Soda and the startup culture

A fascinating discussion arising from an anecdote about a startup starting to charge the engineers for the sodas they drink:

I had lived through this same conversation four times in my career, and each time it ended as an example of unintended consequences. No one on the board or the executive staff was trying to be stupid. But to save $10,000 or so, they unintentionally launched an exodus of their best engineers.
Bear in mind that Silicon Valley engineer salaries are $100k-$300k, and the cost of a new engineer hire is roughly 30% of their first year's salary. Suddenly this cost saving looks phenomenally stupid.

The comments are equally interesting, as long as you don't subscribe to the notion that the plural of "anecdote" is "data":

At the last start-up I was at, the CEO gave the floor to the CFO at an all-hands, and the CFO then explained to us how much we were spending on sodas and snacks, and invited comments. the consensus was that we were willing to pay "something".
That something turned out to be a quarter, and three months later the CFO was able to announce that consumption had fallen to a quarter of what it had been.
Frankly, if your typical engineer drinks 1-2 sodas per day (say, $2), costs you $400/day for a 10 hour working day, and loses 2% productivity by not having money for the soda he wants, you're still down on the trade by making him pay for sodas. Really, it's cheap at the price. This completely ignores your loss when engineers, feeling unloved, go to the startup down the road who provide free sodas, coffees, and have cats in the office that the engineers can pet.

An observation on Chinese medals

Looking at China's medals so far, they are performing best in the swimming and weightlifting. Swimming rewards tall, muscled competitors. Weightlifting rewards squat, broad competitors. Neither of these are matches for the typical short, slender Chinese physique. By contrast: shooting, fencing, diving are natural matches for the 100% focus on medal-winning training that China promotes.

If there were an Olympic medal for undetectable doping, my opinion is that China would be a shoe-in for the gold.


It's not working! Let's do more of it!

CityUnslicker at Capitalists at Work tackles the demented idea that lowering interest rates from 0.5% to 0% will solve all our problems:

If low interest rates are the answer...what was the question?
Interest rates are not the problem, the problem is too much debt to be serviced; this needs to be written off and the economy made more flexible. Maybe lower taxes would be a better way to provide the money to repay the debt or to reduce regulation so that new businesses may grow and prosper. The time for propping up the sick by juicing their rates is long-gone.
Read the whole thing.

I can't help but think that people are running out of ideas, and lowering interest rates further is a classic example of "we must do something; this is something, therefore we must do it." CU is quite right that underlying debt is (or at least, is a significant part of) the problem. People with huge mortgages that they can barely service even at rock-bottom rates are not going to be able to buy discretionary goods to stimulate the economy, will be stuck in their existing jobs as they can't sell their house to move, and will be praying (along with their loan holding bank) that their employer doesn't go under until "something turns up".

Let's not forget government, either; with increasing amounts of money going just on loan interest, and the UK credit rating only one imprudent Chancellor away from a plummet, the last thing any government can afford is to spend stimulus money even if it can find something useful and relatively short-term to spend it on (HS2, you really don't count).

What's the alternative? Well, "I wouldn't start from here", but perhaps CU is right and we need to write off the debt. Of course, in the case of mortgage holders this is going to be a bit tricky. This can only work, as far as I can see, by the mortgage-holding bank giving up on easing credit terms, acknowledging the principal will never realistically be repaid, and declaring the mortgage to be in practical default. Have a standardised deal where the bank repossesses the house, and allows the previous owner to move onto a shorthold tenancy with a guaranteed 2 year minimum residence which the now-tenant can end by giving 3 months notice (thereby giving them the opportunity to move somewhere cheaper / with more jobs). The bank is then left with a collection of houses which it can sell over time as the tenant moves or reaches the end of their contract.

Of course, the side effects of this are to ruin the credit (such as it is) of over-stretched home owners, force banks to realise actual losses on their loan portfolios, and of course progressively degrade house prices as more and more houses come onto the market with an owner (the bank) who actually wants to sell them and raise some cold hard cash. I can live with that, and it beats the current zombie situation hands-down.

CityUnslicker for membership of the Bank of England MPC, anyone?

