Whatever I did, I have proof I didn't do it.” - White Collar

The EU’s case against Apple is one of the great news of this week. The amount, about USD 14 billion, is still small compared to what Apple actually managed to avoid paying (apparently between USD 30-40 billion) but it sends a better-late-than-never message to large companies using European fiscal disunity at their advantage.

Of course, the EU should also clamp down on its own companies who are using similar schemes to avoid paying national taxes. Still, it is a step forward and the EU should continue to crack down, at least to return some precious political credit in its own constituency. The move, it’s been said, is partly political. This is great, because so far the EU has been focusing a lot on the wrong economic theories while ignoring politics. Its desperately low approval rating by European citizens are the result of 20 years of denial.

Yet EU needs to be much more aggressive into dealing with this kind of scams: if the fine levied are too small, companies will have no incentives to pay their taxes since their worst case scenario would be to pay what they own. It is our belief (inherited from Taleb and Chinese philosophy) that when making a law, its punishment must be strong enough to deter any wannabe wrong doer.

This ‘rule of thumb’ should be applied especially to government officials and large companies, who wield enormous power: any mistake should be punished with harsh fines and bitter career obstructions that will make operators worry about transgressing rules. If this is not the case, politicians and large companies will continue to abuse the system and will prepare special funds (monetary and non-monetary) to address potential exposures, as they are currently doing.

White collar crimes are several times more costly to society than blue collar or street crimes, costing the USA between USD 250 billion and USD 1 trillion since they involve much larger amounts, are less prosecuted and are less punished. But white collar crimes is a rot that increases inequalities and will eventually corrupt our political system.

So dealing with cheating executives, politicians and large companies should be the focus of our judiciary system, since they probably account for less than 20% of the population but represent 80% of the damages. In China, a well known idiom could be used by the EU to deal with this issue: kill the chicken to warn the monkey (杀鸡儆猴). Imbued by the wealth and power, politicians, executives and large companies behave recklessly. If they only understand force, our judiciary system must use the same methods to be credible.

Science, General Knowledge & Environment

Framed – Real life Gone Girl like scenario “She was the PTA mom everyone knew. Who would want to harm her?

Your dog really does know what you’re saying, and a brain scan shows how – “But the new findings mean dogs are more like humans than was previously known: They process language using the same regions of the brain as people.

Major Insurers to G20 Nations: Stop Wasting Time, Phase-Out Fossil Fuel Subsidies by 2020 – No mention of why they would take such a stand: massive losses from climate change? Investments in renewable companies? “Climate change in particular represents the mother of all risks – to business and to society as a whole. And that risk is magnified by the way in which fossil fuel subsidies distort the energy market. These subsidies are simply unsustainable.

History & Geopolitics

The myth of the European peace project – (Hat tip Lao Ho) – “Since its foundation the EU has undeniably achieved much. But the notion that it has been the main force for peace and stability in postwar Europe has been wildly oversold, and intensified economic interdependence through monetary union has now become a recipe for political and economic turbulence.

China Heads West: Beijing’s New Silk Road to Europe – “China is building new roads, railroads and pipelines from Central Asia to Europe in an effort to build new connections to the rest of the world. The results may be good for the Chinese — but less so for the other countries involved.

Saudi Arabia’s oil industry has an overlooked risk – “…in 2015 Saudi Arabia registered its highest level of military expenditure as a share of GDP since 1990, at 13.7%. Moreover, SIPRI noted that there were reports that 17% of total government overspending in 2015 was attributed to a $5.3 billion increase in military and security spending due to the campaign in Yemen. […] continuing in Yemen will make it difficult for the Kingdom to achieve its belt tightening goals.

When Intervention Works: The Instructive Case of Sierra Leone – “Facing a government at the mercy of armed groups and a humanitarian and security crisis that the United Nations could not contain, Britain used a limited force to empower other actors, exploit shifting opportunities, and draw benefits from unanticipated occurrences.”

Finance & Economics

Does it matter if China cleans up its banks? – (Hat tip Lolo) – Michael Pettis. “Cleaning up the banks is much less important, however, when lending incentives are driven mainly by policy and there is widespread moral hazard. What matters is the impact of overall debt on Beijing’s ability to implement policies that work as expected, and its impact in generating economy-wide financial distress costs.

Il devient URGENT de mettre fin au pillage anglo-américain-irlandais sur l’Europe continentale – (Hat tip Lao Ho) – “…sur les 19,1 milliards d’impôts reconnus (current + deffered) au titre de l’exercice 2014-2015, Apple en a payé 16,2 milliards aux USA et 2,9 milliards dans le reste du monde. Or, le CA d’Apple était, lors de son dernier exercice publié,  de 81,7 milliards aux USA et de 152 milliards dans le reste du monde, soit 233,7 milliards d’USD au total. […] Ce sentiment, justifié, d’injustice fiscale (Schématiquement résumé par la différence de traitement devant l’impôt « les très gros s’organisent pour être exemptés, et les pauvres en sont dispensés ») prospère de plus en plus dans les Pays européens, et explique, en partie, la montée des partis extrémistes.

Picture of the day: Globe photos of the month, August 2016

US cow

About Carlito Riego

"Great perfection may appear imperfect, but its usefulness is inexhaustible. Great abundance may appear empty, but its usefulness cannot be exhausted. Great correctness may appear twisted, great skills appear crude, great eloquence appear awkward. Activity conquers cold; inactivity conquers heat. Clear serenity governs the world." - Lao Zi