No Thanks, All Giving.

The UK Middle Class is almost totally plucked

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
— Jean-Baptiste Colbert (1619–1683)

As previously discussed, the arrival of Thanksgiving tends to mark the end of the trading year for many hedge Funds and CTAs, which together with the October year end for many Mutual Funds tends to lead to lower liquidity and sharper directional moves depending on prior positioning.

This year, November has been a ‘risk off’ event, with profits being taken in some of the big cyclical moves - miners, gold etc - early in the month and then, with Bitcoin leading the way, the whole FOMO trade has unwound sharply, right up until the option expiry.

As the US starts the Holiday Season, the economy is divided - half the country, the Rich and the Republicans, think things are going great, while the Democrats think it is terrible. We have always had partisan responses to surveys, but currently this is at an extreme and is (to our mind) a process of preparing the ground for the ‘Trump has abandoned the Middle Classes’' campaign for the Mid Terms. Expect a lot more of the same over the next 12 months which will continue to deliver a Schrödinger’s Cat type of Market, especially for fixed income traders.

The Democrats are trying to manufacture a ‘failing economy’ narrative ahead of the Mid-Terms that will influence expectations in the bond markets next year.

In the UK, however, there is no such division. Nobody, outside of government PR, thinks the economy is in anything but a lot of trouble. The markets remain transfixed and the public traumatised by the latest iteration of the death by a thousand increases imposed by the tax happy geeks at the Treasury and their hapless cipher in 11 Downing Street.

System Failure

As Jean Baptiste Colbert, advisor to Louis XIVth, noted, the amount of tax that a population can stand is finite and the GBP2bn a year UK Economic Establishment at the Treasury, Bank of England and OBR are rapidly approaching that limit. Weirdly, it’s difficult to blame anyone directly, rather it is a failure of the whole system.

Since the Blair era and the onset of Globalist Managerialism, everyone is (to use the mangling of nouns and verbs that is the hallmark of the Management Consultant industrial complex) “tasked with deliverables.”' Key Point Indicators (KPIs) emerge and are pursued zealously, even if they are wildly contradictory.

Thus the Treasury have one job - to raise enough taxes to cover spending, while the OBR’s job is to tell them how much needs to be raised since their KPI is a balanced Budget. Neither of them even consider the spending side of the equation.

Meanwhile, the Climate Change Committee has a target of net zero Co2 emissions by 2030, regardless of any costs, while all the other unelected quangos responsible for the bulk of UK government spending are similarly singular in task and indifferent to consequences.

On top of that, the lawyers and Judges are imposing their own preferences and goals via the legal system.

Unaccountable Quangos are pursuing their KPIs with no reference to cost or consequence.

It’s managerialism at its worst, as the KPIs are slavishly followed at an atomised level, with no overall leadership to work on the trade-offs. It is as if the policies of Divide and Rule that were used to run the Empire have been turned internally.

The reality is that the system itself needs to be reset, Cabinet government needs to be restored and costs need to be weighted against benefits, not just at the spreadsheet level of accountants and economists, but at a wider societal level. And at a longer term level such that long term infrastructure spend is not sacrificed for short term political expediency.

One suggestion for Rachel - too late of course.

Aside from the observation that the Economic establishment need to think through the costs - including opportunity costs - of multiple shifts in tax policies to pluck feathers without the goose noticing (it always does) and the fact that the OBRs fiscal rules are as pointless and economically self sabotaging as the Climate Change Committee’s there is one obvious (to us) short term win for the government: tax on online spending.

If the UK Government were to announce a 5% levy on all online sales, collected via the existing VAT mechanism, then, according to Grok, they could raise GBP8-9bn a year. Moreover, it would rebalance away from online to the high street - especially for items such as books and food.

The big online retailers wouldn’t like it, but their incredibly skilled and able lobbyists need to be left sat outside.

Obviously a 10% levy would have double the impact, both on receipts and behaviours. There are many other issues and options around long term infrastructure spending, changing taxes on investments, minimum wages etc, but that is for another day.

And finally, a reminder of the origins of Thanksgiving

Something we have written about on previous Thanksgiving notes is that, rather than simply giving thanks to the native Americans who helped the first settlers survive a harsh winter that threatened to wipe them out, the true message from the early history was that the European settlers were essentially socialist and by allocating common land for cultivation there was no motivation to work it. The hard labourer got the same outcome as the idler. So everyone became an idler.

So in short: the original Thanksgiving celebration in 1623 followed the abandonment of forced collective farming and the adoption of private plots and individual incentive—basically a switch from proto-socialism to private property and free enterprise. The Pilgrims themselves saw the lesson as a vindication of individual responsibility over collectivism.

This episode is one of the earliest real-world demonstrations in American history that incentives matter, and it’s why some economists and historians (from Milton Friedman to the Wall Street Journal’s annual Thanksgiving editorials) refer to it as “The Real Lesson of Thanksgiving.”

The Real Lesson of Thanksgving is that Collectivism doesn’t work, but the Real Message is that profit maximisation for absentee landlords created a system that almost killed the settlers

However, thanks to Grok, we discovered that there is another, pertinent twist. The collectivism was not driven by the settlers themselves but by their financial backers in the UK, a group known as the Merchant Adventurers, who were mostly wealthy Puritan-leaning merchants.

As Grok explains: “They feared that if individual colonists were immediately granted private plots, many would focus on subsistence farming or personal trade (especially fur trading with the Indians) instead of producing cash crops and goods that could be shipped back to England to repay the investors’ loans.”

They insisted that all land, houses and produce be owned in common, that everyone work the fields collectively and that the harvest would go into a common warehouse. This was written into the contract (the “Peirce Patent” and later agreements) to ensure that all profits flowed back to the common stock first, so the investors would get repaid before any colonist could keep surplus for himself.

In short: it was a corporate, top-down structure designed to maximize the return to absentee shareholders, not a utopian experiment the Pilgrims themselves wanted and it was only by rebelling and Governor Bradford of Plymouth essentially overturning the contract that the colony survived.

Tech as the Modern Merchant Adventurers

Over 400 years later, the lessons are still being learned and today’s Pilgrims need to push back against the big tech Merchant Adventurers of today. As they discovered back then, being thousands of miles away and unable to enforce their contract, they had to accept the change. Taxing online selling - and also taxing big Tech corporate profits fairly, would likely add a further GBP1-2bn a year to the GBP 9bn of online levy revenue, something which would be far more effective than the myriad of wealth taxes and taxes on investment being proposed.

Like the early Pilgrims, the UK Middle Class is almost totally plucked, it’s time for the Merchant Adventurers to step up.