Tuesday, 31 May 2011

Another one in the queue for porridge

Fun Online Polls: Stuffed toys & Chris Huhne

On a good turnout, the results to last week's Fun Online Poll were as follows:

Which stuffed toy is cooler?

The PG Tips Monkey -44%

The Bird's Eye Bear - 16%
Other, please specify - 3%
Don't ask me, I never watch the adverts - 38%

So, well done PG Tips Monkey (formerly known as The ITV Digital Monkey) and thanks to everybody who took part.
This week, let's put Chris Huhne to Trial By Internet, vote here or use the widget in the sidebar.

If you really want to know a bit of background you can read up here.

Monday, 30 May 2011

More Monday Moose Madness

From The Guardian:

Last seen several thousand years ago loping through the ancient forests and glens of Scotland, two moose have arrived at a remote reserve in the Highlands as part of plans to reintroduce wild animals now extinct in the UK.

The male and female moose are part of ambitious and controversial proposals by a millionaire landowner to recreate an ancient mountain habitat, complete with wolves, lynx and brown bears roaming freely within a vast fenced-off wildlife reserve north of Inverness.

It has of course never, ever happened that a moose, wolf, lynx or brown bear has jumped or climbed over a fence, or somehow pushed through a break in one.

From Next Nature:

Hans Jørgen Olsen, a 12-year-old Norwegian boy, saved himself and his sister from a moose attack using skills he picked up playing the online role playing game World of Warcraft...

When the moose attacked them, Hans knew the first thing he had to do was ‘taunt’ and provoke the animal so that it would leave his sister alone and she could run to safety... Once Hans was a target, he remembered another skill he had picked up at level 30 in ‘World of Warcraft’ – he feigned death.

The moose lost interest in the inanimate boy and wandered off into the woods. When he was safely alone Hans ran back home to share his tale of video game-inspired survival.

Well, even assuming there's a single word of truth in all that, he could have saved himself a lot of faff by telling his sister to play dead and running off himself.

Spotter's badge, both articles: Derek.

Sunday, 29 May 2011

I hope he enjoyed having porridge for breakfast

Saturday, 28 May 2011

That's one way of looking at it...

... Mr K drew my attention to Tullett Prebon's lastest Strategy Note

Government and opposition alike base their thinking on the assumption that, by one means or another, growth can be restored. We see no reason whatever to assume this. To focus on the deficit is to ignore the fact that the British economy had become debt dependant long before the financial crisis.

Together, private and public borrowing has averaged 11.2% of GDP since 2003. Over the past decade, borrowing has driven up output in financial services (+123%), construction (+27%) and real estate (+26%), whilst lavish public spending has propelled expansion in health (+35%), education (+27%) and public administration and defence (+22%).

Real output in all other industries is now 5% lower than it was ten years ago.

Between them, real estate, finance, health, education, construction and public administration are six of Britain’s eight largest industries, and account for more than 58% of output. Yet the future prospects for at least five of these six sectors are grim, because:

- Public sector spending cuts are modest, but growth is now a thing of the past
- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.
- The aggregate of private (mortgage and credit) borrowing has now turned negative.

That sectors which account for 58% of output are hamstrung in this way leads us to believe that the fiscal and economic outlook is drastically worse than is generally assumed...

Friday, 27 May 2011

Average monthly house price changes

There was some consternation over at HPC at the fact that Nationwide's May 2011 house price index showed a small uptick, even though prices are still down marginally compared to a year ago.

So to put things in perspective, here's a chart showing the average monthly change in house prices according to the Nationwide average house price post 1991:As you can see, the March change was above average and the other changes were either lower than or the same as usual.

NIMBYs Of The Week

From the Basildon Recorder:

A DEVELOPER has been accused of trying to “sneak” extra homes on to a controversial green belt site.

Campaigners from Save Our Spaces Billericay are angry Banner Homes submitted a planning application to build a further 19 homes on the former Billericay School Farm, in Noak Hill Road. Banner Homes has permission for 51 homes, after an initial application for 70 properties was rejected by Basildon Council.

