Wednesday's Top 10 with NZ Mint: The myth that the rich flee to low tax countries; WalMart's ugly start to Feb; Tom Waits; What Chinese people really think; The currency wars of the 30s actually worked; Dilbert

Here's my Top 10 links from around the Internet at midday in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to

See all previous Top 10s here.

My must read today is #9 on what's really going on in China for the people on the ground. 

1. The myth of the rich who flee their taxes - James Stewart writes at the New York Times about the idea that high tax rates simply drive the wealthy 'wealth creators' over the border to a country or state with a lower tax rate.

Gerard Depardieu's high profile flight to Russia's 13% flat tax rate after France imposed a very high tax rate on the very wealthy certainly grabbed the headlines.

We've had a few people say the same here.

But is it true?

Do lots of people actually move for tax reasons?

It turns out not to be the case.

Here's Stewart:

It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away. As Stuart Varney put it on Fox News: “Look at what happened in Britain. They raised the top tax rate to 50 percent, and two-thirds of the millionaires disappeared in the next tax year. Same things are happening in France. People are leaving where the top tax rate is 75 percent. Same thing happened in Maryland a few years ago. New millionaire’s tax, the millionaires disappeared. You’ve got exactly the same thing in California.”

That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.

Despite the allure of low taxes, Mr. Depardieu hasn’t been seen in Russia since picking up his passport and seems to be hedging his bets by maintaining a residence in Belgium. Meanwhile, Russian billionaires are snapping up trophy properties in high-tax London, New York and Beverly Hills, Calif.

“I don’t hear about many billionaires moving to Moscow,” said Robert Tannenwald, a lecturer in economic policy at Brandeis University and former Federal Reserve economist. Along with Nicholas Johnson, he and Mr. Shure are co-authors of “Tax Flight Is a Myth,” a 2011 research paper.

2. WalMart's monthly sales disaster - Bloomberg reports early February has been very tough for some retailers in America after an increase in payroll taxes. It's early days, but worth watching.

“In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal- Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.”

Wal-Mart and discounters such as Family Dollar Stores Inc. are bracing for a rise in the payroll tax to take a bigger bite from the paychecks of shoppers already dealing with elevated unemployment. The world’s largest retailer’s struggles come after executives expected a strong start to February because of the Super Bowl, milder weather and paycheck cycles, according to the minutes of a Feb. 1 officers meeting Bloomberg obtained.

3. 'Don't hike corporate tax rates - Just hike investment income taxes instead' - That's the view of Bloomberg in this editorial

Tax competition may sound like anarchy, but there’s more to be said for it than you might think. International companies have so much discretion in allocating costs and revenues across their dispersed units that the corporate tax base is unavoidably slippery -- all the more so when governments promote that very slipperiness in an effort to attract investment.

Why fight it? The best strategy to deal with international tax avoidance is what we have recommended: Cut corporate taxes and increase taxes on individual investment income (dividends and capital gains) instead. It’s much harder for individuals to arbitrage away their tax obligations than it is for companies operating across borders. This way, corporate profits are still taxed -- but on a simpler, less distorting basis than the typical corporate tax code provides.

4. If only we could devalue - New Zealand and Britain had a much better Depression than the likes of France, Germany and America. That's because New Zealand, which was connected to the British pound at the time, withdrew from the gold standard and devalued before the rest. France hung grimly on the gold standard and got hammered.

Currency wars work when not everyone joins in and you're the first to fire. The losers are the ones sit naively in the middle of the battle choosing not to fire back.

Here's a chart courtesty of The Economist showing how well NZ and Britain did.

5. What actually happened in the 1930s - Here's Berkeley Economics Professor Barry Eichengreen looking at what happened in the 1930s. 

Those against currency manipulation routinely point to the 'failure' of the tit-for-tat currency devaluations and trade controls imposed in the 1930s.

But did they really fail?

Eichengreen reckons not.

Currency wars, the allegedly beggar-thy-neighbor policies undertaken by central banks of depressed economies, are widely criticized for worsening the world’s economic problems in both the 1930s and today. Better, it is argued, would have been for policy authorities in troubled economies to refrain from measures that simply shifted problems onto neighboring countries and instead to have coordinated their responses. The same implications are drawn from both experiences. Indeed, the history of the 1930s is widely invoked by those warning of the dangers of modern-day currency wars. The analysis here suggests that the history is more nuanced and that more care should be taken in carrying over the lessons of the 1930s to today.

In the 1930s, when the countries concerned all experienced an essentially symmetric deflationary shock, what are now referred to as currency wars were part of the solution, not part of the problem. Reflationary policies were needed all around. Under the institutional circumstances of the time, these were achieved by depreciating currencies against gold and hence against the currencies of other countries still on the gold standard. By the second half of the 1930s, global reflation was underway as a result of what was essentially a full round of these so-called beggarthy-neighbor exchange rate changes and the policy initiatives they made possible. 

