Archive for March, 2006

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March 31, 2006

Thought for the day

If I started using the term “anti-Semitic” as a general term of undifferentiated disapprobation like “lame” or “gay” (as in “god, those trainers are pretty anti-Semitic”, “The first few series of Friends were quite sharp and funny, but it got really lazy and anti-Semitic toward the end”, “I don’t know; there’s nothing specific about Shoreditch that I don’t like – it’s just a bit anti-Semitic”), how long do you think it would take to catch on? And what sort of reaction would I get in the meantime?

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March 24, 2006

Does it make any sense to cut the HMRC budget?
(Live from the commentisfree reject bin!)

Money for schools, money for Olympic athletes, money for scientists, but a 5% budget for Her Majesty’s Revenue and Customs? Won’t somebody think of the tax inspectors, for the love of God, will nobody think of the tax inspectors?

The budget cut for HMRC is apparently meant to drive a big program of “red tape reduction” to lower the burden on business of all the Kafkaesque nightmare of VAT, National Insurance and tax forms. Which is a noble enough aim; they are bloody awful and something ought to be done. But it seems to me a really silly idea to claw back the saving to fund other parts of the budget, rather than allowing HMRC to spend the money on more enforcement personnel.

It’s one of the most solidly established facts about tax policy; the marginal revenue contribution of a fully qualified Inspector of Her Majesty’s Taxes is way, way higher than the cost. They’re some of the most productive assets that the government system has, only outperformed by a few really cleverly located speed cameras on the M11. Cutting the budget for the Revenue, means leaving money on the table for the Revenue.

It seems particularly short-sighted to be cutting the HMRC budget given that the budget also creates a big resource commitment for them from the new requirement for tax planners to disclose details of their new avoidance schemes to HMRC ahead of time, allowing them to close the more egregious loopholes more quickly. This is a sensible step; it gives the UK fiscal system most of the benefits of a “general anti-avoidance rule” without the constitutional problems associated with such a non-specific piece of legislation. But it requires that there be a sufficient supply of good tax brains hanging around at HMRC to scrutinise the schemes as they come in.

I can only think of two possible explanations. First, that Gordon is being politically savvy and knows that, like speed cameras, tax inspectors are a really efficient way of making sure that the law is obeyed, but that like speed cameras, their very efficiency makes them unpopular. Or alternatively, he thinks that HMRC will be able to make back a lot of the money from the �100 penalties they are bound to reap in from the requirement to file your tax returns at the end of September rather than the end of January. Either way, I say let the athletes jog in the park, and let’s spend some money on building an Olympic-standard inspectorate of taxes.

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March 23, 2006

Freakonomics review part 2: The Heterodox Theory of the Criminal Firm

Ah, ya thought it was never coming �

Here is the first bit of the Freakonomics review; there is more to come, along the lines of this and this semi-related bits. But for now, I’m planning to take a bit of an excursion and write a little bit more about the “crime gang = corporation” idea. I want to show that there is no meaningful analogy between a crime gang and a capitalist corporation, and to develop an alternative theory of the remuneration structures that Levitt and Venkatesh observed, drawing on more heterodox/Marxist traditions. It’s partly a digression which interested me, and partly an attempt to show that there are always a zillion and one economic theories consistent with the data, particularly when the data are as partial as the raw material of Freakonomics.

The fundamental reason why a crime gang isn’t like a capitalist firm is that it doesn’t obey the fundamental principle of a capitalist firm, which is to accumulate capital. The crime syndicate described in Freakonomics sold drugs at a mark-up, and it presumably wanted to make more profit rather than less, but so did a merchant under feudalism. The defining characteristic of a capitalist enterprise is accumulation, not profit per se.

For people who are a bit familiar with the Marxist literature, this is quite an easy argument to make; a capitalist firm follows the cycle M-C-M’, but a criminal gang has to be in the cycle C-M-C’. For people who aren’t familiar with the Marxist literature, M stands for “money”, C stands for “commodity” and an apostrophe means “more”. In other words, the purpose of a capitalist is to produce more money, while the purpose of a crime gang is to produce more crime.

