Pakistan Tehreek-e-Insaf’s (PTI) leader, Imran Khan, has made this a central plank of his economic policy. Many feel that such reforms are impossible in a country like Pakistan, and historically, many governments have indeed failed at such reforms. However, I believe that this task is most certainly within the realms of the possible, and will explain below various, relatively simple steps that can be taken to achieve this goal.

When approaching this issue, the first question we need to ask is: why do Pakistanis not pay taxes?

First, there is a strong, and quite well-founded belief, that a large part of the tax collected will not be spent on the welfare of the public at large, but rather on the politicians’ personal needs/wants, or the needs/wants of these politicians’ favourites.

Second, due to the above problem, people simply do not expect that paying taxes will lead to any increase in the quantity and quality of public goods and services provided by the state. Hence, they have nothing to gain from paying taxes.

The solution to this problem, while obviously not easy, does not require any new fundamental breakthrough in technology or human thinking in general. Decent governance, careful planning, and honest work are all that’s needed. While one has to admit that even these relatively basic changes will take time in Pakistan, it’s nevertheless nothing that cannot be done. It’s simply a matter of will, and time.

What must a government do to achieve this goal?

First, make clear, credible promises for improvements and increases in public goods and services: infrastructure, public transportation, education, health, social security. If people see improvements in their standard of living by paying taxes, they’ll be more inclined to pay.

Governments should show people that if they pay more through taxation, then their expenses will be reduced by the state, in some way, through cheaper education or healthcare, for example. Hence, taxes won’t simply be reducing the disposable incomes of people, but also a way of increasing the disposable incomes, through a reduction in expenditures on private purchases of traditionally public goods and services. This is directly linked to the above point on higher, better provision of public goods and services.

Second, governments should be more transparent about how much tax is collected, from whom it is collected (geography, profession-wise), and where it is eventually spent. This will instill greater confidence among the public in the government’s initiatives, such as the ones listed above. It can also be useful in ensuring greater equality in terms of the tax burden, so that one powerful group does not evade taxation easily, while the less resourceful continue to pay fully. This is in fact the situation right now.

Third, ensure that filing in taxes is easy, and that help is available for those finding it difficult. Make tax evasion hard in the first place. This is can be done by ensuring cross-checks between various data between agencies, and different levels of administrative (local, provincial, federal, etc). Penalties for tax evasion must be swiftly implemented without fear or favour. An honest, competent bureaucracy, including the police service, would be a great help here.

Currently, the penalty for not paying tax is not high. Some groups simply aren’t touched as they are seen as too close to those in power, and others as being too powerful in themselves (some professional groups with strong unions, for example). Otherwise, you simply pay a bribe to get out of paying taxes.

Fourth, reduce the tax burden on the lower and middle classes. This can obviously be done by lowering the income tax rate, but also by shifting the focus of taxation from indirect, consumption taxes to wealth taxes. Such a reduction, from a pure tax collection perspective, can be beneficial by giving people a much greater incentive to pay tax, instead of trying to evade it. It’s very much possible that the government may collect more tax revenue at lower rates but higher compliance, as compared to higher tax rates, but higher evasion as well. If all imposed taxes are paid, the result will also be a more equitable situation, as the ‘resourceful’ won’t be able to dodge the taxes at the expense of the ‘poor’.

Fifth, increase the tax net to include untaxed and low taxed activity, such as agriculture.

Apart from the above measures, the government can sell these reforms by explaining to the people that the high rate of inflation is due to some fundamental issues in the agriculture market, some malfunction markets (cartels) and the state bank printing too much money. The last problem can be dealt with by reducing money printing through higher tax revenue and a reduction in borrowing needs. A major problem of the government and the public will be solved this way. This will provide yet another boost to the purses of ordinary Pakistanis.

On a more purely political front, this initiative can be linked to ensuring that Pakistan is sovereign, that it can pursue its own interests domestically and internationally without fear that its arm can be twisted by countries providing any aid. These measures, if carefully, clearly and systematically implemented should most certainly ensure that Pakistan collects more tax and governments are truly able to serve the people. It is simply a matter of will. One simply requires optimism of the will.

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The Real Solution is Growth - Daron Acemoglu

Rethinking Macroeconomics - Jeffery Sachs

How Did Economists Get It So Wrong? - Paul Krugman

The Crisis on 2008: Structural Lessons for and from Economists - Daron Acemoglu

An Agenda for reforming economic theory - Joseph Stiglitz

Has financial development made world riskier? - Raghuram Rajan

Apparently, you can never have enough…

HT to Professor Perloff.

In Silicon Valley, Millionaires Who Don’t Feel Rich

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“When you make your own sandwich, you anticipate its taste as you’re working on it. And when you think of a particular food for a while, you become less hungry for it later. Researchers at Carnegie Mellon University, for example, found that imagining eating M&Ms makes you eat fewer of them. It’s a kind of specific satiation, just as most people find room for dessert when they couldn’t have another bite of their steak. The sandwich that another person prepares is not “preconsumed” in the same way.”

The time has come for sick people to be able to reach hospitals normally, and for our farmers to be able to take care of their good land without fear of the occupation seizing the land and its water, which the wall prevents access to, or fear of the settlers, for whom settlements are being built on our land and who are uprooting and burning the olive trees that have existed for hundreds of years.

