Monday, 31 August 2015

Fun Online Polls: The global financial crisis & Muslim migrants

The results to last week's Fun Online Poll were as follows:

What caused the global financial crisis which has seen the UK mired in recession for the last seven years?

The global land price and credit bubble, mortgage backed securities etc. - 81%

UK government deficits of a few percent of GDP in the years before the crisis - 5%
People under 25 claiming benefits rather than looking for a job - 4%
Other, please specify - 10%8

Correct. So treat the cause, not the symptoms.

Which is the opposite of what UK governments (of whatever party) have been doing for the last seven years.
* Taking away benefits from the under-25s is something the Tories are doing quite ruthlessly (aka 'bayonetting the survivors)
* If government deficits were a minor or secondary cause, then why have they run a cumulative total deficit of over fifty per cent of GDP over the last seven years? (considerably higher than what Labour was doing until 2008).
* Seeing as the land price/credit bubble was the actual cause, why have UK governments done their level best to prop up house prices and prop up speculation and banks by depressing interest rates?

Strikes me, they are making things worse and just delaying the inevitable. Perhaps until 2025-26?
Muslim migrants have been in the news a lot recently. History shows that they are not very good at fitting in Western/non-Muslim countries and tend to stay "within their own communities", so we can assume that Muslims prefer to live among other Muslims.

So fair enough, people are fleeing the war zones (I know that I would), but that's only part of Syria/Iraq. Surely your easiest option is to move to a more peaceful area in Syria/Iraq; your next option is move to a neighbouring Muslim country; your next option is the easy overland route to a Muslim country further afield (from the Atlantic to Pakistan, if you gloss over Malaysia/Indonesia).

From Wiki:

So why are so many of them taking the most difficult journey across continents and oceans to north-west Europe, where they will never fit in anyway? And yes, that is more or less a rhetorical question.

So that's this week's Fun Online Poll.

Vote here or use the widget in the sidebar.

Edinburgh Fringe Festival

From the Guardian

The city’s festival is vast, exuberant and intoxicating – and a giddy opportunity for price gouging that almost every business in town takes advantage of. It is the perfect capitalist model: the owners of assets such as hotels and restaurants skim off large profits, while the people who make those profits possible – the performers sweating in the city’s aircon-dodging venues – walk away penniless.(1)

Take the Ibis, a budget hotel, in the city centre. It makes no bones about its “dynamic” pricing model, with a digital screen facing the street showing the latest shocking room price updates. Last week it was like the Shanghai stockmarket, just with soaring prices rather than collapsing ones. I don’t recall the exact figure, but on the Saturday it was asking above £230. This for a hotel that charges £35 a night for advance bookings at other times of the year.(2)

Not far from the Ibis, I was lucky to get a seat for one of the triumphs of this year’s festival, a theatre production called 1972: The Future of Sex. It’s the third time Wardrobe Ensemble has played at Edinburgh, and even after great reviews and sold-out performances, it will barely cover its costs.(3) One of the group’s actors, Ben Vardy, told me: “We broke even in our first year, and made a small loss in our second. We will turn a small profit this year because it has been very, very successful. But when I say profit, I mean under £100 each.”(4)

The business model for the creative industries is broken. For every performer at Edinburgh working for nothing, read musician on Spotify or writer on the net.(5) Providers of content make peanuts, while the controllers of the infrastructure, such as Google, walk away with extraordinary profits.(6)

It was ever thus, some might argue, although the internet has allowed businesses to extract profits with a precision previously not possible. How can we transfer some of the wealth grabbed by, say, hotels in Edinburgh and hand it to the people who generated it? A city-wide tax on hotels and restaurants during the festival, the money redistributed to performers? Utopian, probably, and in any case illegal under our tax regime.(7)

(1) Well, yes, if you can run a business where you make money as a result of people who are prepared to work for nothing, that is.

(2) What else is it going to do? Hotels across the country vary their prices based on demand. London is cheap at weekends, the Cotswolds cheap on weekdays, coastal places rise in summer.