I sense I’m not convincing the unconverted. OK, look at it this way. The central feature of a capitalist economy is the good old “miracle of compounding”. When you make a profit from something, you reinvest that profit in your business so that your wealth grows at a compound rate. Even if your own firm has reached maximum scale, the rest of the capitalist economy is there to let you reinvest your surplus in order to produce more surplus. That’s the M-C-M’ cycle.

On the other hand, can a criminal gang really reinvest its profits? Not really. The physical means of production (guns, drugs inventory, etc) is not usually the constraint on a drug gang’s ability to expand. For any drug gang which isn’t basically a startup, the market will be more or less saturated in the territory it commands, so the only way to grow is to get more territory. While having some spare profits to reinvest is obviously a prerequisite for growing your territory, it’s clearly one of the least important parts of a difficult and complicated programming problem. I would say that to a first approximation, a criminal firm differs from a normal capitalist enterprise in that it cannot reinvest its profits and the entire surplus is consumed by the top management of the firm. I surmise that the actual consumption behaviour of criminals is at least weak evidence that I am right.

Obviously, the managers of a successful criminal enterprise can, if they launder them, invest their profits in the legitimate economy, but that is not the same thing. In particular, it appears to me as if there is no genuine accumulation in the criminal economy, no tendency toward monopoly and no likelihood of overproduction or underconsumption crises. Criminal gangs rise and fall due to non-economic factors.

For this reason, among others, I am not convinced that the inverted pyramid remuneration structure that Levitt and Venkatesh observed is particularly well explained as a “tournament”. As I mentioned in the first section of the Freakonomics review, the Disciples’ reward structure does not really fit very well with the objectives of a business that wanted to maximise return on sales. The soldiers were paid a flat wage, not a commission on sales, and advancement through the ranks tended to go to those individuals who demonstrated a combination of bravery, loyalty and psychopathic aggression. My sound knowledge of popular culture suggests to me that this is a common organisational feature of crime gangs; top-ranking crooks always like to claim that they are in it for the money, and that their best gangsters are the ones who can generate new profit opportunities, but a glance at the film “Goodfellas” (based on an autobiography) gives a more honest picture of what actually happens when a bunch of “guys like us” are put in charge of organising an actual capitalist enterprise.

I think that the actual stylised facts are better explained by something like the “conflict theory of the firm“, due to Bowles, Skilman, Devine and others. This puts the conflict between owners of an enterprise (who want as much profit as possible) and the workers (who want to expend as little effort, danger and inconvenience as possible for their wage) at the centre of the theory. Rather than a Coasian “nexus of contracts” between freely associating individuals, brought together to minimise transaction costs and maximise productive efficiency, a firm under the conflict theory is made up of a bunch of overlords at the top, a bunch of surly minions in the middle, and to resolve the conflict, a bunch of not-directly productive supervisors in the middle. Yes, as a matter of fact, the central college textbook for teaching this version of economics is the Dilbert Principle. JT in the gang studied was occupying the classic pointy-haired boss role; he wasn’t a businessman himself, but he was responsible for supervising a crew of soldiers.

I think that this theory actually explains a lot more of the organisational structure of the Disciples than Levitt’s tournament analogy. The soldiers were not, as a matter of fact, encouraged to believe that they could rise to the top of the gang and reap the rewards of an equity-owner. They were encouraged to stay within the confines of the gang whether or not they were actually performing in sales terms, and were incentivised to make their sales targets with beatings rather than commissions. Finally, the supervisor ranks were dominated by the loyal, the brave and the psychopathically violent. This wasn’t an entrepreneurial organisation; it was a hierarchy where the stupid were exploited by the evil, making use of the mindless. Which makes me think that perhaps a crime gang is rather more similar to a capitalist firm than I had previously thought, and that it is the neoclassical model of a capitalist firm which is the odd one out.