Billericay School sold the 1.7-hectare site to the developer for £5.5million...

Here's a picture of the Basildon, pop. 40,000, from Google Maps. To give you an idea of the massive devastation this will cause, I stuck on a white square* (showing an area of 1.7 hectares, i.e. 427 foot square)) on the affected area:* It's more of a rectangle shape actually, see here, but a rectangle is more difficult to cut out.

Thursday, 26 May 2011

Caught like a Ratko in a trapko

"Mother Moose Shot After Attacking Woman Near Palmer"

I love the attention to detail in this write-up:

ANCHORAGE, Alaska —  A woman was severely injured when she was attacked by a mother moose near Palmer mid-day Monday.

A cow moose with two newborn calves attacked the woman in a neighborhood off Clark-Wolverine Road, near the Knik River. The woman was able to call for help on her cell phone. Officials said the woman's injuries to her chest could have been life-threatening, but that she is in stable condition and was transported to Mat-Su Regional Hospital. Troopers shot and killed the cow moose when it again charged the victim and troopers as they arrived.

Fish and Game has the two calves, which will be taken to a wildlife center where they will hopefully be rehabilitated, raised and released into the wild next fall. A charity salvaged the meat.

This is the second cow moose with calves shot and killed for aggressive behavior in the last week. Wednesday in East Anchorage, a cow moose with newborn calves was put down after exhibiting aggressive behavior by attacking a girl on her bike and chasing a jogger.

Completely made up figure revised down by four per cent

BBC, 14 February 2011:The number of admissions to hospital in the UK because of problem drinking could rise to 1.5 million a year by 2015, a charity says.

Alcohol Concern estimates that it will cost the NHS £3.7bn annually if nothing is done to stop the increase... The charity says the number of people being treated in hospital for alcohol misuse has gone from 500,000 in 2002-3 to 1.1 million in 2009-10.

BBC, 26 May 2011:The number of alcohol-related hospital admissions in England has topped 1m for the first time, according to official statistics.

An NHS Information Centre report said admissions had increased by 12% between 2008/9 and 2009/10... The number of admissions reached 1,057,000 in 2009/10 compared with 945,500 in 2008/9 and 510,800 in 2002/3.

Well, the entirely made up figure may be up twelve per cent on the previous year, but at least it's down by four per cent compared to the entirely made up figure of three months ago, eh?

Falling Real Wage Fun (3)

A certain commenter over at HPC insists that using National Insurance receipts to guesstimate a ten per cent fall in total real wages during the period April 2008 to April 2011 is completely wrong, and that we should use Average Weekly Earnings (see Historical Time Series, Regular Pay tab) and the Consumer Price Index.

OK. There's no figure for April 2011, so let's use March instead.

March 2008, AWE £408, CPI 106.7
March 2009, AWE £417, CPI 109.8
March 2010, AWE £424, CPI 113.5
March 2011, AWE £433, CPI 118.1

We then adjust AWE for the CPI deflator to express AWE in terms of March 2011 prices:

March 2008, AWE £451
March 2009, AWE £448
March 2010, AWE £441
March 2011, AWE £433

That looks like a real fall of exactly four per cent, which we can further adjust for a 1.2% fall in total employment (from ONS Labour Market Statistical Bulletin) which gives us a total real fall of just over five per cent, which, intuitively, seems closer to the mark than a ten per cent fall.

"Not much"

DBC Reed left the following comment on my post For whom the bridge tolls (2):

A fairly beneficent toll is the London Congestion Charge, emanating from the same Georgist-minded people like Dave Wetzel who created the near-mythical (although it actually happened)Fares Fair scheme which subsidised tranport out of the rates.

Do you know how much London fares could be reduced by cross subsidies from Congestion Charge receipts?

Ho hum.

The total budget of Transport for London is about £5.6 billion (2010 accounts), £3.6 billion of  which is paid for by fares, advertising revenues etc, and the rest is made up of all manner of grants, cross charges and a £400 million accounting deficit.

