On the rich

The rich are different.

F. Scott Fitzgerald

Yes, they have more money.

Ernest Hemingway

So here is a news story which you almost certainly haven’t come across, and which you probably don’t care about unless you’re Spanish. But stay with me: there is a larger point to this.

Now Spain is organised in a slightly eccentric way, in that a good deal of political power is decentralised to what are known as communidades or communities. These communities are on quite a large scale; Catalonia, for example, is a communidad. This is partly because the present Spanish constitution was devised in reaction to the preceding regime of Generalissimo Francisco Franco, who was very much of the opinion that everyone in Spain should do exactly as Madrid told them to, or else. Interestingly, Franco himself hailed from one of the more marginal regions of Spain, Galicia, an area which has, amongst other things, its own language – which he was very keen to suppress. The same could also be said of Catalonia, Valencia, the Basque regions… you get the idea. There’s a reason why the Spanish national anthem is an instrumental.

The current hot topic in Spain is property taxes. Madrid, which together with its surrounding area constitutes another communidad, decided to remit them. Andalucia, which is one of the poorest regions of Spain, has now decided to follow suit, with the explicit goal of attracting rich people to go and live there (they are targeting a figure of 7,200 – I have no idea how they arrived at this). Curiously, this exemption is only to apply to properties worth more than €300,000, because apparently it’s okay to tax poor people. The even hotter news, as I write this, is that another poor region, Murcia, wants to follow suit.

None of this, as you may imagine, is going down particularly well with the government in Madrid. There is, as you may also imagine, a party-political dimension to this, which I don’t propose to explore here. My point is rather how strange it is that attracting rich people to your area is considered to be a desirable goal.

After all, most people don’t set out to attract rats to come and live in their house. It’s not that it’s hard to accomplish; the rats are all out there looking for opportunities, really. They will come to you, no questions asked. The rats are quite clear about what they will get as their side of the bargain. What I want to explore here is: what is to be had on the other side?

Because what can we say about rich people? As Hemingway pointed out, they have more money. As the government of Andalucia has noticed, this is at least in part due to their ability to avoid getting taxed. (Notice there how I said “avoid” – because, in the UK anyway, tax avoidance is completely fine, it’s tax evasion that gets you into trouble. Notice also the fact that avoidance and evasion are actually synonyms. Did rich people get to write the UK tax code? Blimey!)

But not getting taxed isn’t really a superpower. In the UK, again, there is what is known as the personal tax allowance, which at the time of writing stands at the princely sum of £12,570. If you earn less than this per annum, you will pay no income tax. Then again, you won’t be very rich either. I am guessing that these are not the kind of people whom the government of Andalucia is anxious to attract. Goodness knows they get enough yobs from the UK coming over every summer, burning to a crisp on their beaches and vomiting in their streets. Not exactly Jay Gatsby

So what is it with the rich? Well, there’s a thing I like to call the Gates paradox. It’s called that on the assumption that Bill Gates (a.k.a. Kermit the Frog) is the richest person in the world – I don’t actually know who that is supposed to be right now, so humour me and assume it’s Bill. Now let’s say Bill Gates goes into a bar. Any bar, just the kind of bar you can find anywhere. Your local bar, let’s say. I’m sure you have one. The odds of Bill strolling onto mine are pretty remote, and probably yours too, but, as I say, humour me.

Here’s the thing: the average (mean) income of everyone in that bar has now increased to the point that everyone in there is a millionaire. Yes, even the loser playing the fruit-machine who has never had a regular job. Even you, dear reader, assuming you’re in there, and it’s your local bar so why wouldn’t you be?

And then at some point Bill Gates walks back out of the bar. Is everyone in there still a millionaire? No, and of course they never actually were. There was never a moment when the loser at the fruit-machine could have bought a yacht on the strength of Bill/Kermit getting in a pint of Kronenbourg 1664 and a packet of cheese and onion (other beers are available). It was an artifact of the mathematical definition of a mean, and never something you could take to the bank.

None of this is of course remotely surprising. But somehow we are all supposed to believe it at the macro-economic level. It’s called trickle-down economics, and it has been repeatedly shown not to work. After all, if it did, a lot more ought to have trickled down by now. So even if 7,200 rich people were to flock to Andalucia, I very much doubt there would be the positive effect on the local economy that the Andalucian government expects, or is at least cracking it up to be.

For one thing, even to the extent that 7,200 rich people go to live in Andalucia, how much money will they actually spend locally? Sure, there might be some upturn amongst the local cocaine dealers, but those guys don’t usually pay much in the way of taxes. Then of course there will be people who “reside” in Andalucia for tax purposes but actually spend most of their time – and money – elsewhere. There will be some additional input, I’m sure, but it’s reasonable to question whether it will make up for the loss of revenue that’s baked into the cake. The losses are readily calculated; the gains are speculative.

This only looks like a good idea if you assume that speculation pays – not, of course, in every case, but in general. I don’t think that is a good bet. It was a good bet back in the day, maybe, but this is a really, really bad moment to go in for a game of pitch and toss. In case you hadn’t noticed, things are not exactly on the up.

There is a comforting phrase that is often bandied about that “a rising tide floats all boats.” This has always tended to conceal the fact that some boats are mysteriously more buoyant than others, but in any case it can have no relevance at a time when the tide is manifestly going out. And as the notorious swivel-eyed lefty Warren Buffet famously said: “Only when the tide goes out do you discover who’s been swimming naked.”

In the next few months and years we shall certainly be seeing a few bare arses. It would be nice if this didn’t impact too much on the well-being of the good people of Andalucia, but I am afraid it will. And on many more of us, wherever such lies are told.

Comments are welcome, but I do pre-moderate them to make sure they comply with the house rules.

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