There's only one Boris Johnson

BoJo in the Telegraph on the Olympics so far:

As I write these words there are semi-naked women playing beach volleyball in the middle of the Horse Guards Parade immortalised by Canaletto. They are glistening like wet otters and the water is plashing off the brims of the spectators' sou'westers. The whole thing is magnificent and bonkers.
Extra points for his use of "pernoctates". Can you imagine Ken Livingstone trying to put together an article like that?

I have to give props to Danny Boyle; the opening ceremony was rather enjoyable and far from the disaster I was fearing. Though I still think that the lack of dancing sheep was a missed opportunity. It was however disappointing that Boris didn't get a slot. I hope that this tragic oversight can be rectified in the closing ceremony, at least.


The politics of chicken

I've been following with interest the train-wreck of local political loudmouths in various cities of the USA in the case of "Chick-Fil-A" -- a chicken fast-food restaurant that I've never encountered to date, but which appears to be present in most states of the USA, and prevalent in the south and east -- from a casual glance I can't see the Dakotas, Washington, Oregon or Montana in the list of states. The menu is predominantly chicken sandwiches and wraps, somewhat healthier than KFC. Nothing controversial there, except for recent statements by Dan Cathy, president of Chick-fil-A that:

we are very much supportive of the family — the biblical definition of the family unit. We are a family-owned business, a family-led business, and we are married to our first wives.
As one can imagine, this didn't go down too well with those pro-gay-marriage and has provoked a storm of protest. Notably, Jim Henson's Muppets withdrew their permission for use of Muppet toys for kids' meals in the restaurant. I do like the company's FAQ on this topic though:
From the day Truett Cathy started the company, he began applying biblically-based principles to managing his business. For example, we believe that closing on Sundays, operating debt-free and devoting a percentage of our profits back to our communities are what make us a stronger company and Chick-fil-A family.
(my emphasis). Nice dig at the politicos of all stripes there.

Now various city mayors are proclaiming that they won't allow Chick-fil-A to open restaurants in their cities because e.g. "they do not represent Chicago values" (Rahm Emmanual, mayor of the urban paradise that is Chicago). The ever-entertaining Mark Steyn provides a good overview of how we got here, and contrasts the cities' tolerance of highly homophobic Islamic preachers with the treatment of Chick-fil-A::

The mayor [of Boston] couldn't have been more accommodating (including giving them $1.8 million of municipal land) of the new mosque of the Islamic Society of Boston, whose IRS returns listed as one of their seven trustees Yusuf al-Qaradawi. Like President Obama, Imam Qaradawi's position on gays is in a state of "evolution": He can’t decide whether to burn them or toss 'em off a cliff.

Personally I think a lot of the fuss is down to local politicos seeing an opportunity to posture and taking it - they can't help themselves. It's a worrying trend for freedom of speech, however. Note that no policies of Chick-fil-A are under attack, as far as I can tell, and no discriminatory treatment of gay customers or staff is alleged. This is all down to the voiced opinions of the company president. The worrying part is not that people are boycotting Chick-fil-A - this is a fundamental freedom of association. The worry is that cities, which are not rolling in money right now and could use the extra employment and taxes from a new store, are preventing the company from opening a store and letting the people decide for themselves. The mayors are the people who should be facing opprobrium here, what they said and are doing is far worse than anything Dan Cathy said.

Too much Olympic spirit?

Congratulations to an anonymous 34-year-old Londoner who exemplified everything that makes Britain what it is today when he attempted to swim the Atlantic as a tribute to the London Olympics:

The lifeguards called out a helicopter and a diver dropped into the sea and explained to the man that it was not a good idea to swim across the Atlantic and advised him to head back towards France.
He replied that he was a strong swimmer and felt up to it.
What a heartwarming tale, and what a can-do attitude. This man is clearly one to watch for the 2016 Olympics.


"Deny" does not mean what you think it means

You'd think that an English Lit undergraduate would understand the meaning of common words. Reni Eddo-Lodge writing in CiF would seem to contradict that thesis:

It is an absolute scandal that young women are being denied access to the [HPV] vaccine on religious grounds. Not only are some of these schools opting out of providing the injection, but they're also neglecting to inform GPs of their decision – thus preventing young women from accessing the vaccine altogether.
Let's just dissect this, shall we? These "young women" are under 16 years of age, and therefore "girls" in the same way that "young men" under 16 are "boys". The school are merely opting out of making it easier for the girls to get the HPV vaccine. They have absolutely no obligation to fulfill that role. It's up to the girls' parents, who after all are in loco parentis, to arrange for the girls to get that vaccination - if they so choose.

