction, for just one example.

    Well, they do have a similar outlook in terms of what is necessary to bring about another capitalist boom. But that doesn't mean TSSI folks are actually rooting for that outcome like Austrians typically do. While they tend to be more pessimistic about the ability of state intervention to "tame" capitalism, TSSIers express several possibilities going forward: a) widespread destruction of capital resulting in great human immiseration (unacceptable) b) continued stagnation propped up by government intervention and occasional technological revolutions (slightly better but only treating the symptom) and c) finding a better system than capitalism.

    Personally, I am rooting for c, but I am also pragmatic enough to push for any and every gain to be had along the route of b, such as a job guarantee program and similar such initiatives. petec over at heteconomist wrote some pretty thoughtful stuff on the possibility of limiting the domain in which the "logic of capital" is active through growth of the public sector, and I am pretty amenable to such ideas. I certainly can't speak for any other random internet persons, at any rate.

    ReplyDelete
  6. Well, I'll cheat. I'll give another example: the idea that the "underlying" (as I think was the literal expression I once saw) cause of all capitalist crises is the tendency of the profit rate to fall; while all other causes are "proximate" (kind of trigger, or catalyst).

    What, then, makes the "proximate" and "underlying" causes any different?


    Good question! The source you probably saw it mentioned in was the aforementioned Kliman 2011. Basically, the two more or less feed one another.

    The proximate cause is typically financial in character and hinges on, among other things, the growth of debt. Think of all those rad "aggregate debt" charts Steve Keen uses. The idea is that very growth of debt owes to using increasing leverage to keep falling profitability artificially stable. So it basically goes one step deeper and supposes Debt_Growth owes to Falling_Profitability owes to Rising_Organic_Composition_of_Capital owes to Technical_Change owes to Capitalist_Competition and Class_Struggle, is a way to put it.

    But let's refocus: as the "underlying" cause, the falling rate of profit plays a few extremely important roles. Firstly, it increases instability at the micro level; when the average rate of profit is, say, 30%, you can suppose that many companies can exist even with below-average profitability. If the average rate of profit is 6%, businesses with lower-than-average profits are more likely to go belly up, which can have a domino effect. Which brings us back to the other point: it increases instability at the macro level by facilitating an explosive growth of debt and, as people pursue greater risks for better returns, riskier speculation (think "Minsky effects"). The greater interconnectedness this yields creates further problems; if company A depends for some income on securities related to company B's debts, and B goes bankrupt, A loses income and also faces the risk of going under.

    Thus, to say that financial failure is the proximate cause just indicates its partial role. Bankruptcies happen all the time, but only in a stagnant, fragile environment such as in the waning portion of the "up" phase, brought about by low profitability, do such things result in anything so radical as a crisis — a full-on disruption of the operation of the capitalist mode of production. The growth of capital is sort of pushing on a big spring: the more capital, the lower the profitability, the deeper the crisis has to be to restore it.

    The implication of this is clear: that "the limit to capital is capital itself."

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    Replies
    1. "I think it's questionable to say that it overestimated profits; if a capitalist advances an amount of money equal to 1000 socially necessary labor hours and gets back an amount equal to 2000, then that's a concrete profit. True, it says nothing at all about what happens in future periods, but I'm not sure why it should have to."

      Don't get me wrong, I'm not suggesting Kliman overestimated profits (or, for that matter, underestimated them). My concern is that on the basis of the information I have (and it _is_ incomplete) I can't be sure of either.

      But if there was an underestimation in the _aggregate_, it could go to reduce the difference between Kliman-profits and "other Marxists"-profits (I don't have the relevant charts at hand and would have to search for them, but if memory serves, both series seemed to present similar peaks and valleys, although the Kliman-profits series appears to have a decreasing tendency component, while the other series has an increasing tendency). In any case, I know little about time series analysis, so treat this as a wild guess.

      "(...) but the accounting principle you've linked seems to be referring to valuing unsold inventories to estimate future profits".

      Nope, the link does not differentiate between (unsold) finished goods inventories (say, screws, bolts and nails held at the firm's warehouse), at one hand, and raw materials (iron ore and coal) or parts inventories, at the other.

      But the point is, like you put it, that Kliman may be treating the cases asymmetrically.

      "Well, they [TSSIers and Austrians] do have a similar outlook in terms of what is necessary to bring about another capitalist boom."

      Yes, I've noticed that they share that outlook. But at least some bloggers seem to share more than that. It appears that, for some, the notion of exploitation is almost an afterthought, something that needs to be kept out of sight, because its mention is supposedly "reformist".

