Category Archives: Politics

Biden’s Approval Rating Sinks To New Low: Inflation Continues To Surge Amid Large Democratic Spending

A majority of 51 percent of registered voters say they’d support the Republican candidate in their congressional district, versus 41 percent the Democrat. That represents the biggest lead for the Republicans since 1981. There are several key points where Biden severely under-performs. Surging inflation and rising gas and food prices are the main reason for his low economic approval rating of 39 percent. This is even lower than Donald Trump’s low amid his trade war with China. Just 41 percent of Americans approve of the President’s performance, which is down 11 percentage points since spring 2021. Interestingly, is the drop in confidence amid Democrats, as just 80 percent of the Democrats are still satisfied with Biden’s performance so far, down from 94 percent this summer.

Figure 1 – Biden’s approval rating

Polarization Is One Of The Key Issues For U.S. Voters

A Quinnipiac poll has showed that the top problem the United States faces is polarization, as 11 percent of the respondents pointed it out as the most important problem in today’s society. Biden’s push for a vaccine mandate for large companies has cost him some support, as President Biden’s net approval rating among unvaccinated black voters has dropped a stunning 17 points after the announcement. Black voters have a vaccination rate of 53 percent and are a key demographic group in swing states, therefore this drawback is potentially very harmful to his overall approval dynamic. Support for Biden in swing state Iowa dropped to a new low of 33 percent, where he just one year ago got 44.9 percent of the electoral vote during the Presidential Elections. However, it should be noted that there seems to be slight majority that support vaccine mandates.

More shocking is the widening gap between the support for the Republican Party versus the Democratic Party as can be seen in the following graph of the New York Post.

Figure 2- Republicans could regain control

Supply Chain Disruptions Soon To Be Resolved

However, as new trillion dollar spending bills are passed by the Senate the continuous and non-transitory inflation could last even longer affecting Americans to the point where his approval could drop to historic lows. However, there are signs that supply chain problems will be over soon as manufacturers are increasingly investing in the scale up of supply chains, as the spike in consumer demand seems to be lasting. But the new spending bills will place continuous pressure on supply chains and the overall economy.

The FED Is Finally Changing Its Attitude Towards Current Inflation

The announcement of the scale down of quantitative easing by the FED was expected. Interesting is how their choice of words and phrasing changed compared to previous months. As the sentence: “inflation is elevated, largely reflecting transitory factors” was altered in the newest FED announcement.

“Inflation is elevated, largely reflecting factors that are expected to be transitory”

Chairman Powell on U.S. inflation levels

Even though it is not a big change, “expected to be” is much weaker than simply “are”. This means that the Fed’s confidence in its own transitory narrative has diminished, which implies that inflation might be more persistent than initially thought, further hurting Biden’s approval.

For now, Republicans are expected to win by a sweep in the 2022 midterm elections, but much can change in the meantime. However, if Democrats continue to hurt American consumers with elevated inflation due to their excessive spending, no real change can be expected. The FED’s policy change is a good start, however, The Golden Investor remains skeptical of the success of the quantitative tapering which is supposed to start in May 2022. Back in 2019 the FED was forced to stop tapering, this time the economy is even more delicate. Time will tell whether the United States will come out of this split.

Disclaimer: The Golden Investor is not a fortune-teller, be sure to make the right decisions in accordance to your own financial situation, this is not investment advise or anything like that.



Housing Crisis In The Netherlands: Irreversible Liberalization On The Edge Of Popping

As one of the most wealthy nations in Europe the Netherlands positions itself as best in class in the European Union. However, this pride cannot be rhymed with its banana-republic tax system which is still a haven for tax-evading multinationals. Rising inequity in the nations is largely the results of inadequate housing market regulations. The over-liberalization of the housing market is resulting in record-high housing prices, even when corrected for inflation and the low-interest rates the population dense country is performing worse than other European Nations in terms of affordable housing.

Non-Capital Owning Starters Get Squeeze Out

Simultaneous subsidization and privatization has made housing in the Netherlands a hot investment market which currently comes at the cost of starters without “jump-start capital”. Those who aren’t next-of-kin of capital holding parents face rising rent, while being unable to finance a home themselves. This has led to the unsustainable situation in which non-capital owning individuals spent larger parts of their income paying off the mortgages of housing market investors. The simultaneous rise of rent and housing prices is squeezing out equity out of non-capital owners juicing-up house owners as prices rise.

Counter-Effective Policies Have Made The Problem Worse

Important to note in this debate is that all policies which boost the sales of houses indirectly is a tax on non-capital owners and a subsidization for home-owners. Take the mortgage interest deduction: as all starters can deduct mortgage interest costs from their tax bracket, this simply leads to higher bids for the houses of capital owning home owners. By the same reasoning transfer tax cost deduction for starters has simply led to higher earnings for home owners as these measures are counter-effective. The failure of the system is also visible by the high levels of Dutch private debt as the already relatively scarce housing market. Over 75 percent of the houses that come on the market are sold either at the asking price or above. Therefore, from the start of this year investors have to pay 8 percent in transfer tax, which will sooth the pressure slightly.

Figure 1 – Private Debt Levels Are Among The Highest In The World

Ending The Inflationary Cycle Is Not Easy

Reversing this trend will could potentially lead to falling housing prices which will cause an immense shock to the over-indebted nation, potentially bringing Dutch banks in problems. The first steps have been taken to limit house market investors to buy houses just to rent it out again by imposing rental prohibitions in the first years after purchase, as these kind investors are increasingly responsible for rising house prices in some cities. However, the question remains whether these kind of policies will improve the current situation.

Real solutions that would cool down the housing market will have price declines as consequence, as the market is currently in a bubble. This will leave many home owners with debts higher than their mortgage collateral, e.g. their home. The already struggling Dutch banks, suffering from the negative ECB interest rates, would come under increasing pressure. Interestingly, the only solution to help out banks in such scenario would be to increase interest rates again, but that would put the banks under different pressure as companies would default. Bailing-out banks again will be hard as governmental spending is already peaking due to the “corona-related” relief programmes. The only solution remaining would be to finance new debt by new quantitative easing, putting fiat money under increasing viability pressure as commodities and crypto’s will show its true color.

Dutch Internationalization Efforts Will Only Increase Pressure

Recent plans by government agencies in the Netherlands to increase the influx of high educated internationals to boost innovation will only put housing markets under higher pressure as these expats tend to be young workers and starters on the housing market. IT-experts are wanted in the Netherlands as the nation has one of the fastest internet connections within Europe. Interestingly, one the main reasons for internationals to leave the Netherlands is the healthcare system, as general practitioners often lack the expertise to make appropriate decisions but do have to decide whether you get to see a specialist. However, expats seem to come to the Netherlands more and more as expats receive significant tax-cuts in the first years of settling. The influx of expats will only inflate pressure on already rising real estate prices in the Netherlands as these highly educated expats tend to earn significantly more than the average Dutch worker.

There Are Signs Of A 2008-Like Bubble, But A Cool-Down May Come Soon

In the graph below, the Bloomberg bubble risk ranking is made in which The Netherlands still seems to abate well. However, the current bottleneck in the Dutch housing market is particularly tight in the starter segment, where home buyers have to overbid ten to twenty percent above asking prices to make a chance. In the higher segments there seem to be no signs whatsoever of bubble forming as family homes are in slightly more abundance available. However, it should be noted that the present situation is not likely to last for long as central banks seemed to be forced to raise interest rates next year for the first time in years. In 2022 as government stimulus dries out, unemployment is most likely to rise higher to above 5 percent of the workforce as a domino-effect of bankruptcies can’t be excluded. And as lending standards are much higher than prior to the 2008 bubble burst, this increased uncertainty will slowdown demand. And as the problem continues to exacerbate political pressure rises, cooling of the housing market could come as soon as the end of 2022. Interestingly, as discussed earlier in 2020 there were less bankruptcies in the Netherlands as in prior years, the likely result of billions of governmental stimulus.

relates to World’s Bubbliest Housing Markets Flash 2008 Style Warnings
Figure 2 – Bloomberg Housing Market Bubble Ranking

On the short term housing prices will rise further, but within two years the situation can be totally different. Housing prices rise despite of the corona crisis with a double-digit percentage growth rate each year in the Netherlands, last year topping to 12.9 percent from a year earlier. The current situation is unsustainable on the long run, luckily economical dynamics will soon slowdown the growth and re-stabilize the housing market across Europe.