The time has come for the thousands of prisoners to be released from the prisons to return to their families and their children to become a part of building their homeland, for the freedom of which they have sacrificed.“

Full Text

To understand the exceptional nature of these floods, note that many areas in Sindh received in one day the amount of rain that they normally receive throughout the whole year and that in many areas, floods like this haven’t been seen in 300 years. Many districts have received around 1000 millimeters of rain in the past few months, when the usual amount is only around 150 millimeters.

According to preliminary government estimates of a constantly deteriorating situation:

30,000 villages have been affected

5.3 million people have been displaced

4.5 million acres of land (equal to Hawaii and Maryland combined) has been inundated in an area where agriculture is the main source of income for people

1.2 million houses have been destroyed

2.5 million children have been affected

2 million suffering from flood-related diseases

You can help by:

a. Sharing the details of this catastrophe within your family, friends and extended network

b. Donating to authentic organizations or/and

c. Providing supplies.

The important thing is to spread the word, and help in whatever way you can financially.

Some friends in Pakistan have begun an effort to provide relief in these areas. Their Facebook page, where you can find many details, is:

http://www.facebook.com/dfv11

Please do contribute.

Guardian Pakistan Floods

UN Report

1. From 2001 to 2007, household debt doubled, from $7 trillion to $14 trillion. The household debt-to-income ratio increased by more during these six years than it had in the prior 45 years. The household debt-to-income ratio in 2007 was higher than at any point since 1929.

2. Mortgage-related debt makes up 70 to 75 percent of household debt and was primarily responsible for the overall increase in household debt. The expansion of new mortgage originations was much larger in zip codes with a large fraction of low credit-quality households.

3. The fraction of home purchase mortgages that were securitized by non-GSE (government sponsored enterprise) institutions rose from 3 percent to almost 20 percent from 2002 to 2005. Non-GSE securitization primarily targeted zip codes that had a large share of subprime borrowers. In these zip codes, mortgage denial rates dropped dramatically and debt-to-income ratios skyrocketed. Expansion in mortgage credit did not reflect productivity or permanent income improvements for marginal borrowers.

4. The expansion in mortgage credit was more likely to be a driver of house price growth than a response to it.

5. From 2007 to 2009, foreclosures were responsible for 20 to 30 percent of the decline in house prices, 15 to 25 percent of the decline in residential investment, and 20 to 35 percent of the decline in auto sales.

6. Special interest pressure via campaign contributions from the financial industry influenced voting behavior on the financial rescue legislation that was designed to provide support to the banking sector in 2008. Similarly, constituent pressure from delinquent and under-water homeowners significantly influenced legislators to vote in favor of legislation that promoted mortgage modifications.

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NBER Research Summary

The newspaper industry has been under great financial pressures for the last decade or so, pressures that have intensified with a severe economic downturn and the rise of the internet and social media. In the past few years, newspapers have seen large falls in subscriptions, and sales in general, as we shift our ways of getting news. A large number of advertisers have pulled back partly due to the recessions and weak recoveries, but mostly because more channels of communication are now available to them and they are preferring to target consumers through the internet. Many newspapers have been shut down, many others restructured substantially by hastily arranged new owners and the survivors have been cutting jobs furiously, but they nevertheless continue to bleed.

However, great reporting by newspapers such as the Guardian continues to remind us of the central role newspapers play in our democracies and why they must be protected. For many years now, the Guardian has strongly pursued the story of phone-hacking by the Murdoch-owned tabloid, News of the World. The Guardian was criticised by some for pursuing this line due to a political agenda. Rebekah Brooks, former editor of the News of the World and former head of News International even wrote a letter in 2009 to the Chairman of the Commons culture committee stating that News International would “refute allegations that illegal phone tapping was a widespread practice” and that the Guardian had “substantially and likely deliberately misled the British public.” Many others, including high-up police officers like Yates, were equally dismissive. However, today it is the Guardian and its high quality journalism that stand vindicated.

Nick Davies, the extraordinary investigative reporter who doggedly pursued the phone-hacking scandal until it actually led to some accountability was also a major player in the Wikileaks’ US embassy cables’ release. Many of his early reports failed to generate much reaction and it is nearly after more than five years of hard work that the issue got the attention it deserved. It is such investigative, dogged, principled and unstintingly honest and righteous journalism that every nation requires to prosper. Reporting must be without fear or favour.

How important was the support of the Times and the Sun for Blair in finally deciding to attack Iraq? See below a troubling, though not entirely conclusive, insight from a Guardian story:

“Throughout his years in power, Blair had regular secret meetings with Murdoch, many abroad, and was in regular telephone contact. [Lance] Price ['a journalist and ex-spin doctor who worked at No 10 as Campbell's deputy'] has gone as far as to claim that Murdoch “seemed like the 24th member of the cabinet”.

Blair insisted no record was ever kept of the meetings or calls, so they were totally deniable. Cherie Blair has said that her husband’s decision to go to war in Iraq in 2003 was a “close call”. So it was – and there is evidence that the final decision was taken only after Murdoch’s encouragement was received and his blessing given. Blair talked to the media tycoon three times on the telephone in the 10 days before the US-led invasion. Details obtained under freedom of information show Blair called Murdoch on 11 March, 13 March and 19 March 2003. British and US troops began the invasion on 20 March, with the Times and Sun voicing total support.“