Reni thinks that she has a killer stat:

The human papillomavirus claims 1,000 victims a year in the form of cervical cancers, and the HPV vaccine prevents 70% of them.
700 lives saved (in the UK) isn't bad. Of course, the HPV vaccine Gardasil causes 1 death per month in the USA according to the FDA, so parents might figure that they'd rather their child protect themselves by refraining from promiscuous sex rather than receive a vaccine that may (however unlikely) kill them.

Reni's perspective is made clear:

Projecting adult paranoia about promiscuity on to young women helps no one. At the crux of religious opposition to the HPV vaccine is a belief that young women cannot be trusted to make decisions about their own bodies.
A lot of young women (and men) are promiscuous, by any reasonable definition. If they weren't, we wouldn't be having the STD outbreak that we are currently having. So perhaps young women (girls) can't be trusted by their parents -- who, after all, are responsible for them and deal with the consequences of their decisions.

Hat tip: JuliaM at Orphans of Liberty.

This would really tick me off

According to the Daily Mail (and if you can't trust them, whom can you trust?) some tick bites can cause the victim to become allergic to red meat. Strewth.

There's a particular irony here:

Experts traced the delayed allergic response to bites from a tick - specifically the Lone Star tick.
The Lone Star tick, presumably from the Lone Star State - Texas - famed for steaks the size of your dinnerplate. I have a horrible thought - is this the result of some fiendish genetic manipulation by the cows on whom the ticks normally prey? Mark Wadsworth, please call your office.


Social is hard

When you see a headline such as Police force tells residents to stop reporting crimes on Facebook then you know you're going to enjoy the story. Apparently the ease of posting on Northants Police's Facebook "Wall" has led to a huge wave of real but vague, dubious and odd, and outright fake crime reporting there. Who'd have thought?

I particularly enjoyed:

Earlier this year Strathclyde Police announced the arrest of Andy Coulson, the former Downing Street communications chief and News of the World editor, on its Facebook page.
But because of the design of the site, it was unable to stop members of the public clicking on a button to say they "liked" the development and adding comments about it.
When they say "the design of the site", of course, they actually mean "a fundamental property of Facebook". Oopsie.

I've long wondered whether 999 should charge a standard £1 for calls from private and mobile phones (with the proviso for mobiles that if you're under £1 of credit then you can make the call but the charge is made when you next top up). If something bad enough to make you call the police has happened, you really won't mind spending that money.

Cristina Odone spectacularly misses the point

In an otherwise reasonable article arguing that paying cash for plumbing / building services is perfectly fine no matter what the Government may think, the Torygraph's Cristina Odone has a corker of an argument:

A buoyant black economy kept Italians prosperous for decades even when their Treasury was bankrupt.
OK, Cristina, so why do you think the Italian (and indeed the Greek) Treasury is bankrupt. Shortage of income, perhaps? Tax, perchance? Gah.
I am not suggesting that Britons adopt the illegal Italian way, where paying taxes is seen as a task for stupid people.
Thank goodness. I'm no more fond of paying tax than the next person, but a government has certain vital social and national tasks that can't be done without money. A situation where most citizens take more from the government in benefits than they receive is simply poisonous.

There is a more nuanced argument to be made, and I'm surprised Cristina doesn't advance it (perhaps she hit the word limit for her column?). If the natural tendency of governments is to spend all their income plus X%, and the behaviour of governments to date gives us no reason to disbelieve this proposition, then minimising the government's income will bring forward the point (when N years times X% forms nearly 100% of GDP) when the government is forced by the markets to realise that things can't go on like this.


$21tn free for the taking!

At least, according to the Tax Justice Network and the BBC:

A global super-rich elite had at least $21 trillion (£13tn) hidden in secret tax havens by the end of 2010, according to a major study.
View 6-page report summary directly here.