(3) Maybe if you're selling every ticket, you need to consider raising your prices?

(4) So clearly, they recognise that it doesn't make much money, but keep on doing it. Maybe like lay preachers and people who sing in choirs, it's more about doing the thing for fun. Of course, the other thing in all of this is that these festivals are more about business than pleasure. You hold a festival, you can get various media people from the BBC or C4 to take a trip to the festival to see your show, maybe be impressed with your work and commission you to write something for them, for real money.

(5) The business model isn't broken, because Edinburgh has hundreds of shows being put on. Spotify has 200,000 songs uploaded every day. There's no shortage of people making stuff, which is all we want. And historically, going back to 1980s synth bands, 1930s dance hall bands or 19th century choir festivals, almost no-one made money. People mostly did their thing for pleasure and to perhaps make some beer money. The change today is that people are now doing this with making their music globally available and making a few quid from YouTube adverts. The people who are most upset about this aren't those people but the old gatekeepers of promoting artists in the old media, and the artists who had the big company backing. They really don't like that all these small artists can have access to distribution and sell product instead of them.

(6) Google? I thought this was about Spotify? What infrastructure do Google control? Not the internet, the world wide web, the fibre-optic cabling or any of the domain registration stuff that makes up the net. Google have mostly been rather unsuccessful with making money off artists. Their profits come from people searching for funny cat videos and getting served an ad.

(7) You don't even need anything this complicated - you just charge business rates to hotels that get a financial benefit, and charge the local people who get the benefit of art on their doorstep and spend that on the festival, which is what Edinburgh does already, to the tune of something like £4m per annum.

Saturday, 29 August 2015

The dynamic 'cost' of getting rid of VAT would be a lot less than current VAT receipts

Here's a simple diagram showing how VAT reduces economic activity (assuming a certain fixed level of costs) and sketching in the receipts from VAT (about £100 bn) and PAYE/corporation tax. This assumes that the overall average rate paid by employees (income tax and NIC), company and business owners averages out at 40%. So mathematically, PAYE and corporation tax receipts etc are about £200 bn and total tax paid by the VAT-able sector is £300 bn:

Now, what happens if we got rid of VAT but left other tax rates the same?

Output, in units, increases by one-fifth and the 40% average rate, now applied to a much larger tax base, would raise about £281.25 bn (if my geometry is correct). So although VAT taken in isolation is £100 bn a year, getting rid of it would only mean total revenues falling (a 'cost' from the government's point of view) by £20 bn.

For sure, I have made a lot of assumptions here, the higher the fixed cost line, the more dramatic the effect and vice versa. But even if the fixed cost line is set to zero, total receipts would only fall from £300 bn to £240 bn, a dynamic 'cost' of only £60 bn.

And the 40% is just an overall average rate, the average rate for low earners will be lower, but all those extra jobs means millions off the dole queue into low paid jobs at least, and the welfare savings is well in excess of 40% of the extra money they earn.

Perhaps we can split the difference between £20 bn and £60 bn and call it £40 bn?

"The financial crisis that has wiped $3 trillion off stock markets"

Headlines like this just remind us that share prices have little to do with the real, productive economy.

If you are looking to invest in shares in the future, this is good news, if you own shares and were hoping to sell in the near future, this is bad news. But the whole thing is a sideshow.

People flatly refuse to understand that there's no natural or economic law that says that private sector businesses, whether quoted or not, have to have share capital at all.

The model, which we can use for illustration, is the Limited Liability Partnership ('LLP').

* The assets side of the balance sheet, i.e. what it owns, looks exactly the same as a company with share capital, but instead of 'share capital' it just has 'members' capital'.

* Each LLP can pretty make up its own rules, but the general idea is that profits would be divided up between members according to how much real cash they have actually put into the business (plus undrawn profits from earlier years).

* Instead of the business being owned by 'shareholders' it is owned by 'members'.

