Would People Boycott Google and Amazon over Tax?

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Following on from a recent post about companies who avoid paying tax. It’s interesting to try and understand why some companies have been much more vulnerable to protest about the issue – but some companies seem almost insulated from protest.

For examples, Starbucks has been hit by high profile boycott. Protesters from UK Uncut have been making their voice heard both outside and inside Starbucks across the country. (It has proved good news for Costa, who have recorded a record jump in sales over recent weeks – Costa attract 4m customers a week at Guardian)

It seems there is a certain receptivity to boycotting a high street coffee shop like Starbucks. In Oxford, if you don’t want to go to Starbucks, there are three Costas all within a couple of minutes walk. As a result of the furore over tax payments, Starbucks brand image has definitely  been adversely affected. According to Market research, Starbucks is now less trusted than Parliament (link) and only slightly  more than News International.

respect-starbucks

However, interestingly, Amazon has been much less affected by the fallout than Starbucks. It’s much harder to organise a boycott of online companies. It’s more fulfilling to go on the high street and offer a physical protest. As a customer, there is a strong incentive to join in the boycott.

But, while we are happy to walk a few extra metres to buy a different coffee,  when it comes to the new monopoly Goliath’s of the modern age – Amazon and Google, would people feel strong enough about tax avoidance to look for alternatives?

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How Important are Credit Ratings?

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Readers question: What will happen if the UK has its credit rating reduced from AAA to AA?

Do you remember all those sub-prime mortgage bundles which caused the credit crisis? These mortgage bundles which later proved to be almost worthless were, for a considerable period, given a AAA credit rating by rating agencies. Even Greece, now on the verge of insolvency, maintained an A credit rating until May 2009. (Bond yields at Datosmacro) What did a credit rating of A mean for Greece? It meant the credit rating agencies didn’t really know what was coming quite soon. (nor the rest of the market either)

Credit rating agencies have no greater ability to predict future defaults and financial flows than anyone else in the market. Someone once described fiscal policy like driving a car by looking out of the rear view mirror. (You can only look at past data.) To some extent, it’s the same with credit rating agencies. They are looking at data taken from the past.

If a credit rating agency moves a country from AAA to AA-, it doesn’t really add any extra data to investors and buyers of bonds.

Because credit ratings are a highly visible signal, they can perhaps gain more political importance than they perhaps deserve. A triple AAA credit rating sounds good. Plus, it’s much easier to explain to the public than the ‘merits of expansionary fiscal policy in a liquidity trap’.

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Wages Declining as a Share of National Income

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The ILO recently produced their growth and wages report for 2012/13. This suggested that across the developing world, labour markets are being characterised by falling real wages and a decline in labour’s share of national income. In particular:

  • Real wage growth has been flat – even negative in the past few years.
  • There is an increasing gap between productivity growth and wage growth. Wages are not rising along with productivity.
  • Wages are becoming a smaller share of national income.
  •  In 16 developed economies, labour took a 75% share of national income in the mid-1970s, but this has dropped to 65% in 2007.  It rose in 2008 and 2009 – but only because national income itself shrank in those years – before resuming its downward course. (Wages in developed world shrink at Guardian)

Real Wage Growth

real-wage-growth-world

It is common to refer to the low wages of China, but wages in China have roughly tripled in the past decade – meaning China has one of best wage growth rates in the world.

However, if we look at just developed economies, we see even lower wage growth.

Real Wage Growth – developed economies

real-wage-growth-developed-economies

The global credit crisis has also resulted in increased inequality. Wage income is declining as a share of overall national output. Improvements in labour productivity are not being matched by real wage growth. This graph below shows the increased divergence between wage growth and productivity.

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How Valuable is the Oxbridge Interview Process?

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radcliffe camera

It’s the time of the year, where here in Oxford we see an influx of nervous Oxford interview applicants. It brings back ever-distant memories of when I had an interview for PPE back in the mid 1990s. It was quite exciting and at the same time nerve racking. My own interview was quite mixed. Politics and economics seemed fairly reasonable. Philosophy was impossible. But, my inability to understand philosophic logic didn’t stop me from being admitted. In a way the interview was actually a pretty good guide to how I did at Oxford. Scrapping a pass in philosophy in the first year. But, after being able to concentrate on economics and politics in second and third year, I did quite well.

Apart from going a complete blank in my philosophy interview, I don’t have too many memories of the interview process. I tend to now look back on it with rose tinted glasses. I think coming to Oxford was quite exciting compared to going to school in Bradford. (no offence to my Yorkshire roots, but as a city, Oxford is just a little more beautiful)

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Triple Dip Recession in UK Likely

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Unfortunately, despite the post-Olympic bounce in GDP, other aspects of the UK economy look pretty grim. In manufacturing and industrial output, there has been no real recovery. In manufacturing it is not so much a triple dip recession – more a prolonged double dip. Manufacturing output is  2.1 per cent lower in October 2012 compared with October 2011;

uk-industrial-production

Source: ONS

Looking at data since 2007, we see a similar pattern to GDP.

annual-manufacturing-industrial

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UK Budget Deficit Forecast Dec 2012

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Source: OBR Dec.2012 Public sector net debt as % of GDP is forecast to start falling in 2016-17. The OBR forecast a decline in public sector net borrowing to 5.1% of GDP in 2012/13. Before increasing to 6.1% of GDP in 2013/14 Part of the decline in the budget deficit 2012/13 can be attributed to …

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Causes of US Budget Deficit

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This graph illustrates some of the different causes of the US budget deficit.

causes-us-budget-deficit

Source: CBO estimates 2012 | via Krugman

This shows how the deficit has been affected by certain issues.

Cyclical factors

  1. Cyclical spending and lost tax revenues due to recession.
  2. Expansionary fiscal policy (economic recovery measures)
  3. Financial intervention to bailout banks and financial institutes.

Structural Factors

  • Bush tax cuts
  • Cost of wars (unexpected spending)

The particular graph doesn’t show other factors affecting the budget deficit, such as growth in health care spending, the cost of social security and factors related to an ageing population. But, it is interesting to see $0.9 trillion of the 2009 deficit (roughly 75%) was caused by cyclical factors.

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Who Benefits from Quantitative Easing?

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Quantitative easing is a process where a Central Bank creates money electronically. It uses this new money to purchase assets and bonds (mostly government bonds) from commercial banks and financial institutions. For more see: Quantitative easing explained Quantitative Easing has helped many holders of government bonds who have benefited from selling bonds to the Central …

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