Deactivating Facebook, and taxing its founder instead

Afternoon all,

We start this week with reassuring news for anyone scared about heading to a special place in hellbecause they haven’t got a Brexit plan – you won’t be lonely. No one else has one either.

To increase the positivity we want to clarify that there’s a special place in RF heaven for any of you that don’t have a plan for this weekend – because it’s you we’re here to help, with this week’s selection that roams from deactivating facebook to taxing its founder, and back to Brexit.

Enjoy heaven/hell/the weekend,

Torsten Bell,
Director, Resolution Foundation

$100 Facebook. Facebook turned 15 this week, and like all stroppy teenagers its birthday was a good excuse for a row. Not about whether it could stay out late, but how much we value the free service and what it’s doing to our collective wellbeing. New research asked Facebook users how much they would need to be paid to deactivate their account – around $100 a month was the answer, indicating quite a large welfare benefit to users from the free platform in terms of instant access to both news and reasons to be jealous of our friends’ holidays. But, because nothing is simple in life, the results also found evidence of genuine wellbeing improvements for users who DID deactivate Facebook. It’s almost like us humans are prepared to spend money on things that are bad for us…. who knew.

Founding females. Not great news on the gender gap in British business this week. A new, government commissioned, study into obstacles female-run firms encounter accessing venture capital showed that less than 1p in every £1 of venture capital goes to firms run by women alone. And before you think this is good news about lots of gender balanced founding teams, 83 per cent of the cash is going to teams including exactly zero women. Chief Secretary to the Treasury Liz Truss touched on the report at an RF event earlier this week, when she wasn’t tearing into the nanny state for having a view on the correct size of a pizza – check out the video.

Working the wealth. It’s a boom time in the States if your thing is proposals for higher taxes on the top. We touched briefly on the top income tax rate row a fortnight back, but the action has now moved to the wealth front (this is action in the declaratory sense – nothing is actually happening. Obviously). Contender for the 2020 Democratic presidential nomination Elizabeth Warren wants a 2 per cent tax on wealth above $50m, cranking up to 3 per cent over $1bn, to bring in revenue in the order of 1 per cent of GDP. That’s not to be sniffed at. The New Yorker’s keen, as is (some of) the FT. Billionaires slightly less so. The goal is to bring cash in but also to encourage the wealthy to invest their wealth in riskier/more productive activities by making it expensive to leave the cash in the bank – in this regard the tax is a bit like slightly higher inflation. We support a bigger focus on wealth taxes – but in the interests of balance here’s a word of caution about assuming that importing this idea to the UK will solve all our fiscal needs. First we’re not the US so the behavioural response may well be bigger. Partly that’s literally because we’re smaller, but also because in the US you’d have to renounce citizenship to avoid the tax, whereas ending residence is enough to do the trick over here. Secondly, and more importantly, our wealth inequality is much lower than the US, or even Germany, so if you want to raise loads of money from wealth over here then taxing just those with over $50m isn’t going to cut the mustard. One thing that would work both here and in the US is to stop being so stupid as to cut inheritance taxes…

Japan leads the world. Twenty years ago this month Japan looked like an extreme economics experiment, taking interest rates to zero and then later introducing something even more extreme – quantitative easing. This long(ish) read gives you the Japanese backstory to polices that seemed extreme at the time but that the financial crisis turned into the bread and butter of macro-economic policy making. Worth a read.

Chart of the Week
This was the week that the Bank of England went very gloomy on the short term future of the British economy, downgrading their growth forecast to 1.2 per cent this year. If that happens it would be the slowest growth since the financial bit of this whole decade long crisis back in 2009. Now clearly making forecasts right now is a mug’s game (which future are we forecasting?), and hopefully the Bank are wrong (in the right direction) – but whatever you think of the forecast there was also lots of hard data in the Bank’s report this week, including today’s Chart of the Week. It shows painfully well the flat lining of investment recently – and to rub it in shows that after previous recessions we’ve been well and truly into the next investment boom by now. On Monday we’ll be looking into what this all means for household incomes. And If you want to hear more from the Bank on the state of the economy we’re hosting a major speech by MPC member Jan Vlieghe on Thursday.