  1. Prins, J. E. J., & Brom, F. W. A. (2019). Geld en schuld: De publieke rol van Banken. WRR.

The Next President Of The United States: Ron Dion DeSantis

The former federal prosecutor and Congressman Ronald Dion DeSantis is gaining popularity all over the United States. His anti-bureaucratic handling of the corona pandemic in his own Florida has made him tremendously endorsed, also by Democrats across other states. As the youngest governor of a U.S. state, the 42-year-old has a thriving career. His close affiliations with former President Donald Trump have made him somewhat controversial in the eyes of Democrats. However, The Golden Investor dubs Ron DeSantis as the prime candidate for the 2024 presidential elections.

Donald Trump And Ron DeSantis Have An Erratic Relationship

In 2018 Donald Trump helped DeSantis gain the seat as governor of Florida. Last year in the run-up towards the elections tensions between the two popular Republicans rose as DeSantis allegedly did not do enough to endorse Donald Trump, while he did owe him some political debt. However, this week Donald Trump announced that he would seriously consider Ron DeSantis as running-mate in the 2024 elections. The Golden Investor thinks Ron DeSantis would have a better chance at winning the 2024 elections by himself, as Donald Trump is unlikely to ever win the swing-states again after his unstable behavior after the 2020 elections. Polls show that Ron DeSantis is also extremely popular among Democrats which makes him an extremely valuable asset for the Republicans.

Protective Legislation Against CCP Infiltration

This Monday Ron DeSantis signed two more bills targeting Chinese Communist party influence in the United States. He criminalized trafficking in trade secrets, something that Chinese have been notorious for. In the last decades China has infiltrated in the United States and actively tried to outsource secret information out of the United States. Companies more and more struggle as insiders get bribed to spill sensitive and lucrative intelligence towards Chinese businessmen. Patent protection is not guaranteed as the Chinese state actively endorses their citizens to gain as much information in foreign nations at the benefit of their own nation. These practices cannot be characterized as knowledge spillovers anymore, as it is directly undermining R&D investment in the United States. Institutional rights for protection of intellectual property are essential for a functioning capitalistic state. The second bill aims to prevent foreign influence in America’s higher education system. The bill ensures a strict screening of foreign researchers to avoid espionage and requires state agencies to disclose certain donations from countries that are known for their infiltration efforts like China, Russia and Iran among others.

DeSantis Is Not Afraid For Controversy

At the end of May DeSantis signed a bill banning biological men from competing in women’s sports in the state of Florida as more transgenders compete in sports with a biological advantage leading to unfair competitions even if they are on hormones. A five-time national track champion has spoken out to the media as she was disappointed about the NCAA’s handling of the issue. As biological males increasingly take podium spots in female competitions the call for change increased. Around 62% of respondents in a Gallup poll said trans athletes should only be allowed to play on teams that match their gender assigned at birth rather than their gender identity, showing the major support for this new legislation, as Florida is the 8th state to implement this kind of law. DeSantis added that it’s not a message to anything other than saying Florida is going to protect fairness in women’s sports. With this kind of legislation DeSantis has found a way to please his conservative followers, but still finding majority support for his actions as Caitlyn Jenner, the former Olympian track star, endorsed the bill.

Big Actions Against Big Tech

Another bill signed by DeSantis would allow individuals to sue social media platforms if they are “unfairly censored” and penalize Big Tech companies that de-platform political candidates in the state. In an effort to protect politicians and individuals against the increasing influence of big technological companies who aim to unfairly disseminate the dominant ideology in Silicon Valley, suppressing alternative ideas. DeSantis acknowledged that the bill could benefit Trump, but was much more than that as it ensures the political freedom of all candidates. He also pointed to the fact that Twitter banned Trump for his actions, but meanwhile let Iran Supreme Leader Ayatollah Khamenei tweet antisemitic slurs against Jews around the clock. The new law imposes a fine of $250,000 per day when a company de-platforms a statewide candidate and $25,000 per day when a company de-platforms a local candidate. If the bill will survive remains questionable as more critics say the bill is unconstitutional in its origin.

Ron “Deathsantis” Emerged As Great Leader Out Of The Covid-Crisis

DeSantis was one of the only governors who found the right balance between lockdown burdens and managing the healthcrisis. His emphasis on keeping schools and businesses open as much as possible has gained much attention as Democrats mockingly named him “DeathSantis” warning for a potential immense third wave. However, no such thing happened, meanwhile the state of Florida saw cases decline further and even found room to open up even more. According to the CDC excess deaths were at 21 percent nationwide for 2020. Florida saw a 15.5 percent rate of excess deaths for the same period, meanwhile California’s excess death rate was also 15 percent, despite much more invasive restrictions by its governor Gavin Newsom.

Desantis Is Already Facing Ungrounded Backlash

In the meantime, Ron DeSantis effectively debunked a smear campaign as 60 Minutes linked a donation of $100,000 by Publix to Gov. Ron DeSantis’ 2022 reelection campaign to a state contract with Publix. Publix , a grocery store, got this state contract to administer vaccines, but 60 Minutes framed it like it was some kind of political favor in return for the donation. However, the outlet’s producers were intentionally spreading false information as the producers knew that the county, not the governor, had been the one to request the Publix partnership. These kind of media attacks are common in the United States as media outlets tend to be extremely partisan and not independent at all. Within these toxic circumstances Ron Desantis effectively continues to pursue his own political agenda.

Ron Desantis Is Ready For The 2024 Elections

Governor Ron DeSantis’ popularity is incredibly high among southern Republicans, while also more and more Democrats like the fresh attitude of the Sunshine State’s governor. His young age makes him less retained to the political game and much more open to alternative approaches as he does not have to return much favors apart from Donald Trump. However, he has shown great independence in his actions making him the ultimate candidate for the 2024 election as the political field is eagerly looking for refreshment while baby-boomer Biden is aging towards his eighties. DeSantis’ independent behavior could make him the ultimate candidate for the 2024 elections as he is already the most popular Republican candidate. However, there is still a long way to go and DeSantis might make some rookie mistakes along the way. Time will tell whether this young gun will become the second youngest elected President of the United States of America or whether his popularity will fade to the background.

The State Of The Union: Lower Power, Higher Inequity

Infamous for their connection to large scale mafia-schemes in the city of New York, trade unions nowadays have less and less significance. Where their power used to be so great that according to some reports New York construction costs where inflated by more than 20% due to the mob’s involvement in the unions. Overall union membership declined over 30% of wage earners in the fifties and sixties towards a low of slightly more than ten percent in recent years. As it becomes clearer that average earners saw their real wages stagnate and inequality has become greater than ever, the debate whether trade unions are essential for fair labor markets and social conditions builds up.

Employees have the right to bargain collectively through representatives of their own choosing for the purpose of collective bargaining or other mutual aid or protection. However, the right of employees to refrain from any or all such activities, is a protected right. With-staining from trade union membership is a prime example of a free-riding as non-members typically enjoy the benefits created by the collective bargaining power without incurring the costs of membership. However, as membership rates went down, membership became more and more expensive and is particularly low in the private sector. Public sector unions tend to have much higher membership rates as the types of services in the public sector cannot easily be relocated which makes the union’s power much greater.