At least $21,000 billion. Wow. This implies the wealth of 21,000 billionaires from 139 countries. This gives an average of 150 billionnaires/country, though assuming unequal distribution (say America is 40% of this (8000+ billionaires); Russia, China, India, UK another 30% and the rest spread over the smaller countries. For millionaires instead of billionaires, that's 21 million.

How many billionaires are in the USA? 403 as of 2010. How many $ millionaires in the world? Maybe just short of 11 million in 2011. And for these sums to work, most of them would have to hold most of their assets in cash in offshore havens, rather than in (say) property where I suspect the majority of the USA millionaires come from. I think I see a tiny problem with this chap's calculations.

Minor problems like that aside, what should be done about it? Report author Mr. Henry has no doubts:

"The lost tax revenues implied by our estimates is huge. It is large enough to make a significant difference to the finances of many countries.
"From another angle, this study is really good news. The world has just located a huge pile of financial wealth that might be called upon to contribute to the solution of our most pressing global problems."
Of course! We can just take it. I can't see any problems with that, none at all. How would you seize it? Annex Jersey? Invade Switzerland? (good luck with that.) Beach landing in the Caymans? Then walk into the banks and seize all their computers. I'd pay money to watch that. Presumably it's held in a mixture of US dollar / CA dollar / GBP / Euro / CHF accounts rather than anything physical. You could just induce vicious inflation to deflate the value of the savers' accounts, which is the approach the US and UK governments seem to have taken anyway.

Sarcasm aside, the sheer cheek of Mr. Henry and the Tax Justice Network assuming you can arbitrarily make a claim on wealth by dint of wanting it ("society needs it") appalls me. Can he show any laws were broken in accumulating this money? Which governments get the claim on which assets? Do they claim on the wealth or on the alleged unpaid taxes? If taxes weren't paid that were due, why not lay a lien on the offender's public assets?

The issue of corruption and mass theft in poorer countries is a valid concern. Look at Ferdinand and Imelda Marcos - they probably took billions of dollars of assets out of the Philippines during the period of Marcos dictatorship. It's quite believable that this is stashed in tax haven accounts, but the Philippines hasn't been able to get any of it back as far as I know. This is one of the best examples of wealth that should be reclaimed, and yet the world can't make it happen - why not? Let's talk about African governments systematically looting their countries, and the Chinese senior Party members and military officials salting away their gains. Does the TJN report address this issue? Mr. Henry, I would bet the Chinese in particular will just roll over and give you their hard-earned cash. You should definitely go ask them.

What's going to happen to this tax-sheltered wealth? Eventually it needs to be spent, otherwise there's no point in having it. So it's going to be transferred into a US/UK/whatever bank account and spent on luxury goods or property, at which point the Govt. will take the appropriate tax cut. If you want to get hold of this money, your country needs to make things or services that the wealth holders want. Strangely, the record of governments in producing such goods is somewhat thin.


Of Ayn Rand and modern day politics

Probably my achievement of the month; I managed to slog all the way through Rand's Atlas Shrugged. Holy Hoppin' Hippos. I'm glad I did it, but don't think I'd choose to do it again - maybe dip in and out of the more interesting parts in future.

As a book of its time, I'm frankly astonished that it got published at all, and more astonished that the editors let it go out as-is. (Perhaps they didn't, and this is the cut-down and cleaned up version of some behemoth original. What a thought.) I think there's a far better and more conventional book in there somewhere, weighing in at maybe 400-500 pages of the current 1100-odd. The 70+ pages of Galt's radio speech are, frankly, masturbation. Perhaps the success of The Fountainhead gave Rand more leverage with her editors than a first novelist would have had. I also hate, hate, hate the ellipsised semi-monologues that pepper the book. The Project X digression feels like an unnecessary branch line from the main track of the story.

Having said all that, I'm going to go against what seems to be popular opinion - I actually liked the story. It's very imaginative without really veering off into the truly implausible, the villains (and there are many) are unusual and interesting, and the denouement is nicely done. I even enjoyed a few of the characters, notably Ragnar Dammerskjöld who's a very likeable and imaginative pirate, and Cherryl the unfortunate waitress. Dagny got annoying about 30% of the way into the book and never quite redeemed herself. I'm still not sure how I feel about Hank.