* Instead of each shareholder getting a cash dividend of so many pence per share with the rest of the profits being reinvested, the LLP's profits would simply be apportioned between members according to how much hard cash they have paid in.

* Instead of buying shares in the business from existing shareholders, people just pay in cash to the LLP. Instead of receiving dividends or selling shares when members need cash, they just withdraw cash/capital.

* Instead of each share being entitled to one vote at meetings, you would get one vote for each £1 or £100 you have invested.

* Instead of wild fluctuations in share prices, no member of an LLP would make or lose a fortune overnight.

* Instead of people wasting oodles of time analysing share price movements, they would be scrutinising the actual performance of the business, which is far more important.

* Instead of businesses being valued at the discounted net present value of expected future profits, a business would just be worth roughly the same as its total assets.

* Investor returns, per £ invested would be much higher. Let's say that for quoted companies, the shares are worth three times as much as the actual assets in the business and the overall return on those shares is five percent (dividends + reinvested profits). Instead of paying £3 for £1's worth of assets in the hope that you will get your £2 back from the company and a return of 15 pence per share, people would just pay in £1 into a quasi bank account with the LLP and be credited with 15 pence profits every year.

* As mentioned, each LLP can have its own rules. Clearly, if there is a sudden downturn in expectations for a particular business, then investors might rush to withdraw their cash/capital, thus speeding up the demise of the business (which might be a good thing). In which case, an LLP could be entitled to simply suspend withdrawals in the same way as trading in some shares can be suspended. Or the LLP simply makes a write down for expected future losses, so if you paid in £1 and there's a huge loss (past or future) which will wipe out half the asset base, then 50p is simply written off your balance. This is still a lot better than buying a share for £3 and seeing it fall in value to 50p.

* When a whizz bang start up floats on the stock exchange, then of course the founders will sell out for a multiple of what the company's assets are actually worth, no harm in that, it incentivises start ups. With an LLP system, when a private LLP goes public, those founders would just make it clear that for every £3 people pay in, £1 goes into the business and the other £2 goes into the founders' pockets. That is, in cash flow terms, absolutely no different to what happens now, just a bit more honest.

* The only downside I can see is that it will be more administrative faff running such quasi bank accounts than just updating a shareholder's register. Again, each LLP can make up its own rules, so for example, it could say that people can only pay in or withdraw cash/capital once a month or on four specified dates in the year with a few weeks' notice. It is all perfectly do-able.

We know that this is a much better system, but current owners will always vote against it because they can make a windfall gain at that point in time when their business is first quoted on the Stock Exchange, just like the building society flotations of the 1990s. It's a beggar-thy-neighbour rent seeking policy where profits are transferred from future owners to current owners. That's the only 'law' that I can see operating here - people are stupid and greedy.

Friday, 28 August 2015

"Paper Chinatowns"

From imdb and imdb:

Adapted from the bestselling novel by author John Green, the coming-of-age story centres on JJ 'Jake' Gittes, a sixteen-year old private detective who specializes in matrimonial cases.

He is hired by his enigmatic neighbor Margo, who suspects her husband Hollis of having an affair. After Margo takes him on an all-night adventure through their hometown, JJ does what he does best and photographs Hollis with a young girl

Margo suddenly disappears - leaving behind cryptic clues for JJ to decipher. When her husband is found dead, Jake is plunged into a complex web of deceit. The search leads JJ and his quick-witted friends on an exhilarating adventure that is equal parts hilarious and moving.

Ultimately, to track down Margo, Quentin must find a deeper understanding of true friendship - involving murder, incest and municipal corruption all related to the city's water supply - and true love.

*DBC Reed says that this one has a Georgist sub-plot: "Chinatown = struggle to divert water to supply new development. Good film too. There is an academic paper that demonstrates that Americans nowadays accept the film's version of the Owen's River takeover as the bare unvarnished truth."

"Young goths at risk of depression"

Somebody at the BBC has decided to have a go at writing an Onion style article.