Reasons For The Decline In Union Density

The union decline in the 1980s and 1990s can be explained by large labor market changes. In Europe, union density rates declined because unemployment went up competition within the labor market increased. Newcomers entering the labor force were rolling into sectors less covered by trade union as the rise of the technology and service sector began. Inflation decreased which reduced the urge to enroll in trade unions. Replacement rates dropped, meaning that the amount most people needed in retirement to maintain their standard of living became lower than what used to be required. This made pension talks less important during that time as the necessity of a high retirement benefits decreased. The shift of public employment towards private sector employment catalyzed these effects as strike activity declined simultaneously.

Critics On Labor Unions

The main point against labor unions is that they lead to imperfect balances, as labor unions function as a monopoly against employers. If their efforts succeed and wages or other spending go up, competition becomes fierce and will lead to high pressure from lower wage areas. This could lead to permanent layoffs or even bankruptcies which in the end hurts more. Moreover, increasing wages across the public sector will simply lead to inflation as higher earnings leads to higher consumption. Especially in Democratic States unionism is high, in these states government budgets often get out of hand. With the Biden administration and its focus on governmental spending the public sector bubble is likely to get bigger.

The End Of Labor Unions: Globalization

In the last few decades the world has changed tremendously, the technological revolution has made the world relatively smaller. In such a world labor unions will find it harder to effectively push employers to increase benefits and improve working conditions as many companies turned into multinationals. These multinationals often differentiated low-skilled labor to low-wage countries, separating manufacturing from development. This has increased the gap between high-educated workers who saw their wages increase as low-wage outsourcing boosted corporate profits and low-educated workers that saw workplaces move elsewhere while their benefits remained stagnant as low-educated competition between employees suppressed their wages. Private sector labor unions have a hard time in keeping the right balance between keeping employers happy and safeguarding the rights of employees. Elon Musk’s move from California to Texas is a prime example of how easy it has become to move location for employers in a search for the best producer conditions, which comes at a cost for those with less abilities to do so.

Should Public Sector Wages Move Along To Private Sector Wages?

It is a never ending discussion, the debate on how much public sector wages should move along to more innovating and growth enhancing private sector wages. However, it should be noted that in states where private wages rise due to an increase in overall productivity in the private sector inflation of assets will have to lead higher public wages too as a basic standard of living should be guaranteed, even for non-productivity enhancing jobs. The Golden Investor is in favor for automatic adjustments of public sector wages in accordance to local private sector wages. However, these increases should be lower than in private sectors where these increase portray either higher need or higher turnovers, which overall should not be suppressed as these sectors tend to boost economic growth and overall welfare with its innovations.

As the “ESG” trend continues, perhaps more global awareness will boost working conditions in low-wage countries. This again will cause a shift back to developed nations as it will cause rising costs for multinational producers. It might seem strange, but a global labor union with a focus on low-wage countries could perhaps lead to the best overall results, as it could ensure fair competition of low-skilled labor. However, as long as developing countries lack the capacities to educate high-skilled workers, developed nations will keep the edge over the rest of the world. This will lead to more globalization, higher benefits for high-skilled workers and diminishing benefits for low-skilled workers in developed nations. Private sector labor unions in developed nations might disappear in the next decades until globalization is either stopped or completed.

What Does Biden’s Capital Gains Tax Increase Mean For Stock Markets?

The plan to almost double the capital gains tax from 20 percent to 39.6 percent for those earning more than a million U.S. dollars a year did not shock stock markets as much as expected. This shift from taxing wages to taxing capital is a necessary but inevitable step for the government. In the last decades due to quantitative easing capital has seen exponential gains. As these are partially driven by easy monetary policy by central banks it is only logical as inequality has risen more and more in the United States, as discussed before on The Golden Investor. Biden will be fighting the ever more influential one percent of America.

According to the Federal Reserve, the top ten percentile group of households hold up to 88.5 percent of all stocks traded on the stock market, up from eighty percent in the nineties. This does not seem much, but when looking at how much the bottom 50 percent hold now versus thirty years ago a great disparity can be seen. From holding an average 1.5 percent of all stocks in the nineties, the bottom 50 percent now holds only 0.6 percent of all stocks. Also the upper middle income class (50-90%) has lost significant ground, as they hold around 11 percent down from over 20 percent in the early 2000s. ¹

What Are The Implications?

While it seems a rather interesting and ambitious plan by Biden, it looks like a policy change that boosts support for the Biden Administration, but actually is not that game changing. Capital gains tax has only to be payed once a position is liquidated, but many of the top owners hold there positions until death and do not liquidate positions as much as smaller investors who need the capital in their everyday life for educational and healthcare expenses. With this change, there wouldn’t be much of a difference between investing for the short or long term for those with very high earnings. The U.S. government will earn around one trillion dollars with this tax change to fund childcare, universal pre-kindergarten education and paid leave for workers.

What Are Arguments Against This Tax Change?

The first but weakest point against higher taxes on capital is that investor are protecting against inflation by holding stocks and thus do not actually have capital gains in real terms. Moreover, the reason the United States is as powerful as it is, is because entrepreneurship is taxed lower than wages which means it stimulates the economy and innovation. This tax increase could deter large investors from investing into potentially wealth enhancing companies that are in need of capital, simply because the risk-profit trade-off is being played with. However, the tax increase is a step towards some leveling between different tax groups. This balance is still disproportionately weighted on the working and middle class after the potential policy change. It should be noted that the report is based on leaked information Biden is supposedly going to release next week. He announced long prior during the campaign that this change was going to happen, however, according to the reports it will make no distinction between different sources of household income, which means that it captures a larger group. But still only the top one percent earners will feel the hit. And even if they find a loophole, it is better than doing nothing and watching the inequity gap growing larger and larger.

What Does It Mean For Stock Markets?

Stock markets will not likely change much, as capital holding strongmen will always try to make more capital. The capital gains tax for million dollar income households is to cap the difference in capital gains of those who hold capital versus those who are less financially invested. Stock markets will potentially see a shift from growth stocks to value stocks as large investors turn to dividend paying stocks with relatively lower taxes. However, the most influential will be the change due to increased inflation as result of the increased governmental spending by the government. Together with vast amounts of pandemic spending and infrastructural projects, this will potentially lead to inflation higher than four percent at the end of this year. Unseen in the last decades and thus very interesting for investors. Potentially this will mean a shift to safe-havens like gold and TIPS bonds.

In conclusion, to compensate for the slow but steady shift of capital from the poor to the rich something needs to be done, especially since top earners benefit disproportionately from easing central bank policies, while the working and middle class will bear the consequences of the irresponsible quantitative easing. However, it should be noted that The Golden Investor does not believe in the real value of cryptocurrencies as crypto-investors tend to speculate on price changes rather than the actual use of the coins in a system, which makes it just another bubble. The rise of various infamous coins like Doge and the current stock market hype, it is time to cool down and build a defensive “boring” portfolio. This summer will be key to understand what this shift from quantitative easing to government spending will do to stock markets. One thing is sure, as inflation rises to 2.5% CPI and materials like lumber and copper keep rising with double percentages, this summer and the potential reopening of Western economies will be instrumental for the investing momentum the coming years.

Disclaimer: The Golden Investor is not a fortune-teller, be sure to make the right decisions in accordance to your own financial situation, this is not investment advise or anything like that.



Warlords In Afghanistan: Inverse Authority Of Power In A Fragile Nation

After the withdrawal of the Soviet Union the Afghan empire entered a new stage of uncertainty, the gap left behind led to a struggle for power. Different regions were subject to the authority of strongmen who sought to profit from the weakened stability of the state. This led to the fractionalization of the Afghan landscape, where several entities started to exert their dominance in certain regions as governmental control diminished. However, the primary battleground was centered in and around Kabul, as control over the capital city meant attaining symbolic authority and the legitimacy needed to accrue financial rewards (Dorronsoro, 2007). The Golden Investor will show in this article how warlords operate and why they are so successful in the fractured nation of Afghanistan.