Where the book really scores in my opinion is the way in which it truly nails 2012 politics. Given that we're 55 years beyond the book's publication, one can either ascribe this to astonishing foresight on the part of Rand, or some good guesses associated with a sizeable dose of luck. I'm torn. Obama's recent "You didn't build that" speech came serendipitously when I was in the middle of reading the book, and we can only imagine what trenchant comments Rand would have made about it; sadly, she died 30 years ago so never really got to see her predictions come up trumps. Characters such as the weasels Mouch, Thompson and Ferris are all too common in modern day political life; one hopes that their real life counterparts would balk at the collectivisation implemented in the book, but given their thirst for control one would never be quite sure of this.

I'm now actively curious to see Atlas Shrugged - the film (part 1). It's just possible that they do a good job of keeping the wheat and throwing away the chaff.


The unseen is as important as the seen

Via Professor Bainbridge, a fascinating and pithy dissection of the fallacy that businesses only succeed through government's munificence from Tom Smith at Californian blog "The Right Coast".

Unlike much other discussion around this topic, Smith turns it on its head and points out an issue that politicians have been much less keen to mention: how much has state and federal regulation prevented potentially successful and profitable business from even starting?

I don't see our young president taking credit on behalf of the state for all the failures it help cause, all the ideas that never got off the ground because the regulatory hurdles were so high, or all the established companies that never had to face competition because they had managed to get their rents written into law. This is part of the seen and not seen insight of Bastiat.

Intuitively it's obvious - make it harder and more expensive to start a business, and fewer businesses will be started. Existing businesses will be better entrenched and more prone to increase prices without fear of competition. If my plans for a cat shaving business require six months of filling in forms to register the business with the local chamber of commerce, monthly inspections by PETA consultants that I have to fund, and punitive "animal service taxes" in the unlikely event that I make a profit, then those Californian cats are going to stay furry, hot and bothered; I'm going off to Texas (where at least I can enjoy foie gras for lunch) and actually make something approaching a profit.

Read the whole thing.


Don't call it gerrymandering...

The Labour MP for Wigan, Lisa Nandy, is proposing that 16 year olds be allowed to vote. Apparently:

...lowering the voting age to 16 was a way of "this generation showing respect for the next generation" and giving them a share of power.
In this game, you must earn respect, Lisa my old chum. And part of that earning could be, for instance, paying some tax and NI. Essentially what you're proposing is that an age group which are massive net receivers of income from the state be allowed to determine how much more income they receive. What could possibly go wrong?

The usual suspects are crawling out of the woodwork and expressing enthusiasm:

Neal Lawson, head of Compass, added: "Young people don't just need policies, they need power – then they'll have a stake in the nation's future".
I think that "need power" is a "want power", actually Neal. They clearly don't need it as they've managed several hundred years without it. This is nothing more than naked self-interest by the Labour (and, probably, Lib Dem) politicos who see themselves as disproportionate beneficiaries of the youth. I'd bet that the reason for their concern at this time is hinted at in the article:
The report follows the publication of the first tranche of the 2011 census results, which show the UK population is older than ever: over-65s now make up 16% of the population.
Damn all those Tory-leaning old people with money! Let's enact a pre-emptive demographic mugging with 16-18 year olds!

The truly terrifying prospect, however, is self-righteous 16-18 year olds appearing in the Question Time audience and random BBC interviews, being respectfully interviewed by journos.


Foxworthy had it right, but wrong country

Jeff Foxworthy ("You might be a redneck if...") in early 1996:

The Olympics in Georgia... God, you know we're gonna screw that up... Hell, the Olympic rings will be five old tires nailed together.
He could have equally well been talking about London 2012. On our first opportunity to make an impression on foreign athletes, what happens?
The opening of a special 'Olympic Lane' today was meant to help athletes and VIPs make the 45-minute journey from Heathrow Airport to Stratford in effortless ease.
Try telling that to US hurdler Kerron Clement, who tweeted his frustration this morning after he was left stranded in traffic for four hours when his bus driver got lost en route to the Olympic Village.