Income and expenditure from the Congestion Charge scheme is included in those accounts, showing net income (i.e. income minus expenditure) of £158 million.

So the words "not much" spring to mind.

IMHO, the Congestion Charge is not really a revenue raising measure, it is a rationing measure. Even if net revenues were zero, it might still be worth doing if it ensured that those people who really need to drive around London can do so more smoothly, and those who don't really need to drive can take the bus or train instead. Emphasis on "might". Simply turning off the traffic lights would probably achieve the same end, as well as saving a chunk of money.

Finishing off Obama's joke

He kicked off his speech yesterday with this:

I have known few greater honors than the opportunity to address the Mother of Parliaments at Westminster Hall. I’m told the last three speakers here have been The Pope, Her Majesty the Queen, and Nelson Mandela, which is either a very high bar or the beginning of a very funny joke...

He got a good bit of laughter for that. It's probably because everybody in the audience knew the old joke about political correctness at the BBC and realised that Obama had just admitted he was gay.
The old joke about political correctness at the BBC is of course highly offensive and I repeat it here for research purposes only and not because I think it's funny or anything:

A new scriptwriter for a comedy show is told that there are certain things he can't make jokes about: religion, the Royal Family, infirmity/disability, race or homosexuality.

"That's a long list, " replied the scriptwriter "How am I supposed to remember all that?"

"We have a mnemonic of sorts," replies the old hand "It goes like this: 'Oh my G-d!' said The Queen 'I do believe that one-armed n-gger is a poof'."

Wednesday, 25 May 2011

Falling Real Wage Fun (2)

Having downloaded monthly tax receipts and the Retail Price Index for the last three years (in order to compile the charts for Part 1), we can do the same exercise for total spending on VAT-able goods and services (inclusive of VAT), adjusted for RPI inflation* as another proxy for the state of the economy:The adjustments are a bit fiddly, because VAT went down from 17.5% to 15% in December 2008, back up to 17.5% in January 2010 and then up to 20% in January 2011. Most firms use the calendar quarter, i.e. April receipts relate to outputs in the three months January - March, so I averaged out receipts for the preceding three months to get rid of the saw tooth effect, and then applied the RPI deflator to put everything into April 2011 equivalent prices.

All in all, the line is pretty flat, which contradicts the previous chart showing total real wages falling by nearly ten per cent over the same three years; the increase in welfare spending and some dis-saving may have made up for this - even though other sources tell us that people are now paying off their mortgages and credit cards again. Ho hum.

Falling Real Wage Fun

I can't find actual official statistics for total wages paid out every month, so as the closest proxy, let's use monthly National Insurance receipts from April 2008 to April 2011 as published by HM Revenue & Customs, subject to one adjustment*:Ho-hum, that's as clear as mud, so I made two further adjustments:

1. I smoothed the monthly receipts, i.e. April receipts are on average 13.5% higher than in other months, so they were adjusted down by a factor of 100/113.5 and so on.

2. I downloaded the RPI figures from the ONS and rebased everything to April 2011 prices.

There, that's a lot clearer, isn't it?* I adjusted the original April 2011 figure because the effective main rate of NIC increased from 23.8% of wages to 25.8% (ignoring the very high earners, for whom it increased from 13.8% to 15.8%, and ignoring the increase in the thresholds), so I reduced the original figure of £10 billion by a factor of 23.8/25.8, so as not to overstate increase in headline wages. Employee's NIC went up from 11% to 12% of headline wages, i.e. people's net income went down from 89% of headline to 88%, so I reduced the figure by 88/89, seeing as we are only using NIC as a proxy for real wages.

What's long and hard and full of...

