Archive for the ‘Political Economy’ Category

tax avoidance by Pfizer

Friday, November 27th, 2015

Why did Pfizer, the huge US pharmaceutical company, merge with Allergan, a company registered in Ireland? The answer is simple. The merged company, now domiciled in low-tax Ireland, becomes more profitable at the expense of US taxpayers. There is no other reason for the two companies to merge.

At the request of a loyal TdJ reader, here is information that I gleaned from an editorial published yesterday in the Financial Times. Why do companies do such things? Because they can get away with it. Why do they get away with it? Good question. I suspect it is because they have a lot of money, and politicians need money to finance their expensive campaigns for election.

America’s pharmaceutical companies sometimes seem to be on a one-sector mission to alienate the entire US public. After a summer during which groups such as Gilead and Valeant regularly hit the headlines for charging eye-poppingly high drug prices, attention has now turned to the neuralgic practice of tax avoidance.

It follows the announcement this week by Pfizer of a $160bn merger with Allergan, an Irish-registered pharmaceuticals company. The deal, while vast in scale, has but limited industrial logic. Its principal purpose is to allow the US giant to cut its tax bill by re-domiciling overseas.

So-called “inversions” have long been a dirty word in the US. …. Drug companies are among the biggest practitioners of inversions. ….

Drug companies’ enthusiasm for tax arbitrage sits uncomfortably with the sector’s dependence on official support. This goes beyond the US legal framework and the protection it offers for intellectual property. Pharma companies benefit from taxpayer-funded research through such bodies as the National Institutes of Health and the National Science Foundation. Drugs purchases worth billions of dollars each year are funnelled through federally funded buyers such as Medicare and Medicaid.

Obama should close Pfizer’s tax loophole“, Financial Times editorial, 25 November 2015 (metered paywall).

making babies in China

Monday, November 23rd, 2015

FT Shanghai correspondent Patti Waldmeir has written yet another, superb column on social policy in mainland China.

Authoritarian governments can achieve many things by decree, but making babies is not one of them. It seems China has a shortage of that essential biological ingredient to power the next phase of the mainland economic miracle: sperm to fertilise the embryos of future workers.

There is a sex shortage, too: one recent survey showed that Chinese white collar workers slave so long in the office that half said they had intercourse less than once a month. Or maybe it has something to do with the fact that a large proportion of 20-somethings still live with their mother (and for that matter, their grandmothers) in cramped urban flats. Surely that’s better than the best contraceptive. ….

Good quality sperm are in such short supply that one Shanghai hospital recently ran an advertisement on social media offering enough money to buy the latest iPhone in exchange for 17ml of the stuff …. “It’s no longer popular to sell your kidney for an iPhone, but now you can easily get one without selling your kidney,” said an ad posted on the official WeChat account of the Shanghai Renji Hospital Sperm Bank ….

Patti Waldmeir, “Wanted: more people to make babies in China“,  Financial Times, 24 November 2015 (metered paywall).

Adam Smith as political caricature

Thursday, November 19th, 2015

One of my pet peeves is conservatives and libertarians who claim to adore liberal philosopher Adam Smith (1723-1790), so reveal a complete failure to understand his writings. New York Times journalist David Leonhardt expresses the same complaint.

He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich — who suffer from “indolence and vanity” — to help the poor.

Which leftist economist was this? None other than Adam Smith, the inventor of the “invisible hand” and the icon of laissez-faire economics today. Smith’s modern reputation is a caricature. …. He certainly believed that a market economy was a powerful force for good. …. Yet he did not have a religious faith in the market. Smith was a classical liberal, in the European sense of the word, who emphasized the essential equality among human beings.

David Leonhardt, “‘Chicagonomics’ and ‘Economics Rules’“, New York Times Sunday Book Review, 22 November 2015 (metered paywall).

David Leonhardt is reviewing Chicagonomics: The Evolution of Chicago Free Market Economics by Lanny Ebenstein (St Martin’s Press, 2015), and Economics Rules: The Rights and Wrongs of the Dismal Science, by Dani Rodrik (Norton, 2015).

the GOP moves away from tax cuts

Thursday, November 12th, 2015

US Republicans in recent years have stood out for their tax-cutting zeal. A scholar at the American Enterprise Institute (AEI), a pro-business think tank, urges them to seek a new purpose now that more Americans think the taxes they pay are fair. There are signs that a GOP shift away from tax cuts has already begun.

The Republican party’s raison d’être is cutting taxes. …. It may even be its divine commission. God put Republicans on earth to cut taxes, the conservative columnist, Robert Novak, once said ….