Even once they'd made it to the village, their travails weren't over:

USA Track and Field confirmed the American athletes were heading to the Village just to pick up their accreditation before travelling to their pre-Games training camp in Birmingham.
Birmingham? We're hosting our American cousins in a slightly warmer version of the South Side of Chicago?

Still, at least the driver found a road where he could drive legally. No such comfort in Southampton Row where the new Olympic lane makes it impossible for any non-Olympic non-bus driver to proceed.

The closer we get to these games, the more I think it's going to go horrifically wrong.


Hollande, meet reality

In a welcome rebuke to those believing that posturing politicians are extinct, Hollande is claiming that Peugeot Citroen's planned 8000+ redundancies near Paris are "unacceptable".

I'm not quite sure what Hollande proposes that Peugeot does. Keep the workers but slash salaries for everyone to keep the wage bill down? Keep the workers on the same salary and keep losing money until the entire company goes into administration? Perhaps he should nationalise Peugeot and get civil servants to run it. I can't possibly see anything going wrong there.

It is perhaps unsurprising that when asked for specifics, Hollande weaseled:

However, Mr Hollande said on Saturday that the government would consider broader measures to help automakers and create incentives for consumers to buy French cars.
Tax citizens to raise money to subsidise cars for them to buy. Words fail me. Still, I suppose we should be grateful that so far he hasn't proposed bailing out the union shareholders at the expense of the senior debt holders of the firm. Yet.


For those demanding more regulation in the financial sector...

...read Jackart's screed on the increasing and pointless admininistrative burden imposed by the FSA on individual brokers. Go read the whole thing.

I would wholeheartedly endorse Jackart's blog on this subject. Having myself taken exams from the Chartered Institute for Securities and Investment in the past, they are clearly designed to force the student (or the financial institution for which they work) to purchase the textbooks and attend their taught courses in preparation for the exams, because the pointless minutae and badly phrased questions mean that even a background in financial services won't help you that much in the exam. They had some of the worst course material I've seen - and believe me, I've seen some pretty bad things. (For reference I passed first time, but I'm good at memorising pointless crap. I have no illusions that this made me a better financial advisor.)

As Jackart notes pithily:

It [the Retail Distribution Review] will virtually ban those on average earnings from receiving decent financial advice. They will be driven instead into the arms of the Banks who will sell them "products" whose performance is utterly opaque, larded with fees which will be virtually impossible to get out of. The banks will call this "advice", but you will never see or hear from the hair-gel and bri-nylon school-leaver who sold you the "product", ever again.
This was a perfect example, and sadly far from the first, of the insecurities and political position of the FSA being shamelessly used by the vested interests (the CISI, for instance) to drive trade to themselves. It'll be interesting to see if the Bank of England can regulate any better, since at least they should be a little bit less insecure. I don't hold out much hope, however.


Grandstanding MPs turn out to be impotent

After yesterday's entertaining head-to-head between Bob Diamond and the Treasury Committee, today various MPs are clamouring for Bob to give up his £20mm leaving package:

Nick Clegg, the Deputy Prime Minister, said it was wrong for Mr Diamond to take a "socking great bonus" in the good times and not give it up when wrongdoing was uncovered.
Well, Nick, what are you going to do if he doesn't give it up? Get him fired?

I was pleased to see BoJo actually standing up for London financial services: whether you think he was right to do so or not, he's taking a stand on what he thinks is good for the London economy, and that's what he's supposed to do:

Boris Johnson, the Mayor of London, was a rare voice defending Barclays, as he warned against "an orgy of self slaughter" over the scandal.
"I'm not going to run down Barclays Bank. I'm going to stand up for financial services and London's pre-eminent role in supplying those services," he said.
What's really scary to me is that Barclays was the first bank to come clean about the LIBOR fixing. What about the other (seven?) banks that participated and have so far been out of public attention? If they see this happening to Barclays, they're going to take a far tougher stand in announcing the part of the FSA, Bank of England and former Government ministers in the mess - after all, what's to lose?

Who'd be an Argentine banker?