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March 23, 2006

I suppose some sort of comment is in order

I am now going to be writing quite a bit for Comment Is Free, the new Guardian blog. A lot of people are apparently saying it isn’t a proper blog, but in my view, if it’s got a really nasty flamewar about Israel somewhere on it, it’s a blog. In principle they pay money, but it is quite difficult to get it, but I am frankly in it for the ego trip.

My original idea was that I would post all my good ideas there and put the crap on this site and CT. On the other hand, it has just dawned on me that whenever they pay me, I have to pay higher rate income tax on it, plus there is no PAYE so it will turn my income tax form into a hideous nightmare of record-keeping (even more so since it has launched two weeks before the end of the tax year, so in eighteen months time I will forget which cheques arrived which side of April 5th). So I might actually reverse that strategy.

The Levitt review part 2 (tentatively entitled “The Heterodox Economic Theory Of The Criminal Firm”) is now half finished. It’s not really got much to do with Freakonomics but whatcha gonna do. I think I might finish it tonight, and it will be up here as it is way, way too long for the Guardian.

This is as good a time as any to admit that I am one of the people behind Aaronovitch Watch (incorporating “Nick Cohen Watch”).

Update. It is traditional on this site to break up the hiatuses with silly newspaper headline jokes. So I note that the Evening Standard yesterday had the headline “GANG PLOTTED TO BLOW UP BLUEWATER”. Could this occasion the first prosecution for glorifying terrorism?

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March 7, 2006

Johnny One-Mate

I have just refreshed the Pajamas Media front page 35 times, and been served the same Netflix ad every single time. Is this a record?

(I’d be particularly interested to know if US readers see anything different, because I seem to recall that their other advertiser was some kind of postal service that didn’t want you to click through their ad from non-US web addresses and I suppose in principle the PJM people might have finally got their act together to stop serving it).

Update: “Instapundit.com”, part of the PJM network, 15 times. Netflix every time.

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March 1, 2006

Dancing With den Bestes

I see that Den Bestie Boy is up to his old tricks again. I therefore pass on these tips, gathered from experience, for Fontana Labs and anyone else who might be thinking of having a run-in with him.

1. Don’t answer his email. It might look quite civilised, but in fact he is hoping that you will reply in a way that gives away your IP address. He will then do a reverse DNS lookup and post your details on his website. SdB apparently doesn’t think that this is a really twatty thing to do, but you might.

2. Be aware that he has a tendency to try to rewrite history, particularly the history of conversations he has had with people who are too polite to post private email, in a really self-serving way. I note that he is now talking smack about me, for example and I must say that this, well it ain’t the way I remembered it. However …

3. Remember that living well is the best revenge. A simple corollary of this is that maintaining an anime blog is the opposite of “living well” and thus the worst revenge, so if you are in a pissing match with someone who does spend all his time protesting to the Internet that he really does shut his eyes when the naked cartoon children are on screen, honestly, then all you really have to do is sit tight and wait for history to rack up enough points on your side. If you read den Beste’s version of things then he whupped my ass realll good with his mad crazy usenet flamewar skills but the facts are that three years later, nobody really mentions his name without adding the word “shorter”.

that is all.

Update: Oh look, he posts private email too (see link in comments)! The ethics of anonymous posting are perhaps a matter for debate but on this there is surely a social convention, isn’t there? Just a couple of points:

1. I think I actually come off quite well in the posted exchange; you’ll note I’m being reasonable and conciliatory while den Beste is posting links to loony rants about Jacksonianism. There was a reason why he did that, btw; he needed me to follow a link from an email he sent so that he could check the IP address in his referrer logs against my mail headers and thereby post the name of my ISP. This is why I warned above to not reply to his mail.

2. (there is actually another piece of information which is highly relevant to understanding that exchange, but I am not going to publish it on the Web because I have too much respect for the third parties involved)

3, and most hilariously. SdB is not actually telling the whole truth when he says “I did not respond any further”. Actually, a couple of days later, he sent me an email whingeing that I kept spelling his name wrong – it is apparently “Shorter Steven” not “Shorter Stephen”. I am reminded of Charles Pooter, who left with quiet dignity but tripped on the mat on the way out.