Republicans should pray for a new purpose. …. Big tax cuts, particularly for the wealthiest, do not work in an age of high inequality and heavy debt. Republicans need an economic agenda that respects markets while also recognising the challenges facing America and its anxious middle class. ….

There are signs candidates are starting to wriggle out of the supply-side straitjacket [of tax cuts]. At this week’s Republican presidential debate in Wisconsin, Marco Rubio said a larger tax credit for families was just as important as tax cuts for business. Ted Cruz would institute a value added tax, an efficient way to boost revenue for old-age programmes. While 1980s-style supply-side doctrine still rules the Republican roost, it may not beyond November 2016.

James Pethokoukis, “A last hurrah for Republican tax slashers“, Financial Times, 11 November 2015 (metered paywall).

morgues for long-haul airliners

Sunday, November 8th, 2015

Now that oil prices are low, airlines are bringing back long-haul flights. Airliners on these routes carry more fuel, and the added weight increases fuel consumption per mile travelled. Costs are higher on long-hauls for other reasons as well, including — and no, I am not making this up — a need to provide for the increased probability that a passenger might die long before the plane lands.

Long-haul airliners … have to factor in in-flight rest facilities for crew and pilots — and even a place to keep the bodies of any passengers who happen to die during the flight. In its fleet of A340-500 aircraft, Singapore Airlines introduced a special cupboard to store any unexpected corpse.

Tanya Powley and Peggy Hollinger, “A new era of ‘ultra-long-haul’ aviation“, Financial Times, 7 November 2015 (metered paywall).

The article is informative and interesting throughout. We learn, for example, that the longest scheduled non-stop plane journey now operating is Quantas’s 17-hour Dallas-to-Sydney flight. The shortest, “Loganair flight 312 between the Orkney Islands of Westray and Papa Westray … [has] a timetabled flight time of 2 minutes”.

free podcasts from the Financial Times

Friday, November 6th, 2015

FT Alphaville has launched a delightful series of long podcasts – known as Alphachatterbox – that can be downloaded here or at iTunes. The interviewer is FT journalist Cardiff Garcia. According to the editors of, “Alphaville is completely free. All you have to do is register.” I infer that to mean that access is not metered. The podcasts, like FT blogs, should not count against monthly limits imposed on downloads of those who register, but do not subscribe to the newspaper.

Here are brief descriptions of the first three podcasts. I listened to the two-part conversation with Princeton University economist Angus Deaton, and enjoyed it very much.

Our podcast chat with Angus Deaton (updated with transcript), 3 November 2015.
The podcast crew traveled to Princeton this week to speak with Angus Deaton, winner of this year’s economics Nobel, about his early influences and career, the academic work for which he won the prize, his popular writing on poverty and inequality, and quite a bit more.

Parts 1 & 2 below, followed by a time guide and a few additional thoughts and links for further reading. UPDATE: a transcript of this chat can be found below at the end of the post. Read more

A chat with Greg Ip about “Foolproof” (and the transcript, 16 October 2015.)
We invited Greg Ip, the chief economics commentator at our vicious rival The Wall Street Journal, into our offices for a duel to the death.

But my lightsaber ran out of batteries and Greg’s kung-fu fighting was rusty, so instead we settled for a chat about his new book, Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe.
A wonky chat with Martin Wolf (plus the transcript), 9 October 2015.

[This episode is] is a 90-minute conversation, split into two parts, with the FT’s chief economics commentator Martin Wolf.

We cover a lot of ground with Martin, who recently finished a new afterword (not yet published) to his 2014 book, The Shifts and the Shocks.

statistics and the war on poverty

Wednesday, November 4th, 2015

Last year was the 50th anniversary of the … war on poverty, declared by the administration of [US] President Lyndon Johnson. According to official measures, there has been little progress. In 1988, President Ronald Reagan said: “The federal government declared war on poverty and poverty won.” Yet, if the US consumer price index is “corrected” as recommended by the Boskin commission in 1996 — which argued that quality improvements were being understated — real incomes rise more rapidly, and poverty goes down. Poverty lost after all. The same is true if we use not the consumer price index but the implicit price deflator of consumption in the national accounts. When important conclusions depend on details of price index construction, there is no check on arguments according to political prejudice.

[This shows that} … the role of politics needs to be understood, and built in to any careful interpretation of the data. We must always work from multiple sources, and look deep into the cogs and wheels. James Scott, the political scientist, noted that statistics are how the state sees. The state decides what it needs to see and how to see it. That politics infuses every part of this is a testament to the importance of the numbers; lives depend on what they show.

Angus Deaton, “Statistical objectivity is a cloak spun from political yarn“, Financial Times, 2 November 2015 (metered paywall).

Princeton economist Angus Deaton (born 1945) was awarded the 2015 Nobel Prize in economics for his analysis of consumption, poverty and welfare.