The rise of warlords is a symptom of relatively lower institutional power. Warlords are often location rigid and therefore are the first in line when overall state governance breaks down. Their ability to provide and protect people is an essential part of their recurring resurgence over the past decades (Malejacq, 2019). Warlords act like chameleons under different regimes, their ability to capitalize on power changes is a vital part of their existence. These are the most basic reasons why warlords attain and hold local support over several periods of time. The longer this continuity lasts, the stronger their following and unconditional support when the common authority fails to keep control.

The lack of a strongman around the neighborhood of Kandahar gave the opportunity to the Taliban to prosper on the ongoing uncertainty and instability in the region. Their ideologic mantra helped their initial surge in Kandahar, however, over the course of the years the further surge towards the North of Afghanistan was largely attributable to their strong military force, with strong horizontal network of common schooling and military experience (Farrell, 2018).  Taliban fighters outperformed warlords in the strategic game of war-making with the financial and logistic support coming out of Pakistan. This eventually led to the fall of Kabul, where Massoud, leader of the Northern Alliance, had to flee to the capital. This surge of the Taliban could be defined as a fight towards legitimacy as common authority. Relatively successful warlords like Dostum and Massoud proved yet again their skills to surge and retreat at the right moment. Again, they rose back to power when their regions lacked leadership, but were competent enough to accept their defeat in time and hand over their control to the new unrecognized authority, the Taliban.

However, after the 9/11-attacks the warlords got an essential role in the Taliban sweep in 2001. Facilitated with financial and military support by the United States warlords like Dostum, Ismail Khan and Fahim thought to regain their territory. With the help of the strong superpower the warlords got control of the provinces, again providing security after the new power vacuum that was a result of the Taliban sweep. Warlords often abuse their power with predatory extraction, which works contra productive to the state-building process (Maley, 2002). Therefore, the warlords were quickly side-tracked by the United States in an effort to reinstate a centralized government. However, this ongoing rise-and-fall dynamics should not be seen as a weakness, rather as a characteristic of successful warlords.

Eventually, former warlords found a way to maneuver themselves in the new government, which resulted in a government with a large variety of actors, including former Taliban and warlords. Even though it was debated whether these actors wouldn’t undermine the function of the state, warlords had again found a way to fuel their ability to exert power. The high level of diversity in the government resulted in increasing suspicion when individuals within the government misused their function. The growing amount of corruption led to disappointment in a large part of the population (van Bijlert, 2009). More and more people did not feel represented by the central government anymore, which indirectly led to the increased insurgency of the Taliban. And yet again the warlords proved to hold a pivotal role in the smooth transition of authority back towards the Taliban.

The undermining role of warlords within the parliamentarian structure was one of the reasons for the failure of the created government. Warlords should be seen as human representations of a set of institutions. The low interconnection between different actors in the parliament, all with their own set of beliefs and interests was doomed to fail. However, this does not mean that warlords never function well. Their strength to assert power in an inverse conjunctural wave to common authorities (see Figure 1). In a country like Afghanistan where the strongest common authority changes entity over time, warlords function as a security net when the country lacks common governance by a common authority.

Figure 1 – Warlord control works inversely to common authority

Allowing warlords into the parliament caused the inverse waves of control to merge into one wave with great peaks and deep drops leading to more instability over time. This is exactly what happened in the post-2010 era where only after ten years of conflict there seem to be the first efforts towards creating one common authority.

To conclude, warlords do not always function as destructive monsters, their role as a security net in changes of power is a very vital one for a fragile country like Afghanistan. However, the international community is right when they assess that warlords benefit greatly from these changes in power as it reinstates their significance and legitimacy. The United States was right to side-track the warlords in their effort to create a strong government, but their inability to keep these strongmen out of parliamentary positions greatly overturned their progressive and ambitious plan.


Dorronsoro, G. (2007). Kabul at War (1992-1996) : State, Ethnicity and Social Classes. South Asia Multidisciplinary Academic Journal.

Farrell, T. (2018). Unbeatable: Social Resources, Military Adaptation, and the Afghan Taliban. Texas National Security Review, 1(3), 58–75.

Malejacq, R. (2019). Warlord Survival : The Delusion of State Building in Afghanistan. Cornell University Press.

Maley, W. (2002). The Afghanistan Wars.

van Bijlert, M. (2009). Doing Good or Doing Better : Development Policies in a Globalising World. Doing Good or Doing Better : Development Policies in a Globalising World, 157–173.

The Success Of The Taliban: Providing The Best Alternative

Like Tadjbakhsh (2008) clearly states, Afghanistan has become this experiment for the international community to try to implement and shape the country according to foreign standards. In this article I argue that the international community has underestimated the complexity of the nation, which for decades can hardly be characterized as one nation anymore. When the initial plan of defeating an opponent turned into a state-building effort, the diverged Afghan community already lacked the will to drive for a democratic regime.

The Bonn Agreement initially seemed to be very promising, but there were many problems with this imposed plan. It was a top-down policy approach led by nations that focused on the process and not on the fundamental basis of the Afghan nation. Already since the British invasion in the 19th century, that stumbled across resistance from different tribal leaders at every mile, the informal ethnic and religious contringency in communities have made it difficult to implement new horizontal (political) structures. The low turnout at the presidential elections was a symptom of a growing force against the liberal individualism, which was hard to reconcile with the traditional religious values (Tadjbakhsh, 2008). The failure to prevent bad strongmen to integrate in the parliamentary process has resulted in the abuse of the first Afghan democratic structures, which eventually led to a growing mistrust in the democratic process. As the Taliban was specifically held out of the Bonn Agreement it could reconcile against the imposed policies. This opposition towards the corrupt government proved to be very successful together with their Islamic ideas that Afghan people were more familiar with.

However, this was just one of the reasons for the successful resurgence of the Taliban. The low governing power, cultural climate and poverty make the Afghan land a fruitful farmland for the poppy and opium industry. After the strong regime of the Taliban was bombed away, poppy cultivation surged in the power vacuum created by the sweep. Where initially the Taliban was very adept at controlling and taxing the poppy industry, in a sort of policy of tolerance. The Bonn Agreement tried to set-up a policy to dismantle the illegal poppy industry, even though the opium industry was deeply entangled with the governmental and local officials (Suhrke, 2007). Taking on the opium industry would have serious economic consequences for an economy that was increasingly dependent on the income of cultivation. The counterinsurgency strategy mentioned the poppy harvest as source of funding for the Taliban and thus a target for the counter-insurgents (US Army, 2006). However, the replacement sources of funding offered failed to offset the economic damage made after eradication, as the different economic branches are often obscure, which makes it hard to sustain all the individuals hit by the eradication (Farrell, 2018). This aggressive anti-cultivation approach without the offering of functioning alternative sources of income led to a growing anger of which the Taliban profited.

The most important feature that gives the Taliban the legitimacy it enjoys now is their ability to settle disputes. As previously stated, Afghanistan knows many local communities which are led by different tribal leaders, which is a hotbed for conflicts. The fast and cheap justice system that the Taliban offered was a better alternative to the corrupt governmental judicial system, which is a driver of toleration for the strict Taliban regime (Weigand, 2017). While the Taliban is successful at undermining the feeling of security in government controlled regions, in their own regions the control by force is enough to create stability (Jackson & Weigand, 2020). The fact that it is able to settle cases outside their “judicial area” means that they are able to offer better public services than the government.

The international community underestimates the importance to understand the patterns of thought of the Afghans, in a country which has been divided for decades a good comprehension of the cultural dynamics is very important. Foreign influencers failed to understand the necessity to study the actual reality rather than the modeled reality. Just like it is almost impossible to model the human mind, it is practically impossible to model a new political structure and state into Afghanistan. Cultural, religious and local interests make it virtually impossible to impose a top-down structured state. The international community can be held accountable for this lack of understanding. However, I do think that the continuing complexity of the Afghan community should not be a reason to accept the radical Taliban regime, just because mistakes were made in the past. In a new effort lessons should be learned from the past.