It's hilarious:

In this study, researchers looked at 3,694 15-year-olds based in Bristol. They found the more young people identified with the goth subculture, the higher their likelihood of self-harm and depression.

The goth movement - with its emphasis on black clothes, heavy black make-up and sometimes gloomy music with doom laden lyrics - has been attracting adolescents for many years.

But for the original and best, see for example here.

Thursday, 27 August 2015

Killer Arguments Against LVT, Not (368)

I was drafting a couple in my head, but then I saw this at the Facebook LVT page.

Gemma Seymour knocks various Faux Lib, Homey and waffly Georgist assertions out of the park:

"The obvious implication is that land is, morally speaking, a commons—anyone can use it, nobody can exclude anyone else."

This is utter nonsense. Of course we allow a license to exclude, for which the licensee must pay back to the community the value of that license. This is the whole *point* of the reclamation of economic rents.

"There is no obvious limit to what government is entitled to make me do."

Again, rubbish. There are very clear limits on what government actions may be considered legitimate.

"The argument for the efficiency of land taxation depends on the government that imposes it distinguishing the site value of land from the value that is due to [the owner's] action."

Which anyone even marginally familiar with current property tax valuation practices knows is already the current practice. This is a non-issue.

"I am an anarchist rather than a Georgist."

How absurd. There is no such thing as "anarchism". There is always a power structure. The human brain is incapable of forming trust relationships beyond Dunbar's number, and all civilisations of any complexity require abstraction of trust—government.

Great, saved me the bother.

No wonder Scottish retailers are struggling...

... they don't do maths.

From some some special pleading by the Scottish Retail Consortium aka Scottish Commercial Landlords Consortium:

3. The retail industry contributes around £2 billion in taxes per year in Scotland across the top five taxes of VAT, income tax, national insurance, business rates and corporation tax. Of the £2 billion, retail contributed close to £700 million in business rates...

5. In 2005, business rates made up around one-third of all taxes borne by retailers. By 2014 this had grown to nearly 50 per cent.

Have I missed something or are they deliberately lying?

They sat they pay £2,000 million in taxes, of which £700 million is Business Rates. That means Business Rates make up about 35 per cent of their total tax bill, not 50 per cent. So the share has gone up from "around one-third" to about 35 per cent, in other words "not at all".

And I find it baffling that they focus so much on Business Rates. Their single largest tax bill is going to be VAT. Total UK VAT receipts are over £100 billion a year; total Business Rates receipts under £30 billion. And if it's not VAT, then it will be PAYE. Business Rates will be a distant third and corporation tax will be an even more distant fourth.

Or put it another way, even their £2 billion total is highly suspect. According to this, total UK retail sales alone are about £350 bn a year, £58 billion of that is VAT (paid directly to the government or paid indirectly as input tax which their suppliers pay to the government). Scale that down for Scotland and that's about £5 billion. Even if we politely ignore input VAT, the total they pay directly will be more than half of that, call it £3 billion?

Either way, we have to assume that they pay about four times as much in VAT as they do in Business Rates.

(H/t Thomas Hall and Lola).

This will come as no surprise to anybody who uses the Tube...

All-night Tube service will be delayed

Wednesday, 26 August 2015

"Jeremy Corbyn backs women-only public toilets"

From The Evening Standard:

Labour leadership frontrunner Jeremy Corbyn would push for women-only public toilets to be introduced to curb sex attacks, he has said. The Islington North MP, currently the bookies' favourite for the party’s top job, made the comments while launching his campaign against sexual harassment.

“Some women have raised with me that a solution to the rise in assault and harassment in public toilets could be to introduce women-only facilities. My intention would be to make going to the bathroom safer for everyone whether in the pub or on a train.

"However, I would consult with women and open it up to hear their views on whether women-only make-up sessions in night clubs would be welcome – and also if piloting this where harassment is reported most frequently would be of interest."

British Toilet Police recorded 1,399 sexual offences in 2014-15 in Britain’s toilets and washrooms, an increase of nearly 300 on the previous year and a new record.