'Double Irish With A Dutch Sandwich', Please!

For many of you the title sounds like an order in Subway. But it is not. Especially to large corporations like Apple, Amazon, Starbucks and this list is endless...

'Double Irish with a Dutch Sandwich' is a tax avoidance scheme, according to which, firms make use of Irish and Dutch subsidiary companies to take advantage of low taxes or to get away without paying tax at all.

The technique involves sending profits first through one Irish compony, then to a Dutch company and finally to a second Irish compony, which is headquartered in a tax haven. As a result, businesses can absolutely legally move their profits from countries with high tax rates to countries with zero tax rates. That way, Starbucks, for instance, have paid total os $13 million in British corporate taxes over 15 years while its revenue exceeded $5 billion. Amazon at the same time paid £2.4m in corporate taxes last year, despite making sales of £4.3.

Here is the recipe Apple was following for years, which helped the firm decline any tax residence, no corporate income tax and no income tax return to any national government from 2009 to 2012, when its net income was reported to be $30bn. I personally do not recommend to follow this recipe as you might end up explaining the recipe instructions not to your friends but before a Senate panel.

There is the full list of firms who were quite brave to play dangerous games with the governments.

            Adobe Systems

            Apple

Eli Lilly and Company

Facebook

Forest Laboratories

General Electric

Google

Johnson & Johnson

Microsoft

Nederlandse Spoorwegen

Oracle

Pfizer

Starbucks

Another feature of the 'Double Irish with a Dutch sandwich' the businesses were benefiting from was the Dutch extensive network of investment treaties around the world. If you were to establish an operation in the Netherlands, it can also give the access to different investment schemes.

The economic crisis forced businesses to look for new techniques that would help them stay in the line of business. An even though governments may not like such brilliant ideas of large corporations, the schemes seem to be completely legal and workable. For me it raises the question of not only changing the tax system but also taxing the rich more in other ways as Paul Krugman argues in the Munk Debate(there will be a review to it a bit later). 

The increasing government chase of corporate taxes makes me think that political leaders have probably run out of the policy measures to revive our economy, and they try to improve techniques of holding businesses to account. The survival of the world is in the hands of the rich. But do they agree to save us? Who cares?! Nowadays, the ones who have money should share, share a lot. Legally of course. 
Not as it was the case of Yevgeny Chichvarkin, when he was put him under  the great pressure of the government which in the end forced him to sell its large corporation under the real market price.

Are we all in it together and alone?!

The ongoing economic crisis have helped develop various possible ideas about the real and sometimes even magic forces(Ben Bernanke, the chairman of Fed, is probably already dreaming about having a magic stick that would grab the economy out of the crisis) that can save our economy from default. Some argue that the world's end would have been the more desirable outcome than what we face now. But let's start from the grassroots.

There is a broad convention that the whole world economy is led by the 'invisible hand', which plays role of the market mechanism. According to it, the decisions of consumers and producers intercept in order to determine the efficient allocation of resources that brings the welfare to both. The magic tool was once discovered and identified by Adam Smith in his masterpiece 'An Inquiry into the Nature and Causes of the Wealth of Nations'.

From, my own experience of reading a book, I can say that the concept of the economic rescuer was mentioned quite vaguely and wasn't the main focus of Scottish philosopher.However, in some chapters he clearly stated that the markets if led only by the free choice of consumers and producers, might fail easily and thus some guidance needed.

The existence of the 'invisible hand' brings us to the idea of the equilibrium where all market forces are in balance and there is no tendency to change the behavior of households and firms. Therefore, the basic economic problem is at last solved and infinite wants are satisfied with the finite resources. We can also assume that there are no barriers to entry into the market, the product is homogeneous, the information is perfect and there is a great number of buyers and sellers. These are the conditions of the competitive equilibrium, but another type also exists called normative equilibrium.

Normative equilibrium implies that only one economic actor is successful in pursuing its goals. For example, businesses might be maximizing their profits by producing all range of goods and services, however at the same time people can be starving. That can happen when consumers change their behavior suddenly or most of the goods produced going out of the country (i.e. exports). 

The Great Famine in Ireland is an example.The food was mainly exported since firms were gaining more profit from foreign trade than from domestic market. So while the equilibrium was achieved between domestic producers and foreign consumers, the domestic citizens were excluded from benefiting.

Can it be called a partial equilibrium or is it an equilibrium at all? Should an equilibrium satisfy all the consumers or just ones who are able and want to purchase goods? How about the poor or will 'invisible hand' save them?

For me it seems that the whole concept is rather obsolete if used in the modern world economics. Nowadays, most economies are open ones, which imply that foreign trade and satisfaction of foreign needs is the prime task. Exports are especially attractive if combined with devaluation of the currency. However, there are still closed economies called autarky like North Korea or Argentina. The latter welcomes just exports not imports. 

The type of the economy is also crucial. Planned economy is hugely associated with equilibrium, where government ensures the distribute of goods and services and since the satisfaction of wants and needs of the population. But does the equilibrium exist in the market economy where each economic actor tries to achieve its own welfare?

In the case of simple demand-supply diagram, is it possible to reach equilibrium for Giffen goods? These are goods demand for which  rises when price rises. What if the slope of demand and supply is the same, does it mean that the equilibrium can never be reached?

There are also confusions about the nature of the equilibrium. Some argue that it is a fixed single point in the economy, which once reached would ensure the rich and happy life for everybody. But I wonder whether there can be more than one point of equilibrium for different goods? Does the point for complement goods need to be the same? For instance, the market clearing price for suitcases is the market clearing price for holidays as they are in joint demand. What if I just like collecting suitcases which doesn't seem to be real but still. In the case of the more traditional example of milk and cereals it can be easier seen that since milk is in composite demand, the equilibrium for cereals doesn't need to be the same.

Let's take the case of substitutes. These products satisfy the same wants and needs, so the equilibrium must be the same. However, due to the great number of sellers and huge competition, some goods may lack demand and can be completely forced out of the market. As for me, much greater influence has nowadays shifted from the 'invisible hand' towards economic actors themselves. They on their own determine the equilibrium point or points of goods and services in the economy.

The general equilibrium can also be seen as the stable PROCESS of reaching the market balance. In our fast-moving world there are a lot of exogenous factors like change in consumers' preferences that can influence the position of the equilibrium. Also the change in the type of the economy, type of market and the scarce nature of resources can alter the market balance. So if the process itself is known as equilibrium, does it mean that we are constantly in equilibrium and thus there is no particular point we need to stop at?

Economic crisis. Financial default.Unemployment.Poverty...

That what we have nowadays while waiting for the rescue by Adam Smith's hand.

                                                            But isn't it too late to still hope for the best?! 

Was it the news about the end of the world or unemployment rate 27% in Spain, but we now see bold actions of the Fed, ECB, BoJ, BoE and other financial institutions, who before 2008 seemed to naively believe in the existence of the 'invisible hand'. 

P.S. Probably not a nice gesture was shown to them!Something like this...)