For the first time since their existence, this year the Taliban was allowed to an international convention led by the United States to reduce the violence in the region. However, reports suggest that the overall violence has not decreased at all and the fights between the government and the Taliban have not faded despite the Doha Agreement. It is starting to look like the agreement was a formal way out of Afghanistan for the foreign troops rather than a resolution for the state of Afghanistan (Quilty, 2020). The Taliban, however, with the decreased suppression by the United States feels like victory is coming closer. Therefore, after years of fighting the Taliban seems to have a free road to claim victory. Their ability to destabilize existing authorities and at the same time provide alternative public services makes the Taliban the best alternative overall. The success of the Taliban seems like textbook insurgency.


Farrell, T. (2018). Unbeatable: Social Resources, Military Adaptation, and the Afghan Taliban. Texas National Security Review, 1(3), 58–75.

Jackson, A., & Weigand, F. (2020). Rebel Rule of Law: Taliban Courts in the West and North-West of Afghanistan. ODI Briefing Note, May.

Quilty, A. (2020) Taleban Opportunism and ANSF Frustration: How the Afghan conflict has changed since the Doha agreement. Afghan Analysts Network.

Suhrke, A. (2007). Reconstruction as Modernisation: The “post-conflict” project in Afghanistan. Third World Quarterly, 28(7), 1291–1308.

Tadjbakhsh, S., Schoiswohl, M. (2008). Playing with Fire? The International Community’s Democratization Experiment in Afghanistan. International Peacekeeping, 15(2), 252–267.

US Army. (2006). FM 3-24 MCWP 3-33.5 Insurgencies and Countering Insurgencies. Counterinsurgency (Washington, DC: US Army, 2006), May, 1–202.

Weigand, F. (2017). Afghanistan’s Taliban–Legitimate Jihadists or Coercive Extremists? Journal of Intervention and Statebuilding, 11(3), 359–381.

Withdrawal Out Of Afghanistan: Ending The American Nightmare To Fulfill An American Dream

When the war in Afghanistan started, the purpose of the fight was clear: defeating the actors that made the attacks on America feasible. Even those without an active role should be punished for their cooperation with the violent Al-Qaeda group. This is where the war on the Taliban started, as they were known to harbor them. The attack on the Taliban in 2001 was quick and successful, the organization was physically removed and key actors fled to Pakistan. However, this was the easy part, the United States failed to deliver a proper alternative after their powerful attack left a power vacuum in the Afghan State. The United States used the so-called “light-footprint” approach, which essentially meant that military troops were only seen during violent military sweeps, reaffirming the bad image Afghans already had on foreigners interfering in their country. However, there was another key factor that contributed to the resurgence of the Taliban in Afghanistan in the years following the successful eradication of the Taliban (Jones, 2010). The painful truth was that the Taliban were simply more dedicated and effective in integrating a successful institutional system in the Afghan countryside. Outside Kabul the government proved to be inapt to actually set-up public sector facilities for basic living needs as the government did not have real power outside of Kabul (Chesterman, 2002). These two factors contributed largely to the resurgence of the Taliban.

When the United States realized and acknowledged it hadn’t acted properly, it tried to do just that what previously had not been done accurately. The counterinsurgency strategy was focused on leaving the country with a more capable security system, so that another stronger power vacuum could be prevented even if troops would leave. This more active approach by the Obama Administration, in an effort to prevent further insurgency of the Taliban, proved to be toothless as the Taliban got the benefit of the doubt after many years of governmental misbehavior. Most Afghans were particularly charmed by the Taliban Justice system, which was less corrupt and more easily accessible than official Afghan courts (Farrell, 2018). It is the lack of these societal pillars that catalyzed the resurgence of the Taliban. When the majority of foreign troops in Afghanistan left the country in 2014 the vulnerability and the vast dependency of Afghan troops was clearly visible, what followed was a successful re-mobilization of the Taliban (Ibrahimi & Akbarzadeh, 2020). Back then IS started to manifest itself in Afghanistan too, however, ultimately they did not attain the necessary support to keep a proper footprint in the fragmented country. One of the main reasons: support for IS in Afghanistan was mainly driven by financial incentives rather than ideological ones. Moreover, the brutal governance caused healthcare centers and schools to shut down, without offering good alternatives (McNally et al., 2016). A further sign that providing primary public goods and services makes or breaks the support for, and success of a regime.

The silver lining could be stated as follows: After the initial U.S. sweep of the Taliban, the predatory Afghan government failed to deliver primary public services. Without having the power to ensure countrywide security, the Afghans lost their last hope in the Afghan government. And as foreign meddler, the U.S. missed its chance to set-up proper institutional pillars in a scattered country in need of real support. The Taliban offered both security and the necessary services, which boosted their resurgence in Afghanistan. When the United States realized they missed this essential step it was already too late; the faith of the Afghans faded, even if the COIN strategy initially seemed rather promising.

As Donald Trump pointed out: with the current weaponry systems, there is less need for American support on the ground. The United States is now able to interfere in this country without the need for the U.S. military to lose their life in the graveyard of empires. The lack of competition was one of the causes the Taliban could organize itself and regain territory in the South of Afghanistan. Supporting militias can be another effective way to undermine the control of dynamics of the Taliban (Martin, 2017). However, the use of drone attacks lacks the essential transparency that is necessary to be able to adhere to ethical standards. And the use of private military security companies (PMSC’s) probably will only increase violence as wealth should not enable the legitimate use of violence, otherwise we pave the way for a way bigger problem (McFate, 2017). As “the state is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory” (Malejacq, 2020), pursuing the use of PMSC’s undermines the goal of building a successful state.

The Americans were very successful in eradicating the physical presence of the Taliban, however, their endeavor to create a stable functioning government capable to withstand insurgency failed. The end result is that the Americans were very able to retaliate for the role the Taliban played in the disastrous event in September 2001. I understand that the Americans and international community wished they could provide lasting change in the unstable nation, not only to prevent further radicalization towards the West, but leave victims of the acts of war behind with a better life. Now, after years of fighting without a definite end, the effort proved to be unfruitful and rather reaffirmed the skeptic vision of Afghans on foreign invaders.

To end it all up in one sentence, a decision had to be made as it is now obvious that (too much) American presence isn’t helping the necessary state-building process in Afghanistan. If the further withdrawal of troops out of Afghanistan is another misstep is uncertain. However, nobody benefits from reconsidering and seesawing over and over again. Despite many missteps, American should not see it as a failure to finally leave Afghanistan, it would be a failure if the unnecessary fighting would continue for eternity without an end in sight.


Chesterman, S. (2002). Walking Softly in Afghanistan: The Future of Un State-Building. Global Politics and Strategy, 44(3), 37–47.

Farrell, T. (2018). Unbeatable: Social Resources, Military Adaptation, and the Afghan Taliban. Texas National Security Review, 1(3), 58–75.

Ibrahimi, N., & Akbarzadeh, S. (2020). Intra-Jihadist Conflict and Cooperation: Islamic State–Khorasan Province and the Taliban in Afghanistan. Studies in Conflict and Terrorism, 43(12), 1086–1107.

Jones, S. G. (2010). In The Graveyard of Empires: America’s War In Afghanistan. W.W. Norton & Company.

Martin, M. (2017). Kto Kovo? Tribes and Jihad in Pashtun Lands (V. Collombier & O. Roy (eds.); Vol. 7, Issue 2006).

McFate, S. (2017). I Was a Mercenary. Trust Me: Erik Prince’s Plan Is Garbage. Politico, 8–11.

McNally, L., Amiral, A., Weinbaum, M., & Issa, A. (2016). The Islamic State in Afghanistan: Examaning its Threat to Stability. 1–17.

Does Trump Deserve Credit for Strong 2019 Economic Data?

