Thursday, November 07, 2019



I discussed the biggest cheating game in the European Union in my essay “Global Risks*”.

Where there are rules and regulations there are opportunities for cheating. The practical definition of cheating is to accrue a benefit by circumventing the rules and regulations. In their report* the European Commission highlight that the taxation issue in the EU is both tax evasion and tax avoidance. Tax evasion is an illegal way of not paying taxes whilst tax avoidance is using the tax system of a country to avoiding paying the taxes due had not the tax loophole been employed. But the issue for us is not one of taxation but one of designing rules and regulations.

A question for us is to assess whether human made rules are inherently flawed by the very nature of being human made? Or can human made rules be sound and flawless that they are as good as nature’s laws? Can we devise a Turing Test for rules and regulations that a rational (and reasonable) person wouldn’t distinguish between a human made rule and a law of nature? Presumably the key criteria would be whether the rule is followed every time without fail. Gravity works every time we drop something to the ground: and presumably gravity does not care whether the toast is butter side up or down.

Maybe after the rules and regulations created by parliaments, the next set of rules we can pass through our Rule-Turing-Test machine are religious rules, laws, commandments, fatwas and whatnots. Are religious commandments on a par with laws of nature? The fact that in English we have words like cheats (UK English) or cheaters (US English) suggests that the commandment “thou shall not covet thy neighbour's wife” is not a hard and fast rule on a par with laws of nature. Indeed one can argue that the laws of nature require that we pursue a numbers game by virtue of making such extra marital activity possible. Maybe the ten commandment and similar rules were never devised to compete with laws of nature; maybe religious rules are no more than a friendly advice on how to conduct one’s life.

The fact that the commandments do not seem to be as compelling as the laws of nature also suggests that these commandments are human made rules anyway. Even more, commandments do not even have the same semantic import as advice which I suggested in the previous paragraph. Commandments are stronger than advice but nowhere as strong as a law of nature.

We might also argue that cheating is also a natural skill we inherit as biological entities; after all we are nothing else but biology and nature. Presumably, a rational agent would make a rational assessment of the risks involved in cheating, and the perceived benefits of cheating. But someone who cheats also has to consider two philosophical factors: the first is the problem of induction and the second is the assumption dilemma. We are all familiar with the induction problem: there is no reason to believe that what happened in the past will also happen in the future. So, just because someone cheated successfully in the past there is no reason why this person should also succeed next time in the future, never mind they believing they will succeed.

An interesting question is whether the induction problem is a challenge to the laws of nature themselves? We reasonably believe that laws of nature never fail, but we also accept the validity of the induction problem. Should we, therefore, prepare ourselves that one day the sun will rise from the West and not the East? In the same way that a tax cheater should be prepared that one day the authorities will find the cheater’s money in a tax haven? Luckily we do not need to worry too much about the sun; if the sun is not rising in the East we’d be long dead to bother where the sun rises.

The assumption dilemma is basically what assumptions can a cheater (UK version) reasonably make as opposed to assumptions that may be hidden from the cheater. A cheater might make the reasonable assumption that his or her financial advisor is up to date on the soundness of a loophole in tax law, but a cheater might fails to assume that the tax authorities now know how to block such a loophole. An even more serious assumption cheaters might fail to consider is they assume they are the top dog of cheaters.

Finally, from observing the ways of the world there seems to be some hidden principles of cheating, i.e. successful cheating or failures of cheating. The first principle is that, like a set of Russian dolls (Babushka dolls) there is always someone else who is more successful and more powerful at cheating than oneself. And from my comment in the previous paragraph some are much better at hiding the fact they are cheating than many others. It seems like there is also some form of survival of the fittest in the cheating world; if we know that someone is cheating then they are not the fittest in the cheating game.

A second principle seems to be that the greater the benefits of one’s cheating the more one has to share one’s benefits with others. Surely cheaters who take all the benefits of their misdeed for themselves make more enemies than those who share with everyone else. We might call this the Robin Hood principle and divorce lawyers are very familiar with this principle when they represent the aggrieved spouses of the super rich.

A third and final principle of cheating is that cheating is like a rubber band: one can stretch it so far but then it will snap. And it seems that this is what happened to the big cheaters in the EU when in 2017 the European council had enough and introduced an Anti-Tax avoidance Package to fight the one trillion Euros of unpaid taxes in the EU.**

Best Lawrence

*Global Risks

**Anti tax avoidance package

Best Lawrence

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