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March 10, 2008


Luis Enrique

Interesting stuff... this may just be a quibble but, how is the economy improved by asset values being revised upward? Does it make sense to weigh that against the cost of keeping people on the dole? Even if it is a gain, it's static isn't it? The word 'drag' sounds dynamic to me - perhaps the cost of keeping people on the dole is not captured by the funding cost.


Yeah, and lazy sods idling their lives away on welfare paid for by the likes of me is OK by you, I suppose?

I'm drawing my company pension. About 1/8th goes on income tax and a further 1/8th goes on Council tax. That's a quarter of an income of less than £15k - paid for by a lifetime of savings while in work. And you're still content that welfare should be doled out to lazy scroungers who can't and won't shift the butts off the sofa - except to grab another can of lager.

And when I do freelance work to boost my income, the taxman takes more half of every additional pound I earn.

Can't you see your posturing on behalf of the workshy - and all so you can mouth off at Osborne about his upbringing - makes we taxpayers angry?


Your emotional problems are nothing to do with the rightness or wrongness of Chris's argument.

I'm just a bit wary of the logic on two points thought.
1. Surely intermediaries should close the gap
2. I'm not convinced it is so easy to calculate the real equity premium (survival bias, transaction costs etc).


I'm sorry you think my arguments 'emotional', reason, but until they are not only answered but satisfactorily assuaged by changes in the tax system by tough and deep reductions in public spending and real measures against scrounging, then wittering on about 'survival bias' mean nothing.

I'll give you another example of our iniquitous tax system.

My mother was recently taken into hospital. She lives 150 miles away. In visiting her several times over the past fortnight - surely the right thing to do - I had to drive many more miles than usual.

It was an additional expense I did not begrudge. Except that additional expense of app £250 yielded over £200 to the exchequer in fuel duty and VAT.

You think it right that indirect taxes on fuel are so high that the Chancellor can 'profit' so much from my mother's misfortune?

And why so high? Because government attempts to do too much, wastes too much and featherbeds wastrels, that our host regards so highly.


"In other words, the lack of income insurance causes share prices to be low. It is this that is a huge drag upon the economy. If we had better ways of pooling idiosyncratic risk, background risk would be less. People would be more willing to buy shares, and their prices would be higher"

And while I'm at it; this is just bollocks. The British generally are averse to buying shares because they've swallowed the leftist line that they should leave everything to the State.

How much 'income insurance' do you think I should buy? Even in my semi-retired state, I'm required to give over £4k a year in NI contributions. For a very poor return; no unemployment benefit, as I'm self-employed, and bugger all by way of State Pension.

Get the State off my back and £4k in proper insurance premiums would buy a hell of a lot.


“But the interesting possibility is raised here (pdf) by George Constantinides.
…In other words, the lack of income insurance causes share prices to be low. It is this that is a huge drag upon the economy. …Let's roughly quantify this. …If only one quarter of this were due to the inadequacy of income insurance, the dividend yield would be 0.9 percentage points lower. Which would mean that share prices would be £583 billion higher.
In other words, the lack of an adequate welfare system - which of course needn't be run by the state - costs us over half a trillion pounds. This is much more than the cost of paying people to stay on the dole or incapacity benefit, which is small.”

I am suspicious about arguments that raise an “interesting possibility”, move to a flat assertion, assume a magnitude for the effect, and conclude that they have proven something. Especially when they start with claims that someone is an “obnoxious prat”.

Since nationalised industries are notoriously inefficient, I suggest that inefficiencies in the welfare system are caused by its control by the state. So does Chris think we should privatise it?


"Since nationalised industries are notoriously inefficient, I suggest that inefficiencies in the welfare system are caused by its control by the state."

Surely this is a non-sequitur - was the welfare system once a private business?



Or rather, it was private enterprise.

Building societies, friendly societies etc.


You must have taken out insurance, asked for help from family and friends etc? That is the vestigial remnant.


Chris's argument should rather be, not that share prices would be higher (though they would be) but rather the corollary, ie that the cost of capital (the other side of the expected equity market return) would be lower, thus leading to greater investment thus leading to higher long term growth?

Of course if government were to grow to provide these greater welfare payments this might offset the above?

Luis Enrique

Aha - cjcjc - that's it

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