Dear Cristina's latest wheeze is a corker: forcing the top 20 banks in the country to lend to businesses. Those UK readers may think this sounds familiar, but Cristina has an extra spin on the affair:

She said the loans would carry a maximum interest rate of the Badlar reference rate, which was 11.9pc per year for private banks in June, plus 400 basis points. The minimum loan period would be three years.
For reference, Argentinian inflation is running around 25%.

Banks will therefore be starting at an effective loss of 30% on the loan, before any default considerations. Who's going to specify how much they have to loan (and hence, lose)?

"The central bank's going to establish the conditions," she said, adding that state-run banks should not have to shoulder the entire responsibility for business loans.
Fernandez recently reformed the charter of the central bank, which is led by a close government ally...
Fantastic. I foresee a period of rapacious looting where the central bank sets high targets for loans, and the 20 major banks either refuse to meet them (thereby receiving swingeing fines), or make the loans for a quiet life and then get their faces ripped off by (at best) business owners borrowing the maximum amount at 11%, swapping it into dollars for three years, then swapping it back before deadline at a net real profit of 20% allowing for FX charges. Or, they may just not bother swapping it back and default on the loan. Why not? It's going to be a great time to pretend to be a small business.


The child support Laffer curve

A fascinating story from Ontario, Canada where an ex-wife finds out the hard way that there's a downwards slope to the demand/income child maintenance curve:

The 53-year-old education software expert said a court ruling which made him pay $4,000 a month to his ex-wife in child support would financially ruin him.
And so, with extensive work contacts in South East Asia, he sent his former love Donna Mills an email saying he had left the country for good.
Mr Mills left the country before the trial could take place. He now lives in Dasmarinas City, 30 miles south of Manila, with his new wife, former caregiver Rosemarie Espiritu.
So far so good: a deadbeat dad having run off with a foreign hussy, classic Daily Mail fodder. But wait, what's this?
The trouble began when the couple split in 2005. After a two-day trial, they agreed Mrs Mills would have sole custody of the children and stay in the $1.2million Lake Ontario house.
He would pay child support, and she would pay $175,000 to buy him out of the house, which had a $600,000 mortgage on it. She would also receive $2,000 a month in rent from a separate flat.
But Donna later said she was 'rushed and pressured and did not read' before signing, and that she did not understand she would never receive any future spousal support.
Ok, let's calibrate here. You can buy a very nice house in a good area of Toronto for $300k-$400k. She makes a $1mm capital gain (the property) and receives recurring income of $2000/month. But five years later she decides it's not enough and goes back to court.

You can just imagine the discussion between Mrs. Mills and her lawyer. "Courts hate separated fathers - you should be able to get a few thousand per month extra with no problems. What's to lose?" I do like her claim that she was "rushed and pressured" in a 2-day trial. Presumably she had legal representation there - is she suing her then lawyer, or is he/she the brain behind last year's attempted renegotiation?

What Mrs. Mills has discovered is that there's a Laffer curve to child support. If you demand too much, you give your ex-spouse every reason in the world to run off to an obscure corner of the world and thumb his nose at you. Sure, he's going to have a hard life there away from his family and friends - and yet, at some point, it becomes a financially rational choice.

And what of the ex-wife now?

Former teacher Mrs Mills, a Danish immigrant with both a Canadian and European passport, in the meantime said she cannot work because of her 'onerous' family responsibilities.
That's a ten year old whose cancer is now in remission, a 14 year old Downs Syndrome sufferer, a 17 year old "who is fighting depression" and a 19-year-old drug addict. It's clearly been a hard couple of decades for the family - and yet, Mrs. Mills thought she'd be better off without her husband. Good call.


I'll take that driving licence, sir, you won't be needing it

A small prize for the most pathetic excuse for driver incompetence seems to be indicated for Mr. Jawad Hassan of Bradford:

A family narrowly escaped disaster after their car got stuck on a level crossing with a train approaching, forcing them desperately flee the vehicle.
Mr Hassan told the police: "I did not mean to cross the barriers. I knew it was wrong. It just happened."
"It just happened." No doubt the car had a mind of its own and accelerated under the descending barrier despite the desperate efforts of Mr. Hassan to stop it.

Had his people carrier been hit by a train, his life would have been no great loss, but the death of his four passengers would have been devastating for the train driver concerned. So what is the penalty for gambling with the lives of five innocent people for no good reason?