Deaton references one of my favourite books, written by Yale University anthropologist James C. Scott: Seeing like a State: how certain schemes to improve the human condition have failed (Yale University Press, 1998)

For an interview, download FT Alphachatterbox, “Our podcast chat with Angus Deaton“, 2 November 2015. Alphachatterbox, I think, is accessible without charge from iTunes and other sites, as well as from

coping with an ageing prison population

Tuesday, October 27th, 2015

Growing numbers of incarcerated older men are straining Britain’s cash-strapped penal system.

FT journalist Helen Warrell reports from Rye Hill sex offenders’ prison, where nearly one in five inmates are aged 60 or older.

The Jimmy Savile sexual assault revelations sparked a wave of historic abuse claims [in the UK], leading to a surge in reported historic sex crimes. ….

[P]rosecutions for these past offences — and the resulting influx of older people into UK jails — are placing new strains on a prison service already struggling to find cuts of at least 25 per cent under the government’s austerity programme. In 2015, the number of over-60s in jail topped 4,000 for the first time on record, more than double the figure 10 years ago. It is the fastest-growing age group in custody.

The Prisons and Probation Ombudsman recently investigated the case of a 94-year-old prisoner who had been removed from a care home to serve his sentence and died after falling out of bed in his cell. To avoid such incidents in future, governors more used to restraining violent young men than nursing the elderly are touring hospices, hospitals and care homes to gather expertise on treatment of the ill and the dying.

Alongside these practical considerations come wider ethical dilemmas for society: whether it is right to enforce punitive regimes on the terminally ill; how to rehabilitate those who will never be released; and whether there is any point in incarcerating those who are so old or so demented that they do not even know they are in prison.

Helen Warrell, “UK prisons: old crimes, older inmates“, Financial Times, 26 October 2015 (metered paywall).

There is much more in this long and interesting “Big Read” article. Is the prison population also ageing in Canada and other countries? I don’t know, but would like to learn, so will appreciate any information TdJ readers are able to provide.

political corruption and elections in Guatemala

Monday, October 26th, 2015

Jimmy Morales on Sunday won a landslide victory in Guatemala’s presidential election run-off. The 46-year-old former TV comedian received more than twice as many votes as his opponent, former first lady Sandra Torres.

The election was fought on the issue of government corruption, which last month caused Otto Pérez Molina to resign the presidency. Mr Pérez was jailed and is facing trial.

Despite Mr Morales’s wide margin of victory, the real winner in the Guatemalan popularity stakes is the CICIG, the UN-backed commission whose investigations unearthed deep corruption in Guatemala’s political class.

The commission says half of Guatemalan party financing comes from government contractors, a quarter from businesses and the rest from organised crime, especially drug trafficking groups.

Headed by Iván Velázquez, the Colombian judge nicknamed “Ivan the Feared”, CICIG enjoys an 87 per cent approval rating among Guatemalans, according to a recent poll.

Jude Webber, “Ex-comedian Jimmy Morales in landslide Guatemala election victory“, Financial Times, 26 October 2015 (metered paywall).

Mr Morales will find it difficult to govern, as his party occupies only 11 of 158 seats in the Congress.

Here, thanks to BBC News, is his profile:

Jimmy Morales:

  • An evangelical Protestant who is against abortion, same-sex marriage and legalised drugs
  • Argues that his lack of experience is a virtue because he can make a completely fresh start when he comes into government
  • His National Convergence Front party has deep ties to the military, which played a brutal role in Guatemala’s 1960-1996 civil war
  • Grew up in a poor family and has a degree in business administration
  • Appeared in a comedy sketch show with his brother Sammy for 14 years

Guatemala election: Jimmy Morales elected president“, BBC News, 26 October 2015.

economic exclusion is not exploitation

Saturday, October 10th, 2015

John Authers, Financial Times‘ Senior Investment Commentator, writes from Peru, where he attended the annual meetings of the World Bank and the IMF. His column reminds us that exploitation is preferable to economic exclusion even though, in an ideal world, neither would exist.

At $5,962, [Peru’s] GDP per capita remains far behind the average for the region ($15,568). Many in the agrarian Andean hinterland remain mired in poverty, effectively excluded from the economy.

Note that exclusion is different from exploitation. The exploited create riches for someone. But, to borrow a distinction from the Harvard University economist Ricardo Hausmann, the poverty of those excluded benefits nobody. They are simply no part of the Peruvian or world economy, and the fixed costs that would need to be incurred to include them, in terms of physical and social infrastructure, are too high for anyone with money to pay them.

John Authers, “Peru rebirth illustrates the China effect“, Financial Times, 10 October 2015 (metered paywall).