6. How about a guaranteed minimum income? - Here's Matthew Yglesias at Slate talking about this idea instead of an increase in the minimum wage. This is an idea Gareth Morgan is keen on.

I still think minimum wage regulations are far from optimal. The real policy mix you're looking for is a blend of wage subsidies (to encourage work) and something like a Guaranteed Basic Income program that just hands out cash to people regardless of what they do.

A GBI helps people by giving them money, obviously. It also serves as a kind of de facto minimum wage, since if people can earn money doing nothing in practice you're going to need to offer them higher pay to get them to work. But it's much more flexible than a minimum wage. In a GBI world, an employer has to make work somehow appealing enough to get employees even though everyone's guaranteed a basic minimum whether they work or not. But that "appealing" factor could be high wages, could be valuable skills and training, could just be a pleasant work atmosphere, or could be some combination of the two. Current minimum wage policies sort of try to achieve these goals by having exemptions for educationally rewarding internships or vocational programs. But these exemptions manage to be simultaneously too prone to abuse and too inflexible to capture the full range of possible scenarios that arise in human life.

7. 'Digital capitalism produces few winners' - John Naughton poses some uncomfortable questions at The Observer about the enormous profits now being posted at Google, Facebook, Amazon and Apple, but how staff don't seem to benefit much (as opposed to the executives). Plenty of profits, and not many jobs. And the jobs that are there aren't always a lot of fun...

The really tough question that none of these companies really wants to answer is: what kinds of jobs exactly? Anyone seeking an insight into this would do well to consult a terrific report by Sarah O'Connor, theFinancial Times's economics correspondent. She visited Amazon's vast distribution centre at Rugeley in Staffordshire and her account of what she found there makes sobering reading.

She saw hundreds of people in orange vests pushing trolleys around a space the size of nine football pitches, glancing down at the screens of their handheld satnav computers for directions on where to walk next and what to pick up when they get there. They do not dawdle because "the devices in their hands are also measuring their productivity in real time". They walk between seven and 15 miles a day and everything they do is determined by Amazon's software. "You're sort of like a robot, but in human form," one manager told Ms O'Connor. "It's human automation, if you like."

Still, it's a job. Until it's replaced by a robot.

8. China's corruption culture - The FT's Simon Rabinovitch and Kathrin Hille do a great job in this piece fleshing out the details of China's endemic culture of corruption.

China’s lunar new year holiday is the busiest time of year for the Zhengzhou East long-distance bus station. But officials in Shuyuanjie village, the district that owns it, complain that every bus rolling out of the station is a reminder of the revenue lost through corruption. Fan Jianhui, the local Communist party secretary, has seized control of the station to run as his private business and despite street protests and complaints by local officials, there has been no investigation into his activities.

“The current campaign-style fight against corruption is not sustainable,” says Wang Yukai, a professor at the Chinese Academy of Governance, a top training institution for cadres. He says there are too many separate institutions tasked with fighting graft under the party, the police and the judiciary, and many probes get stuck in this thicket. Those complaining about corruption in Zhengzhou agree. Local officials have spent more than a year reporting Fan Jianhui to the party’s internal corruption watchdog, to its department in charge of personnel issues, to the police and to the local prosecutor’s office – without any result.

9. What Chinese people really think - China Economic Review reports on the work of Economist Gerard Lemos in China. He asked regular people very simple questions about their hopes, dreams and fears in a systematic way. What he was told was surprisingly dark for a country that has been the most outwardly successful in the world in the last decade. There's a lot of talk about lifting 300 million people out of poverty. But are they happy with their lot?

For the hundreds of millions of Chinese migrants who live in the purgatory between rural and urban life, contemporary China is a soured amalgamation of economic experiments. During the all-encompassing rule of Mao Zedong, which stretched from the founding of the People’s Republic in 1949 to Mao’s death in 1976, most Chinese were members of a work unit, where food and resources were distributed somewhat evenly. Chinese received medical care and compulsory education. The government allocated land, housing and employment. “This was the 'iron rice bowl': It never broke regardless of how often it was dropped. But it is broken now,” Lemos writes.

As the most inefficient state enterprises broke down in the mid-1990s, tens of millions of people lost their jobs yet failed to qualify for benefits. In Chongqing's Banshan Ercun neighborhood, respondents who had been laid off at a state-owned tire factory were particularly anxious about how they would afford medical bills and their children's education expenses.

The cost of education is a heavy burden on parents in China, especially for farmers hoping to see their children shake off the yoke of the rice field. Education bills can eclipse up to half of the annual earnings of many migrant households. Add that to health care costs: In some communities, residents pay a yearly health care fee, a US$128 charge for people making as little as US$33 per month, according to Lemos. Elderly people were frightened that neither they nor their children could get proper health care.

