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July 28, 2013



Great stuff, Chris !

Paul Collins

What a load of cobblers.

"If inequality is high enough, the rich can pay a disproportionate amount of tax even if the tax system is regressive"

Or the "rich" could just up-sticks and move to a country that isn't run by complete vindictive idiots.

Please define "If inequality is high enough". Is it if people are starving on the streets and we have a few people that make Bill Gates seem poor? Is it if "the rich" all have a nice home and "the poor" don't get to live in Belgravia?

Your comments about capital, management and skill transfer show that you couldn't run a whelk stall.

Chris E

Paul -

Your seeming ignorance of basic ratios makes me wonder what sort of whelk stall you run.

"If inequality is high enough, the rich can pay a disproportionate amount of tax even if the tax system is regressive"

To see why this could be true imagine the following, a UK in which 1% of people earn 90% of the income, and 99% earn the remaining 10%. That 1% could still pay 80% of the tax (seemingly disproportionate) and yet the tax system would be regressive (the 99% would pay a greater proportion of their income as tax than the 1%).


Paul, you say that Chris "couldn't run a whelk stall."

True, he probably couldn't, because he's an economics journalist. He has limited (if any) experience of the retail shellfish business, and (possibly) limited aptitude for it. A whelk stall runner on the other hand probably couldn't write articles on economics for Investors' Chronicle.

And going further, assume Chris is incapable of running a whelk stall, even after a bit of practice. That would only go to prove his point about the non-transferability of skills and the importance of organisational capital.

And why does everyone think running a whelk stall is so easy?

james c

Yes, Fraser Nelson is talking rubbish. He usually does, so I assume that is what his paymasters want him to do.


Good point. It is simplistic to say that if individual A is present in a firm and that profits rise by £20m, this is due to the sole contribution of individual A. If one believes this, one should surely also believe that if, instead, profits should fall by that same amount, individual A should be liable to pay back £20m. If this were indeed possible, the individual would then want to take out - through the salary - an implicit insurance contract with the effect that the amount of the bonus received in good times is commensurate with the required penalty in bad times.


The structure of corporations with anonymous shareholders who own but do not manage the company or even observe its activities in great detail is artificial.

Naturally most companies would be owned by banks that manage them directly (which is true in Germany but illegal in Britain) or by their employees as partnerships (which used to be the case for investment institutions but is no longer the case).

The limited liability corporation is a grotesque invention of statism.


"The structure of corporations with anonymous shareholders..."

There is a register of shareholders for UK cos. That is a public document - for a small fee, less than £10. Imperfect I'll grant, since some shares are held by nominees. But not anonymous. You may be thinking of the civil law version- societe anonyme. Exactly how anonymous they really are I don't know.

Sue Marsh

If a cleaner makes a hospital so safe deaths are reduced do they deserve a million pound bonus?

If a refuse collector saves us from rabies and rats and cholera, do they deserve a million pound bonus?

And on and on.....

Neil Wilson

The whole basis of marginalism is utter bunkum. But they have to keep defending it since it is the sole basis by which capitalism is justified in its rawest form.

We all know that certain people get more than they deserve based on their efforts, including footballers, and most people get less.

The market completely fails to distribute effectively.


Nope. What we do not have is a 'market'. What we do have is cronyism, and that is what fails to deliver effective distribution, self evidently, as it is cronyistic. Fred Goodwin was a product of cronyism. If you want proof just look at the career of Hector Sants.


Chris, this post is brilliant: crystal clarity to Nelson's woolly rhetoric.


Nelson could equally say that Feudal Lords must have deserved their enormous income for providing security to the peasants... it is the same reasoning. Nature may control the productivity but human customs control the distribution.

Most organisations just muddle along until some disaster strikes and forces a reorganisation. Equating rewards for bosses with merit is unconvincing Paul collins is the one who seems to lack worldly wisdom. Comforting fairy tales to bolster the over paid.


Good article. But I disagree with one point. I don't think the problem with Goodwin - and other bad managers - is one of asymmetric information. That would imply Goodwin knew he was hopeless but used his informational advantage to bargain for higher pay. I'm moe inclined to think that Goodwin and other (bad or good) managers believe their own publicity.


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