Regular readers know that I give Trump mixed grades on economic policy. He gets good marks on issues such as taxes and regulation, but bad marks in other areas, most notably spending and trade. Which is why I’ve sometimes asserted that there has been only a small improvement in the economy’s performance under Trump compared to Obama. But I may have to revisit that viewpoint. The Census Bureau released its annual report yesterday on Income and Poverty in the United States. The numbers for 2019 were spectacularly good, with the White House taking a big victory lap.

Here are the three charts that merit special attention.

First, we have the numbers on inflation-adjusted median household income. You can see big jumps for all demographic groups.

Figure 1 – Real Median Household Income by Household Race

Secondly, here’s the data on the poverty rate.

Once again, remarkably good numbers, with all demographic groups enjoying big improvements.

Figure 2 – Poverty Rates by Race

Last but not least, here’s a look at whether Americans are getting richer or poorer over time.

As you can from this chart, an ever-larger share are earning high incomes.

Figure 3 – Percent Shares of US Households by Total Money Income

We’ll see some bad news, of course, when the 2020 data is released at this point next year. But that’s the result of coronavirus.

So let’s focus on whether Trump deserves credit for 2019, especially since I got several emails yesterday from Trump supporters asking whether I’m willing to reassess my views on his policies.

At the risk of sounding petulant, my answer is no. I don’t care how good the data looks in any particular year. Excessive government spending is never a good idea, and it’s also never a good idea to throw sand in the gears of global trade. But perhaps we should rethink whether the positive effects of some policies are stronger and more immediate while the negative effects of other policies are weaker and more gradual.

I’ll close with two cautionary notes about “sugar high” economics.

  • First, Trump’s fiscal policy of tax cuts and more spending could be viewed as textbook Keynesianism. I definitely don’t think that approach creates more long-run growth, but it can lead to some illusory short-term prosperity as an economy consumes more than it produces.
  • Second, I worry that some of last year’s good economic data may have been the result of the Federal Reserve’s easy-money policies. As I’ve previously noted, bubbles always feel good when they’re expanding. They don’t feel so good when they pop.

For what it’s worth, we’re not going to resolve this debate because coronavirus has been a huge, exogenous economic shock.

Though if (or when) the United States ever gets to a tipping point of too much debt, there may be some retroactive regret that Trump (along with Obama and Bush) viewed the federal budget as a party fund.

Disclaimer: This is a republishing of Dan Mitchell’s personal work.



The Gender Pay Gap Is Not What It Sounds Like

Even though there’s much discussion and fuss about the pay gap between men and women, The Golden Investor will show that there is much more nuance to the story. In most Western societies equal pay is ensured by strict laws and differences in wage are a result of personal choices. Possible differences in pay can be fully explained by differences in working hours, sectors and work-experience. While gender plays an important role in these differences, it would be incorrect to call a resulting pay gap a gender pay gap, as it insinuates that all women structurally are paid less than men solely based on gender. Speaking about a motherhood penalty would be more correct. To quote Denise Venable (2002): “The wage gap is not so much about employers discriminating against women as about women making discriminating choices in the labor market.”

Men Have The Biological Advantage Over Women

A case study on gender pay by Harvard University academics Bolotnyy & Emanuel (2012) on bus and train operators of the Massachusetts Bay Transportation Authority investigates differences in wage between men and women. They find that even when work hours and tasks are exactly the same, female operators earn 0,89 cents for every dollar male operators earn. They show that this gap could be explained by the fact that men take 48 percent fewer unpaid hours off and work 83 percent more overtime hours per year than women. And these differences are largely the result of women taking on more of the household and childcare duties than men, which then limits their work availability. This takes us to the first point: Instead of focusing in differences in pay, strive for equalizing parenting hours and shared parental leave.

However, it is important to note that many parents tend to choose for some specialization within the household as it leads to higher efficiency. Secondly, having kids is based upon equal valuation of tasks within the household. As males don’t bear the burden of having to impregnate, it is out of an efficiency standpoint logical that the male specializes in working, while females take upon the care-giving tasks. As females are genetically penalized by gestation and the resulting backlog to men on the work floor, some kind of compensation to women could be fair, even if this is not necessarily the best neoclassical economic option. The alternative is to value maternity and care-giving over children more, but in a capitalistic society this is hard to achieve as many values are valued in monetary ways.

Why The Pay Gap Increases Over Time, Further Evidence

A long run gender pay study by Bertrand et. al (2010) tracked wages of men and women after graduating with a master’s business administration degree at the elite business school Booth School of Business of the University of Chicago from 1990 to 2006. Interestingly, at first there are no differences in wages between men and women, but as years pass, the gap widens. They observe three reasons for a large divergence in wages after 10 to 16 years. At first, males have a small advantage in training prior to MBA graduation and combined with rising labor market returns to such training with post-MBA experience men outpace women. Secondly, there are large gender differences in career interruptions combined with large earnings losses associated with any career interruption (of six or more months). At last, they find growing gender differences in weekly hours worked with years since MBA. The latter two points prove again that women face a large motherhood penalty. Bertrand et. al (2010) further emphasize this when they correct for having children:

“The presence of children is associated with less accumulated job experience, more career interruptions, shorter work hours, and substantial earnings declines for female but not for male MBA’s.”

Bertrand et al. (2010)

Only women with low-earning husbands won’t face these consequences. In such a scenario the woman is even after pregnancy the relatively best earner, which gives them the incentive to keep working full-time. This further proves the specialization theory, in which most of the time men have the biological advantage over women. In this scenario the woman keeps working as it is still the relatively advantageous economic option, resulting in a significantly smaller difference in wage to men. This further shows that the gender pay gap largely can be explained by changing factors due to choices after pregnancy.

However, it could be argued that in a working parental relationship and mature society, values shouldn’t be based on wage. Focusing on differences in wage that are a result of a biological disadvantage of women portrays the undervaluation of giving care to the new generation. The Golden Investor thinks that many parents can relate to this kind of reason, because within a healthy parental relationship there does not exist such undervaluation. Marriage based on community property ensures equal valuations of tasks within relationships and takes away all the financial disadvantages of specialization within relationships. Policies should focus more on creating an equal opportunity for women who still pursue a high level career after having children, as their biological disadvantage to men should not rule out the opportunity to pursue an ambitious career after having children. Moreover, pay gap reducing policies should focus less on gender and more on the motherhood penalty and the resulting backlog. Women tend to settle for part-time jobs resulting in increasing pay gaps over time, which in itself is not a problem as long as it is a choice, not the natural outcome.

Misleading Gender Pay Gap Claims Are Everywhere

The Official Bureau of Labor Department statistics show that the median earnings of full-time female workers is 77 percent of the median earnings of full-time male workers. However, many of these kind comparisons lack statistical strength. Full-time officially is 35 hours, but men on average work more hours than women. This is a comparison between men who spend an average of 41.0 hours per week at their jobs, while women work an average of 36.3 hours per week, according to US Census data. These numbers are often used in highly misleading headlines and tend to result in false interpretation. Such headlines are the cause of the increasing lack of faith in main-stream media.

Many more studies have been done, almost all showing the same thing: only a very minor, non-significant part of the gender pay gap is because of gender discrimination, even though some misleading numbers seem to point to that. If women would really be underpaid based on gender, why aren’t there any companies only hiring women? Companies go to extreme lengths for cheap labor, if these pay gap differences would be solely explained by gender discrimination we would see many firms hiring only women. However, in a fully competitive capitalistic global economy there is no room for gender discrimination, just as it should be.

Want To Know More?

Find More Statistical Evidence Here


Venable, D. (2002). Wage Gap Myth. National Center For Policy Analysis: Brief Analysis, (392), 392. Retrieved from

Bolotnyy, V., & Emanuel, N. (2018). Why Do Women Earn Less Than Men ? Evidence from Bus and Train Operators (Job Market Paper). Department of Economics, Harvard University, (Novembre 28th), 1–85. Retrieved from

Bertrand, M., Goldin, C., & Katz, L. F. (2010). Dynamics of the gender gap for young professionals in the financial and corporate sectors. American Economic Journal: Applied Economics, 2(3), 228–255.