10. Totally Tom Waits doing his thing. HT Waymad for pointing to this song in yesterday's comments. Waits is a better poet than Dylan. Standing back. Touchpaper lit.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Most wealthy people gain wealth thru favourable tax concessions.
As Woodrow Wilson said
'Big business is not dangerous because it is big,but because it;s bigness is created by privileges and exemptions;
Gerard Depardieu didn't flee France for tax reasons he left because they had run out of booze.

Bernard, i hate to bring this up but............
Did you see Campbell Live last night? 200 Christchurch people all gathered together to complain about the tens of thousands of dollars they are loosing on their sections
I said to the wife "Hey, we have to watch this. This is what Bernard has been going on about. All those winging winning baby boomers who own and are sitting on all the sections. How those sections should be taken off them as they are stopping the younger generation from getting a home"
Well, blow me down, they were all in your age group Bernard. What a shock, not a single baby boomer amongst them.
The wife said "didn't Bernard just sell his place for over a million? Well, its his age group that have all the wealth that they complain about"

Many thanks. I've never said baby boomers were sitting on the sections. I've talked about established large houses in the suburbs.
I can understand why sections owned by first home buyers and mostly young people.
And who made the decision to force them to take a 50% loss? An older generation.

"International companies have so much discretion in allocating costs and revenues across their dispersed units that the corporate tax base is unavoidably slippery -- all the more so when governments promote that very slipperiness in an effort to attract investment."
The can't dodge a flat turnover tax with NO claims for deductions. But first we have to get rid of the corrupt pollies.

"A flat turnover tax with no claim for deductions". You are so right.
Next  thing I want to see is people acknowledging that the Banks have created the housing boom  when they "printed" all those loans.  It is not a shortage of land.  It is not all these rich immigrants and foreigners.  It is the Banks who caused the problem.

No, we happily loaned off the banks to feed our own greed. 

#1 - There is an enormous difference between the Rich and those who were discussed in the "Tax Flight is a Myth" paper.
Wealthy people create wealth - they invest and develop business growth.
#3 - Displays poor knowledge of business structures, taxation and how the Corporate owners operate.  The article makes the assumption that it is only individuals who invest in shares etc - very naive piece of works.
#4 & 5 - Always trying to find reports that fit your thinking Bernard. You might want to educate yourself on the history of this period. NZ did not have it's own Reserve Bank when the depression started and the RBNZ wasn't formed until 1934. You might also wish to inform yourself on the issues of currency that circulated throughout NZ and what was actually traded. Follow this up with some education on when the NZD became legal tender.
More questions you should ask BH - What happened to the internal economy when the devaluations occurred? Job losses galore - because no one could afford to employ.  Imports become more expensive, people cut back on every type of expenditure, mortgagee sales everywhere etc. You only have to look at the 1980's to understand what happens. The NZD was devalued in 1984 by the Lange Government - the proverbial hit the fan in 1987 - WHY? Basically the whole country ran into a liquidity problem the devaluation had sucked the economy dry. Government debt was high the IMF started throwing its weight around etc.
BH - I cannot understand for the life of me why you would want to inflict such enormous economic harm on the populace of NZ.  Everyone knows that the NZD is high and everyone knows it is causing damage to the exporters. Exporters will have to explore every avenue and possible restructure in some form.

#3 ultimately there's an individual shareholder that has ownership of a company, even if other companies own companies.
But by taxing individuals, companies will hoard cash. We see that already in the US, e.g. Apple cash hoarding so now there's $250 per share in cash.

BH - I cannot understand for the life of me why you would want to inflict such enormous economic harm on the populace of NZ.
Controversy. Many "journalists” want to be seen as "controversial", hence the persisting write-ups on such subjects as inter-generational antipathy, new taxes of all sorts, money printing, drastic predictions of market crashes, etc., etc.

notaneconomist re your comments on #4 & 5

Of course there were job losses and hard times in the 30's and 80's. This had nothing to do with the NZD devaluation and everything to do with major global financial crisis/depression going on at those times. The NZD devaluation cushioned the blow and explains why we bounced back so well, how you can imply it was the cause of our problems and therefore BH is wrong defies belief.

Julz - you are misunderstanding the issues.  NZ suffered a balance of payments crisis in the 1980's which led to the 1984 devaluation. The link below shows the unemployment rates in NZ, you can see when the rates of unemployment start to increase during the 1970's leading into the balance of payment crisis and then escalate throughout the 1980's.
You will find similar affects in the 1930's depression if you bother to take a look.

My point is the devaluation was the way out of the mess not the cause for being in the mess to start with.
I'm not questioning any of your reasons for why previous devaluations happened.  But rather given it was part of the solution for setting things right back then why do you assume it would be a bad thing now?

So you are saying un-employment rose because the balance of payments deteriorated? so cuase and symptom, rather than 2 symptoms caused by others things? 

