Dienstag, Mai 17, 2005

I always knew the French were behind it...

Now this is simply smashingly deadly: the French were largely behind and profited from the international slavery trade that led up to the American civil war.

And can anyone out there tell me with a straight face that the French have ANY basis for being able to take ANY moral high grounds anywhere on this planet?

Not that it will make any difference to the French...

Great post from the folks at Done With Mirrors: read it often and go back there as well.


Donnerstag, Mai 12, 2005

How to Destroy an Institution

Hi -

What, another post *already*?


This afternoon a new report will be coming out on the estimation for tax income for the German government. This is widely expected to be wildly optimistic, based on something like over 1% growth (Yipee! This is, after all, Germany...), which means that the government will plan on taking in x Euros, but will take in something like x-many millions of Euros, resulting in further increase in the German national debt.

What's the problem here? The problem is that what we call the Five Wise Guys (Sachverständigen Rat), the five leading German public research institutes, have utterly failed in their charter, to provide advice to the government and technical expertise.

Their technical expertise remains, but that's all there is: no one takes them seriously anymore, since they consistely remain uncritical of what is increasingly obvious really bad economic policies. They don't see being openly critical as part of their charter, and as a result they fail to fulfill their own charter.

The problem is that German politics is so thoroughly ideologized that it brokes no criticism: all political parties of note here are adamantly refusing to recognize that A) the German economy is, domestically, in very bad shape and B) Germany's rather generous social instracture means that Germany is living beyond its means (due to A), and has been doing so for at least 20 years.

If not longer.

Germany is, bluntly, broke. And has been for a while, covering up the problems with mounting debt and tax burdens.

And the institutions that are supposed to jump up and down pointing out the obvious are on the sidelines reestimating their equations to see if they can get a better fit so that their models continue to show growth rates that are politically acceptable.

A "proper" forecast would show that Germany won't show economic growth until the government is downsized and the tax burden is, if not reduced, then at least made more progressive, so that people actually have some money to spend.

These five institutes are basically blind to these problems because it doesn't fit the accepted orthodoxy of German politics. But by failing to be unorthodox, by failing to provide critical advice, they are ultimately destroying what utility they can provide. No one reads their twice-yearly reports on the German economy, because there is nothing of meaning there.


Donnerstag, Mai 05, 2005

Death of Effective Economic Policy in Germany

Hi -

The title of this post says it all.

How do you do effective economic policy? Especially in these days of restrained marginal government spending ability?

You can simply spend money on pet projects, adding to the debt and maybe or maybe not achieving your politico-economic goals. Not the cleverest way of doing things, but effective for your cronies and friends.

Or you could give tax breaks to investments in those areas where you want people to invest. No direct government outlays, no program costs. What you are doing is accepting that you'll have less government revenue on the value added by those investments in exchange for those investments.

Elegant, effective. Want people to invest in real estate in Berlin, to revitalize the run-down portions of East Germany and save in many cases some great architecture? Give investors there a tax break so that for high-value individuals it's sort of a no-brainer to invest, even if the returns are mediocre or even non-existent.

Want people to invest in ships built in Germany (as opposed to Korea or China)?
Give them a tax break to do so.

Want to support the German film industry?
Give them a tax break to do so.

Want to support wind energy farms?
Give them a tax break to do so.

It's a fairly elegant tool to implement government political-economic industrial policy. Low cost, easily manageable (the market does it, not the government). It attracts high-income people, since by investing €100T you can, in many cases, reduce your taxable income by at least that amount, if not more, meaning if you have an income of €500T, you've just saved €50T taxes, meaning you get a 50% return on your investment of €100T in the first year: for many, anything after that effect is gravy.

Downside: your money is tied up for 10-30 years, and in the case of ships or airplanes, will see heavy depreciation that will be balanced out by a revenue stream. But it's that heavy first-year tax write-off that makes it interesting: immediate reward for making that investment choice.

But no more.

The German government, in it's ***infinite*** wisdom, has decided to kill this entirely by changing §15 of the German tax code. This means that any tax break envisioned can no longer be used to compensate current income from other sources, but can only be used to compensate future incomes from that particular investment. So that investment of €100T generates a tax break of €50T that can be used against future tax liabilities from income flows from that investment.

As a high-value individual, there is no incentive to make the long-term investment.

None whatsoever.

So a government faced with really weak investments decides to kill off the best instrument for effective investment policy that it has ever had.

There is no hope for the German economy under the current administration: if anything, it's gonna take years to undo the damage.