For whom the bridge tolls (2)

To try and round off yesterday's debate, I just don't understand how people can try and justify bridge tolls (whether privately or publicly owned) by saying things like this:

"Bridges tend to be fairly isolated (1), except in cities like London, because, I suppose, of the cost of building them. The point is, no-one is preventing anyone from building a bridge a hundred yards away, it's not a state-protected monopoly. (2)

The fact that, in more than 200 years, no-one has thought it worthwhile to do so rather suggests that there is no economic point. (3) Bathampton Bridge is a private toll bridge with free competition not far downstream, but is still fairly busy, because using it means you don't have to fight your way through the middle of Bath." (4)

1) Bridges are clearly not isolated by Bayard's own admisson (see his example of the Bathampton Bridge, 4).

2) In the instant case "A stretch of river bank [is] included in the price", so the chances are you can't.

3) That isn't at all proven. The original bridge required an Act of Parliament; a new one would require lots of planning consents and would also required new stretches of road to be built to divert the traffic (which presumably the owner of the new one would have to pay for, which the owner of the old one doesn't).

4) Clearly, it's not quite in competition; we are comparing slow toll-free route with quicker toll route. What happens if the Bathampton Bridge were toll-free and the one in the middle of town is a toll-bridge?
Let's not confuse 'cost' and 'value'. Clearly, if people want to travel from Hereford to Hey-on-Wye, they are happy to pay the 80p toll; and if they want to get from one side of Bath to another quickly, they are happy to pay a toll. This toll is a reflection of the value to the car driver of the time he saves by using that route rather than an alternative toll-free route. But what the heck does that have to do with the costs?

As a thought experiment, imagine that the Whitney-on-Wye bridge belonged to the local council (or The Highways Agency or whomever), as do all the other 23 miles of road between H and HOW except for one short stretch of a few hundred yards, where the owner of the land wangled his way out of a compulsory purchase order and privately owns that stretch, and let's assume this is dry, solid land where building and maintaining the road is dirt cheap.

So, would car drivers be prepared to pay 80p to drive that short stretch of privatised road? Of course they would; the value to them of getting from H to HOW (or back again) along that route is exactly the same whichever stretch happens to be privately owned. We could divide up the 23 miles of road into a hundred short stretches and sell off each one to a private toll collector, if (let's assume) the total value of being able to drive that route by car is (say) GBP 10, then each toll collector can charge each car driver 10p.

Furthermore, the local council is delivering customers to the bridge owner; it is maintaining all the other 23 miles of road free of charge (to the bridge owner), and all he has to do is collect his 80p monopoly rent.
As far as I am aware, the government collects three times as much in VAT and duty on fuel as it spends on road maintenance, so financing roads is a doddle; or if you are a purist, if a particular roads or bridge is a good investment (and most but not all of them are) the cost can be funded out of LVT on the additional rental value of the sites which benefit; there is no need for LVT on roads themselves as VAT and duty on fuel is more-or-less LVT on roads anyway.

Is it just me or is Blogger playing up again?

The post about toll bridges has sparked a mildly interesting debate, but I can't join in because Blogger will neither let me sign in nor leave an anonymous comment. I'm hoping this is just temporary and not another total wipe out disaster like a couple of weeks ago.

If nobody responds to this (posted by email), then either everybody else is blocked as well, or people are ignoring me. Hmm. Logic fail.

"below target but above budget"

The article was nothing too exciting but that phrase leapt off the page (out of the screen?):

A scheme aimed at preventing people losing their homes in England proved to be below target but above budget, a report has concluded. The Mortgage Rescue Scheme enabled not-for-profit housing associations to buy a stake or all of a home and allow the residents to continue living there by renting it back.

The National Audit Office (NAO) said it helped 2,600 households avoid having their homes repossessed. However, the target was 6,000. The rescues were also supposed to cost a total of £205m, but actually cost more than £240m, the NAO found.

£240 million divided by 2,600 = £92,000. You could build two council homes for £92,000.

At least Margaret Hodge, a Labour politician, has clearly read the memo about Indian Bicycle Marketing:

"The scheme has helped fewer than half the number of households expected and each rescue has cost more than three times as much as expected, with overall costs sitting at £240m," said Margaret Hodge, who chairs the Public Accounts Committee. "Spending £35m more than planned yet not reaching all those in need does not represent value for money for taxpayers' investment in this scheme."