Energy. Thats all it really is all about, as they are about to find out in the UK:
If you think the NZ$ is strong against Stirling now just wait till the energy shortage meme eventually sinks into the thick skulls of the media and the economics profession. As the Saudi Arabia of renewables (tongue only slightly in cheek) our position relative to many other nations is going to seem incredibly fortunate by the 2020's (providing we dont screw it up by importing another few million in population).

I find it unbelievable that the U.K., which had enormous supplies of both North Sea oil and gas, have just pissed it away in a few decades and in the near future will become dependant on foreign energy supplies.  It has now come down to the Conservatives blaming the previous Labour Government, while the fact is that both political parties are both clueless when it comes  to energy policy.  

I'm curious, why do you find it unbelievable? You exploit a finite resource and eventually it runs out. UK are finding that out the hard way, except now they are burdened with a large population and declining natural resources. Good times await!
Great graph, says it all.

We repatriated all our UK assets in the period 2005-2007 (everything, pensions the lot), as is was pretty obvious even then that the UK's economy was going to get crushed and Stirling with it. North Sea energy has kept their economy afloat for 20 years (well that and the national credit card which has been maxed out) and now it is impossible to see any happy scenarios for a nation with a declining resource base, which imports vastly more than it exports and which is grossly overpopulated. The powers that be in NZ should be watching and learning from the unfolding disaster that is the UK economy; but are they paying attention?

Nah, just think of the rubbish spouted in The Herald about how we need 15 million people to achieve 'economic prosperity'. I am astounded at the stupidity of some people!
When all of the scientific research points towards declining net energy, resource shortages, increasing food and water scarcity (not to mention AGW) then the writing really is on the wall for anyone with half a brain to see.
Economic growth afterall is the fruit of human labour; the result of human beings doing work and - as any physicist will tell you - energy is the ability to do work. Our politicians (like Benard and many others) are blinded both by short-termism and by a focus on the monetary token rather than the energy reality. They have yet to recognise the real problem, oh well, we can only live in hope.

Quite agree, Andy. Compare with Norway, similar oil deposits but much smaller population and now one of, if not the highest standards of living in the world and a massive sovereign wealth fund as well.
What do the Brits do? Build a dependancy culture and fill the place up with immigrants. The only things keeping the thing afloat was North Sea oil, debt and the now totally despised and discredited finance sector - the City of London Spivs. Now they are heavily dependant on imported energy, food and almost all hard commodities - how dumb can you get. 
I used to have a bit to do with immigrant Pommies as part of my job - this was before TSHTF. Always curious as to what prompted the big move down here. One guy said it was  " 'cause the place (UK) was full of immigrants" Obviously couldn't see the irony but then a lot of them still believe we're an English colony,
Quite funny. I'm sure my Scottish, Irish and Maori ancestors would think it hilarious. They steal land and butcher the former inhabitants all over the world and here they are getting disposessed from within. 

North sea was expoited as quickly as possile under Margaret Thatcher, Grey John...cant blame Labour at all.   The only place I know off hand that actually took the right path was Norway....

Thanks BH - Tom W is a favourite (although with a backlist as long as his, there's the inevitable dross along with the pay dirt). 
#9 - I'm interested in the reports because I saw a Chinese artists' exhibition a year or three back at Battersea power station (first time it had been open to the public in 25 years).  There was a lot of darkness there, too.  Cage (like a gabion) filled with rotting apples.  Clashing audio sounds.  And so on. 
Of course the power station is a shell:  still magnificent in its way but very much a modern ruin, and not a little haunting. 
So I got a direct sense from all that, of how the artists are reacting to China currently (artists tend to pick up vibes decades to years before the rest of us).  Hope and fear, well mixed.
So did others (pictures, too....)

Cheers Waymad

My understanding about currency sheanigans in the 1930s was that it all started in the 1920s. Winston put Britain back on the Gold Standard in the 1920s at far too high a rate (all that Empire stuff rather went to his head) and the US and France at far too low a rate. Consequently the US had the Roaring Twenties and Britain had the General Strike (nearest thing to a revolution).
Payback came in the 1930s when the US had a bigger bust too.
Somehow the Brits lost track of the fact that their wealth was based on trade, not on Empire. To this day they still suffer from delusions of grandeur and adopt a cargo cult thought process to wealth. The Empire came as a result of wealth, not as a cause.

#7 Enormous profits at Amazon? Do you know how to read a balance sheet?

Amazon is loss-leading with the Kindle Fire at the moment. Short term thing.
Amazon’s net income fell a whopping 96% to $7 million in the second quarter.  The company earned one cent per share, a penny away from the two cent consensus estimate.  Still, the decline in Amazon’s profits is part of a strategy by Jeff Bezos to sacrifice current earnings in order to reap higher profits in the future.