U.S. Census Bureau American Community Survey (ACS) 2017

Governments Should Stop Supporting Non-Viable Companies

In France there is Renault, in the Netherlands there is KLM and the United States is known for subsidizing Boeing excessively. Many billions have been loaded into corporations to rescue them from a corona downfall. With the FED’s latest announcement to start buying individual corporate bonds instead of ETF’s, even central banks start to step deeper in the growing junk-rated investment environment that years of ultra-low interest rates have created.

A Rising Amount Of Zombie Companies Are Dependent On Low Interest Rates

In the chart below the rise in share of non-viable zombie companies is plotted. The left chart defines zombie companies as firms with an interest coverage ratio less than one for three consecutive years and over 10 years old. The right chart defines firms as zombies when they have a Tobin’s q below the median firm in the sector in a given year. The interest coverage ratio is the ratio of earnings before interest and taxation to interest paid. Tobin’s q is the sum of the market value of equity and liabilities divided by the sum of the book value of equity and debt. Both excellent measures to portray the following worrisome trend.

Figure 1 – Zombie Companies Are On The Rise And Survive Longer – Banerjee, R and B Hofmann (2018)

The right chart is somewhat lower because many investors tend to be overly optimistic about the future prospects of these kind of companies. There seems to be more to gain from these companies, while these companies are actually overvalued junk-rated companies and only survive due to the zombie-friendly low interest rate environment. This creates a huge incentive for central banks to start buying corporate bonds in order to rescue these obviously unsustainable companies, to prevent a possible zombie collapse. If they would not use their massive QE-measures these companies would go into default. But as the share of these companies is rising, the potential burden grows every time central banks extend this endless cycle of liquidity for these non-viable companies. The end is near, and corona may just have popped the bubble. As a second wave of corona cases initiated after the re-opening of the United States, this bubble might burst sooner than later.

Supporting Non-Viable Companies Harms Innovation And Creates Bad Debt In A Race To The Bottom

While many companies are becoming dependent of the zero interest rate, they tend to struggle more and more. An increasing amount of companies is issuing new debt in order to replace and finance old debt. These creates a race to the bottom where faulty and inefficient business models do not get stopped simply because interest rates are dropping. Without creative destruction of old-fashioned and unnecessary companies, there is no new ground and market place for new innovate and more efficient companies. Another thing that is keeping many non-viable zombie companies alive is the fact that they enjoy scale-advantages. No, not the classical economics scale advantages where higher production leads to lower average costs. No, these scale advantages more and more express themselves in too-big-too-fail scale advantages. Next to these low-interest rates, governments start a subsidizing spree to keep these companies alive. Both of these factors, governmental support and dropping interest rates along with unlimited quantitative easing, create a race to the bottom. Interest rates may not rise again soon and governments and central banks support the companies where interest rates can not drop further.

Governmental Subsidies Should Be Deployed With Stringency

There are several reasons why this is a bad trend, creative destruction is necessary for economies to continue evolving and innovating. Therefore, governments need to be really careful which sector to support and which companies to let go. Strangely, the U.S. government is still pouring billions every year into the oil industry, which seems rather counter-intuitive when also subsidizing companies like Tesla at the same time. The ultimate example is Boeing, the most subsidized company in U.S. history, this company has become the dirtiest kid in town where sloppy finance has resulted in sloppy engineering, with all the known consequences. However, the aerospace technology of Boeing is vital for agencies like NASA, Homeland Security and the U.S. Military, creating an inconvenient position for the U.S. government.

In Europa KLM and Renault are clear-cut equivalents of this trend, companies that both have been struggling to attain a large enough market share to be profitable. The Dutch and French government spent many billions on these companies that eventually will default anyway. The Golden Investor thinks it is a shame that tax payers end up paying for non-viable companies that eventually will break down anyway. The same billions can be used to rescue other more viable companies, to pay unemployment benefits and to subsidize companies that have higher chances of survival in the 21st century. Supporting these kind of companies creates a race to the bottom with other governments who all are supporting these kind of companies. In the end the weakest countries will lose this race, countries like Italy have already complained about this governmental behavior. They are restrained by the strict conditions of their support while other governments splash with money. Support does not work if it results in unfair competition between supported and non-supported companies.

The Golden Investor pledges for strict policies which have to restrain governments to blindly support every business out there. Governments could use this opportunity to steer businesses to more environmentally friendly business models. However, it is of great importance not to destroy productivity and innovation by unlimited and unrestrained support. The economic engine should not stop rolling, however governments need to stop turning the global economy from a Boeing F-15 into a Renault Twingo, because in that case the economy is not going to fly away after corona.


  1. Banerjee, R and B Hofmann (2018): “Corporate zombies: life cycle and anatomy”, Bank for International Settlements, mimeo.

R&D-Stimuli In The UK: TAXIT Or Back It?

In many companies the leading department is the Research and Development (R&D) department, they come up with new ideas which result in technological advantages for the industry and more specifically their clients. These developments typically lead to economic growth on the long run. This is the reason why governments have huge incentives to stimulate businesses and universities in doing more R&D. Back in the year 2000, during the dotcom-bubble the government of the United Kingdom introduced a special tax credit system, alongside already existing direct R&D investments, to enhance corporate R&D investments. But has the government succeeded in stimulating R&D spending? Or to put it more generally: Did the British taxpayer see something back from this funding?

Leading up to the turn of the century the internet started to intensively develop and implemented. It was used as a marketing strategy for companies to hype their business and increase market value. This led to a huge bubble on financial markets. After the dotcom-bubble burst new high-tech initial public offerings (IPO’s) on stock markets around the world were traded less. Investors started to look more at fundamentals of companies that went to the stock market to be publicly listed and traded. This led to a lower amount of new high-tech IPO’s on stock markets overall, especially in the United States and the United Kingdom (Pilbeam & Nagle, 2009). A clear sign that the dotcom-bubble aftermath has led to lower investment and interest in innovative and technological developments.

Several years followed in which technological innovations were quick to overhaul themselves. The 2008-2009 financial crisis followed soon, this time however, evidence showed that companies with higher R&D spending comparatively performed better than ordinary companies during the crisis. During normal times R&D intensive companies tend to perform better than average, this relationship was even stronger during the financial crisis (Lome, Heggeseth, & Moen, 2016). This shows the resilience of R&D-intensive companies and their importance not only economic growth, but their economic stability also proves vital to the economy. The United Kingdom is not particularly known for its ability to innovate. This is also visible on a more macro-perspective, where the UK spends a significantly lower part of their GDP on R&D, stable around the 1.6%, compared to the United States, even below the average R&D spending of the so disputed European Union (see Figure 1).

Figure 1 – Percentage of GDP spent on R&D, (Eurostat, 2020)

To boost R&D spending in the United Kingdom, the government implemented a new tax reduction scheme for small and medium sized enterprises (SME’s) in 2001-2002. In this way smaller companies were incentivized to spend more on R&D and thus to stimulate their productivity. The overall rational behind this new policy was to make sure that the UK would maintain a healthy level of economic growth in the future. Economic growth is mainly driven by technological changes which make economies more efficient and increase welfare. From this point of view, it seems rather logical to cut R&D costs for businesses. It should be noted that a special R&D tax policy was already in place before the 2001-2002 change. However, this policy was not leveled in different size structures. The 2001-2002 R&D tax policy change was focused on cutting R&D costs for SME’s even more (see Figure 2). One should think of lowered taxing on employee salaries and energy costs for R&D departments, creating an incentive for business to focus more on R&D.