The scheme was launched by the Labour government in 2008...

Tuesday, 24 May 2011

My Answer to Question 11 was...

... "A poster showing Don Shenker choking on his own vomit."

The survey only takes two minutes to complete. Funniest answer wins.

Via Dick P, via Straight Statistics.

Gagging order giggles with Giggsy

Missing Word Round

Classic stuff, recited without trace of irony in The Telegraph (click and highlight to reveal):

Figures published yesterday by the Office for National Statistics showed that while the death rate from alcohol was lower among the most advantaged classes, such as lawyers and company bosses, it rose steadily from 9.8 deaths per 100,000 men aged 45-49, to 23.5 deaths aged 60 to 64.

For whom the bridge tolls

There was a nice example of how different categories of rent-seeking overlap in yesterday's Daily Mail:

It is the Monaco of the West Midlands - a private toll bridge which is spared paying income tax on its profits. Motorists spend up to £2,000 per week crossing the 18th century bridge at Whitney-on-Wye, between Hereford and Hay-on-Wye. And following the death of its owner, the Herefordshire tax haven has now been placed on the market for a starting price of £450,000...

It also acts as an inheritance tax shelter, so it can be passed on to heirs without falling prey to a levy. The 1779-built bridge, which currently costs 80p to cross, was initially funded privately. In return, an act of parliament granted it tax exemption. Prospective owners will also forfeit having to pay stamp duty, business rates and capital gains tax. But they will have to pay for its maintenance and the toll keeper's wages...

How would you classify that £100,000 a year annual income:

1. Are car drivers paying a fee, fair and square for the value of a service rendered by a competing private provider in a free market? Well no, because...

2. Is the bridge owner a monopolist? There appear to be no other bridges for miles up or down stream, so clearly he has a local monopoly and can hence charge more than otherwise - his income is a function of how much time people can save by using the bridge, so if the nearest free bridge were only a hundred yards away, his income would be nothing, but as long as the nearest free bridge is more than ten minutes drive away, people are happy to pay the 80 pence.

3. Is the bridge owner collecting taxes? Without the Act of Parliament, the bridge would not have been built (let's assume), and had the local council decided to build the bridge out of its own resources, we can assume that they would also have charged a toll, which, being payable to the council to fill the local coffers, we would look at as a tax. But whether a payment is publicly or privately collected does not change the nature of a payment, either it's a tax or it's not.

4. Is the bridge owner just collecting rent? The bridge doesn't look all too expensive to build, so surely it's the location of the bridge that matters far more than its physical properties. And the bridge depends on traffic between Hereford and Hay-on Wye, so the more people live or do business in either town, the more people will need to travel between them; and the bridge owner skims off a small part of that extra bit of the economy.

5. Is the bridge owner any different to a highway man? A proper highway man would jump out and attack every one-hundredth traveller and take everything, the more civilised bridge owner demands a small modest payment from every single traveller as 'insurance' for safe passage.

5. Then we add to that the fact that the profits from the bridge appears to be entirely free of publicly collected taxes (VAT is not mentioned, the toll keeper himself is liable to PAYE). The price of the bridge is the capitalised value of future income, so part of the purchase price is of course the capitalised value of the taxes which the bridge owner doesn't have to pay (even though the bridge would still have been built had these tax exemptions been due to expire within thirty years or so).

To sum up, AFAIAC, there is no clear dividing line between state-protected monopoly profits, tolls, taxes, rents, theft and insurance premiums, they are all just different names for the same underlying unearned transfers of wealth.

Of course, any subsequent purchaser/owner of the bridge will hotly deny this analysis, he will claim that he paid market value and therefore that he is merely earning a reasonable return on his investment, and not living off the proceeds of crime or government largesse. This is sort of half correct, but still overlooks the fact that he hasn't invested a penny in the bridge; that's been there for over two centuries whether it gets sold or not (the only money he invests is in the upkeep of the bridge, the up front purchase price is just like a ransom payment).

Frank Sinatra, updated for the 21st century.