      But, leaving that aside. The thing is that Post-Keynesians disagree with that outlook and, on from purely theoretical point of view, I am not sure they are wrong (neither am I sure authors like Kalecki or even Luxemburg should be automatically dismissed). This would be a long discussion, which perhaps we should leave for another opportunity.

      Incidentally, regardless of what Post-Keynesians might believe on the grounds of economic theory, my position is not that capitalism can be tamed (neither, I believe, was that of Kalecki, btw; and it most definitely wasn't Luxemburg's). Check my blog. I'm quite clear on that.

      Quite to the contrary: capitalism will sink, and if we don't do something now, we'll go down with it. And I'm not talking about patching things up here and there, as was done during the New Deal.

      A new New Deal, like the old New Deal, might work for a while (as Post-Keynesians believe), but, even in the by now obviously unlikely event it was applied (and the fact that it was so furiously opposed by our masters seem to mean nothing to TSSIers), it would last exactly until our masters decided against it (which Post-Keynesians never seem to consider).

      --------

      Well, it was a long day for me. We better leave the rest of the discussion for another day.

      Delete
    2. PS,

      By the way, I learned of the "underlying" versus "proximate" distinction through Michael Robert's blog, not through Kliman's work directly. See my discussion with Roberts in the comments thread:

      “Inequality: the cause of crisis and depression?”. May 21, 2012
      http://thenextrecession.wordpress.com/2012/05/21/inequality-the-cause-of-crisis-and-depression/

      PS2,

      As a curiosum, I ordered some books from Amazon recently. I was going to order Kliman's "The Failure of Capitalist Production", which I intended to read before his book on Marx.

      What put me off was some reviews by (apparently) TSSIers. One of them said something like he would like to see Kliman publicly debating the right economic policy against (off the top of my head) Paul Krugman, John Bellamy Foster and (I think) David Harvey...

      And then the same guy (I think) said that references to inequality was "throwing a bone to the dogs" or something like that.

      Delete
  7. "Nope, the link does not differentiate between (unsold) finished goods inventories (say, screws, bolts and nails held at the firm's warehouse), at one hand, and raw materials (iron ore and coal) or parts inventories, at the other."

    Apologies, "unsold" was imprecise. But I think the point still stands: however you slice it, the principle you've described pertains to estimating future profits, rather than measuring realized profits (except to the extent that it insists on verification of payments). An empirical investigation of the LTFRP would focus more on the latter.

    "Yes, I've noticed that they share that outlook. But at least some bloggers seem to share more than that. It appears that, for some, the notion of exploitation is almost an afterthought, something that needs to be kept out of sight, because its mention is supposedly "reformist"."

    Oy, really? I guess one can find folks to back just about any position, nowadays. But let us not forget that this was the very attitude towards reform that led Marx himself to make his famous "I am not a Marxist" remark. I think folks willing to completely give up the ghost on reformist efforts are letting the perfect be the enemy of the good.

    The whole "Accelerationism" thing just seems like a way for people to justify a loss of ground as some kind of victory along another parameter — a coping mechanism, almost.

    On the rest re: the prospects of capitalism, reform, New Deal vs. a new social order, etc: I agree with all you've said, and I do indeed know that you've been quite clear on it! I've even commented here once or twice before, under a different moniker ("A"). This is just my "regular" handle. :3

    "By the way, I learned of the "underlying" versus "proximate" distinction through Michael Robert's blog"

    Ah, that explains it. Roberts is good folks. There was a lot of debate and discussion on that blog over Kliman's book about a year ago, give or take. Some of the participants in said debate were not terribly constructive, and some were even a mite uncivil, but participating in that crazy melee really helped me think through and grasp the TSSI in a more complete way than I had just from reading about it.

    I see Roberts never responded to your last comment requesting more info. I don't know if it's your cuppa, but he's apparently made his book available through a creative commons license, if that's something you'd like to peruse. I keep meaning to take a more thorough look at it, myself.

    Also, pace that Amazon reviewer, I confess that I wouldn't mind seeing more of an exchange between Kliman, Moseley, and Wolff, myself. Wolff seems like a pretty stand-up guy; even despite his theoretical differences (his take is also "single-system," but not "temporalist," so it's pretty much the closest neighbor), he still gave Reclaiming Marx's Capital a glowing review. And I've found Moseley's essays to be enormously helpful in understanding Marx more broadly, particularly on monetary issues. I've always kind of wanted to see the two of them weigh in more on this debate. But like, whereas these things can get pretty dicey, I would insist on it being in a casual setting — over a few beers and maybe a game of pool or something — just to keep the tone relatively light. Bros being bros~

    ReplyDelete