Figure 2 – User Costs Of R&D Investments In The UK, (Bond & Guceri, 2012)

This new special tax policy to improve R&D was initially focused on small companies with fewer than 250 employees and a 50 million or lower turnover. Over the years this R&D tax policy was altered by the UK government. Since 2008 the threshold to be able to apply to this special regulation was doubled, companies with 500 employees and less than 100 million turnover could also benefit from these extra tax cuts. Companies which initially were too large to apply were suddenly being able to classify as SME in this tax scheme. This resulted in a higher amount of companies being entitled to more generous tax deductions.

Furthermore, the UK has also had policies in increasing the direct investments in R&D. In 2004, the United Kingdom Research and Innovation governmental body set out the ambition to increase R&D to 2.5% of the GDP by 2014. As earlier mentioned, the UK spends around 1.6% of its GDP in R&D since the turn of the century until now. In other words, the ambition of 2.5% was not met by 2014. In 2019 the UK realized that it was under-investing in R&D compared to its competitors, and it fears lacking behind even more. At the moment, the biggest international partners of the UK and leading R&D nations have already accelerated their investment in R&D and have ambitious plans to go even further, shown in Figure 3.

Figure 3 – The R&D Spending And Targets Of The Biggest Economies, (UKRI, 2019)

This stimulated policy makers of the UK to set another goal of their own. The UKRI set the ambition to achieve a 2.4% of GDP expenditure in R&D by the time of 2027, also shown in Figure 4. The UKRI wants to increase their spending because it believes that advanced economies will only continue to grow and prosper when innovation delivers a better and more productive economy. The increase in spending will largely end up in private businesses and projects, because it is believed that is the best method of stimulating innovation. Policy makers of the UKRI are also looking further than only the input target of 2.4% of GDP, namely to the destination of the R&D investment so the impact of the investments is maximized. However, the most efficient allocation of R&D funds is still an open question, according to the UKRI.

Figure 4 – R&D Expenditure Target, (HOCL)

Economic Theory On Innovation & R&D Expenditure

The reason why innovation, and thus R&D investment, is important for an economy because it creates positive externalities. Benefits of innovation accrue to all, when the direct returns are not always present. Because of this, financers might need to be stimulated to invest in innovation, to make sure that economic growth through innovation takes place. Generally, governments have two types of approaches to choose from for their innovation policy; a neoclassical or a dynamic approach. A government with a neoclassical approach typically provides a framework of conditions for private sector growth, by reducing bureaucracy. Through the invisible hand of the markets, the allocation of capital will be efficient so the allocation of investment will be too, according to supporters of this type of policy. A possible unwanted consequence of this type of policy could be when R&D doesn’t generate results. R&D investments will drop because of this, which in turn creates market failures. A counterpart of the neoclassical approach is the dynamic approach. According to this approach the role of the government is to provide to proper incentives to the private market to innovate and also actively shape and participate in the innovation process. In this case the government is actively choosing industries and projects to invest in, that have the greatest positive externalities for the general well-being. The risk of this is that governments are picking their winners, while the winners of tomorrow are almost impossible to predict (Van Krevel, 2020).

R&D Policy Effectivity

Reflecting on the earlier mentioned economic theory on innovation, it can be concluded that the UK have implemented policy the last twenty years which is a combination of the neoclassical and dynamic approach. The reduction in tax is typically a neoclassical way of policy making, where the influence of the government on the market of R&D is decreased. This shows that the UK has confidence in the efficiency of the market, so that investment capital is allocated efficiently. On the other hand, the UK has expressed twice, in 2004 and 2019, to increase the direct investments in R&D. This is an example of policymaking with a dynamic approach. Both types of policies are aimed at increasing economic growth by creating positive externalities through innovation.

The effectivity of the tax reduction will be analysed. Smaller companies tend react more significantly to R&D cost reductions than larger sized companies. This can be explained by the fact that smaller companies have a higher incentive to innovate to reduce the gap in productivity to larger companies. Large companies have size advantages, smaller companies try to reduce this gap by spending more in R&D. In an analysis by (Bond & Guceri, 2012) it was showed that the main increase in business expenditure on R&D has been almost solely refrained to the high-tech sector, a trench of the manufacturing sector. Other sectors within the manufacturing sector, which accounts for 75-80 percent of R&D-expenditure in the UK, saw almost no increase in R&D-expenditure following the 2001-2002 tax policy. However, the overall R&D-expenditure intensity for this sector was significantly higher (see Figure 5).

Figure 5 – UK R&D-expenditure Intensity: Manufacturing Sector, (Bond & Guceri, 2012)

A study done by (Guceri & Liu, 2019) compared the difference in R&D spending between newly assigned SME’s and unentitled larger companies. They found that companies which suddenly were able to apply to this tax scheme were spending on average 33 percent more as a result of this generosity. All this was done with a 21 percent tax reduction on R&D user costs. Since a higher R&D-intensity goes along with more economic growth and stability, this proves the overall success of this policy.

Next to the tax reduction policies, the UK have tried to increase the direct investments in R&D since the turn of the century. The goal, set in 2004, was to increase R&D spending from 1.6% to 2.5% of GDP by 2014. This goal was not reached, and far from it. The R&D expenditure of the government was not increased by 2014, and was still the same at 1.6% of the GDP. So this policy horribly failed in its goal. In 2019 the UK have set a similar goal, to increase the R&D spending from 1.6% to 2.4% of GDP by 2027. So it is at the least questionable whether this goal shall be achieved by the time of 2027. The focus of these policies is investing in private firms and industries, and geographically the South-East of England.

The Golden Investor Policy Proposal

At the moment UK’s R&D activity is concentrated in the East of England, South East and London, which are also the wealthiest regions of the UK. The positive externalities that innovation creates, are thus happening in the already wealthiest regions. According to the theory, this will lead to increasingly differences in long-term wealth between these regions and the rest of the UK. It is very questionable whether the UK shall achieve its R&D expenditure targets, but in either way a priority for policy makers should be to invest far more in regions located in other parts than the South-East to decrease long-term inequality. It seems that a dynamic approach in R&D expenditure, is not preferable over a neoclassical approach, because the efficient allocation of investment capital is better determined by the invisible hand than by the hands of policy makers. Policy makers seem to have found a middle way between the two approaches by actively investing in R&D of the private market, which seems to be the vision accompanying the goal of 2.4% by 2027. Nevertheless, the goal of 2.4% seems to be a somewhat shallow goal. There still exist many open questions about the destinations and impact of R&D investments of the government. Without answers about the impact of R&D investments, UK will be picking industries and projects to invest in with a blind-fold on.

Tax reductions for business do not always do well with average income citizen and rightfully so. But it seems that this governmental expenditure has proven to be fruitful. One should always stay critical and be wary, governments tend to overspend. When it is your money being spend, knowing the facts protects you from a misguiding government. However, some of the R&D policies seem to be effective in increasing R&D spending and this time it leads to benefits for the overall economy, so also for you. But the effectivity of the policies have sufficient room for improvement. Maybe it’s good that the United Kingdom leaves the European Union as it slowly turns into a liability.


Bond, S., & Guceri, I. (2012). Trends in UK BERD after the Introduction of R&D Tax Credits. Working Papers.

Guceri, I., & Liu, L. (2019). Effectiveness of fiscal incentives for R&D: Quasi-experimental evidence. American Economic Journal: Economic Policy, 11(1), 266–291.

House of Commons Library (HOCL). Retrieved on 28-05-20

Lome, O., Heggeseth, A. G., & Moen, Ø. (2016). The effect of R&D on performance: Do R&D-intensive firms handle a financial crisis better? Journal of High Technology Management Research, 27(1), 65–77.

Pilbeam, K., & Nagle, F. (2009). High-tech IPOs in the USA, UK and Europe after the dot-com bubble. International Journal of Financial Services Management, 4(1), 64.

UK Research and Innovation (2019). The UK’s 2.4% R&D target.

Van Krevel, C. (2020). Positive externalities: Innovation, Economic Policy & Public Finance