If they can ban it there, they can ban it anywhere....

A patchy helicopter

Monday, 23 May 2011

Cars: Pointless telephone conversations and Her Indoors' new car

The 'phone rang at work today about two minutes before clocking off time...

Man: I'm calling from the AA to do a customer satisfaction survey. I believe your car broke down at the weekend and we'd like some feedback. Do you have a few minutes to spare?

Me: Yup, that's me. I've got two minutes, make it quick.

Man: [Does the whole "This call may be recorded..." spiel] Can you confirm the first line of your address for security purposes?

Me: Why? You know my name, my telephone number and the fact I had a breakdown at the weekend, why don't you tell me the first line of my address for
my security purposes?

Man; OK, thank you for your time *click*

Shame really. I've no doubt the call was genuine; the actual real life AA man was quick to appear and most friendly and efficient, so I wouldn't have minded bigging him up accordingly and generating a few pence commission for the poor sod in the call centre. Ah well.
On the topic of cars, Her Indoors drove round her new box which goes forward for a couple of weeks and then decided that it just wasn't the same as her old car. She just couldn't build up that emotional rapport with the new one.

So she took the first new one back to Car Giant, sold it back for a £1,000 loss and tracked down another 4x4 exactly like her previous one (except a bit newer and black) and bought that one instead. The new, new one cost £1,000 less than the refund she got for the soulless box, so all's well that ends well, I suppose.

The new, new one promptly conked out the very next day, requiring a new battery, and in the mean time one of the side lights has gone. But I prefer it to the old 4x4 because the radio/CD player display defaults to the clock, which is always very handy in a car.

"Escaped cow to blame for M25 traffic disruption"

Thanks to Mrs Erdleigh for bringing this one to our attention:

A cow caused udder chaos when it forced the closure of the M25 this morning after escaping from its field during rush hour. The animal was reported to be on the verge and hard shoulder of the clockwise carriage, between junctions five and six, near Godstone, at about 09.00 BST.

While police brought traffic to a halt, the cow was moo-ved back into its field as repairs were carried out on the fence where the farm animal escaped. A Highways Agency spokesman said: 'The farmer took the other cows out of the field while the repairs were being done.'

The closure only lasted six minutes and traffic flow was quickly restored.

They certainly milked that story for every pun it was worth.

"The Great EU Debt Write Off"

As I've long been saying, for every financial asset there is a financial liability (they always net off to +/- nothing) and the reason that banks' balance sheet totals are so huge is because they all owe each other vast sums of money; if you took all banks as a whole and netted off inter-bank payables/receivables, their balance sheet total would shrink by two-thirds.

Steve Baker MP (1) at ConHome refers us to the results of an exercise carried out by the ESCP Europe Business School (who appear to be quite well known) applying the same principles to payables/receivables between eight different Member States of the EU:

* The countries can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58%

* Six countries – Ireland, Italy, Spain, Britain, France and Germany – can write off more than 50% of their outstanding debt

* Three countries - Ireland, Italy, and Germany – can reduce their obligations such that they owe more than €1bn to only 2 other countries

* Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP.

* France can virtually eliminate its debt – reducing it to just 0.06% of GDP

1) Steve Baker MP is a man to watch, having once suggested that UK government gilts held by the Bank of England can simply be cancelled (unless Steven Baker MP is a different person to Steve Baker MP?). He also mentions the unfortunately named Mark Reckless MP who is (or was) a big fan of debt-for-equity swaps (once he was on course to become an MP, he told me to stop emailing him on the topic).

Fun Online Polls: West Ham's next manager and The Bird's Eye Bear

On a low-ish turnout, the results of last week's Fun Online Poll were as follows:

Who'll be the next manager of West Ham?

Chris Hughton - 12%

Steve McLaren - 4%
Sam Allardyce - 4%
Martin O'Neill - 3%
Neil Warnock - 1%
Gus Poyet - 1%
Other, please specify - 3%
I've never heard of any of these people - 71%

The 71% 'don't knows' cheered me up no end, so let's see whether Mr Hughton actually gets the job.
On an even lighter note, there are currently two stuffed toy vying for the consumer's attention, the Bird's Eye Bear and the PG-Tips Monkey, see examples:Which one do you think is cooler?