Mr Hassan was sentenced to nine months' imprisonment, suspended for 12 months, with 150 hours of unpaid work.
He is banned from driving for 18 months and must take an extended retest before getting back behind the wheel.
Frankly, I would prefer that this "extended retest" take approximately 1 minute. "Are you Mr. Jawad Hassan?" "Yes." "Congratulations, you've failed, you irresponsible bastard. Come back in ten years."

Polly's NEETS

I hope my readers appreciate the sacrifices made in bringing this blog to the Net: after reading today's Polly missive on how to save the NEETs I have to admit to throwing up in my mouth a little.

In common with so many Polly columns, it takes a small collection of relatively undisputable facts ("the number of 16-year-olds staying on in education has fallen for the first time in years, raising Neets – those not in education, employment or training – by 8%", "Numbers of Neets were falling steadily until 2010, when the Cameron government snatched away that crucial £30 a week.") and builds an increasingly tall and rickety tower of a column whose base spreads beyond the rock of facts to the sand of speculation and the marsh of Polly's opinions.

Polly's pivotal contention is that it's far better for the unemployed youth to remain in any form of education than to seek a job:

At a time when leaving school without plans has never been a worse life choice, more teenagers are walking away to do nothing at all. Unemployment when young scars for life: studies show most are destined for a life of underpaid work, punctuated with no work.
I suspect that here Polly is (once again) falling into the trap of confusing correlation with causation. I would totally believe that the average wage of students with one or more A-level is at a statistically significant measurement about that of students with just GCSEs. What I would find harder to believe is that the marginal wage gain of the least able 20% of A-level students from their 2 years studying will outweigh that of equally-able GCSE students working 2 years in their chosen employment. Let's not forget that Educational Maintenance Allowance only pertains to the 16-19 age group so you can forget the degree premium for this argument.

Polly's claims centre around two propositions:

  1. The withdrawal of EMA for most students caused many of them to drop out of further education; and
  2. More NEETs are therefore unemployable due to their reduced educational qualifications.
I can believe the coupling of these propositions in the case of some students, but frankly find it hard to credit that it makes a material difference in most cases. Most students live with their parent(s) until age 16. At that age they became eligible for EMA. Are we to believe that they moved out of the parental house on that princely £30/week? I find that hard to credit. This was additional money for the household. In most cases, if the household could afford to support the student at age 15, they can do so at age 16. I'm sure the £30/week made life easier in many cases, but find it hard to credit that it made much difference to employment needs for the majority. Rather, I suspect that the prospect of a salary and cash-in-the-pocket trumped the nebulous benefits of A-levels or equivalent. And frankly, I can't blame them. Unless you get qualifications directly relevant to your area of employment, I can't see two years out of the job market doing half-arsed studying giving you much of an employment premium to someone demonstrating two years of employment in the area.

What the abolishment of EMA is about is making students do a practical calculation of what two years of education is worth to them. Why should the taxpayer (and, let us be clear, this means the full-time minimum-wage worker) be on the hook for the student's studying time if doesn't materially benefit them?

Lest we forget this is Polly, she reminds us:

Michael Gove as education secretary seems entirely preoccupied with more able children.
Yes Polly, God forbid that we should focus the spending of taxpayer money on those students who are most able to benefit from education. FFS.
Whenever he talks of "social mobility", he speaks of those from humble backgrounds soaring up to Oxbridge.
Precisely why this aim is a bad expression of social mobility escapes me. Maybe her own Oxbridge experience put her off studying:
...she won a scholarship to read history at St Anne's College, Oxford, despite gaining only one A-level ... During her gap year she worked for Amnesty International in pre-independence Rhodesia, before being expelled by the government ... After 18 months at Oxford, she dropped out, finding work in a factory and a burger bar and hoping to write in her spare time. She later said "I had a loopy idea that I could work with my hands during the day and in the evening come home and write novels and poetry, and be Tolstoy... But I very quickly discovered why people who work in factories don't usually have the energy to write when they get home."
Ladies and gentlemen, that is education. A shame that it burned up that scholarship money for Polly to make that discovery.