Vote here or use the widget in the sidebar.

Small number x large number = large number - shock!

From the BBC:

Independent schools are using a "tax payer subsidy" to provide luxuries like golf courses, beagling and shooting for their pupils, a court will hear. Private schools in England and Wales have to show they provide a "public benefit" in exchange for their tax-free charitable status.

... on Monday the court will receive evidence from a group of educationalists and lawyers, the Education Review Group, which argues that independent schools are being allowed unfair tax advantages through their charitable status. The group claims that private schools enjoy tax breaks worth £88m per year - with some of these schools providing a luxury "gold-plated" service at a cost that is prohibitive to most families.

OK, there are about 700,000 children at private school, so that £88 million (about 0.1% of the education budget) works out at £125 per pupil per annum, i.e. nothing, in the grander scheme of things, and a tiny fraction of the PAYE that private schools pay.

If you think about it, the 'charity tax break' is a stupid tax break, because what it means in practice is that most private schools are exempt from paying corporation tax on their profits, i.e. while the money they spend on actual education (teachers' salaries) is liable to tax in full, i.e. PAYE, the income they don't spend (the profits) is tax exempt. For this reason alone it would be better to scrap the tax break and hand out education vouchers of £125 per pupil.

And what these Righteous also forget to mention is the subsidy which private schools don't get, i.e. the £8,000-odd per pupil which state schools are given*. If parents were given this subsidy in cash, then we'd find that the net cost of private education is 'prohibitive' to very few families indeed.

* OK, I'm cheating a bit here, the schools themselves are only given about £5,000 per pupil, and £3,000 per pupil disappears in admin and overheads.

Sunday, 22 May 2011

Brilliant logic

From the BBC:

Followers of an evangelical broadcaster who declared that [yesterday] would be Judgement Day are trying to make sense of the failed prediction.

Some believers expressed bewilderment or said it was a test from God of their faith, after the day passed without event...

Killer Arguments Against LVT, Not (135)

From here:

Proximity is a two-way relationship but Georgists attempt to use it to justify a one-way transfer of wealth. Real estate prices are, indeed, largely a matter of location — but there’s no way to argue that one’s proximity to the rest of the community creates an obligation to reimburse the community, since the community also derives value from people (such as one’s self) being in proximity to it. Me being close to you necessarily implies that you, likewise, are close to me. There’s no getting around that for Georgists. Sorry.

He's not thought this one through, as he?

The point is that land ownership is a "one-way transfer of wealth" from "the community" to land owners. He says so himself with this: "Real estate prices are, indeed, largely a matter of location — but there’s no way to argue that one’s proximity to the rest of the community creates an obligation to reimburse the community..."

He clearly finds it acceptable for people who want to live in an area to have to reimburse the land owners in that area in higher rents or prices, but why do land owners (as a class) have a greater right to benefit from people's proximity to each other than the people themselves? Land Value Tax would merely cancel out the existing "one-way transfer of wealth" with an equal and opposite cash payment from "land owners" back to "the community".

Where the confusion may arise is that the categories overlap: many members of "the community" are also land owners, and most land owners are also members of "the community" (unless they live abroad, for example). So if the proceeds of a tax on land values is dished out again as a Citizen's Income, people would pay £x and receive £y, for most it would net off to within a couple of thousand pounds either way and the total cash which would actually change hands is only about a sixth of total theoretical revenues.

If by a sheer coincidence, it turned out that the value of the land everybody owned/occupied was exactly proportional to his contribution to "the community" (however measured), then there would be less moral justification for such a tax, but such a state of affairs is unlikely to ever happen, and if it did, it would only be for a few hours.

Saturday, 21 May 2011

Banking made easy

This post was prompted by a comment somebody left on a thread elsewhere, saying that if he deposits £1 in the bank, that the bank can then lend out £10. This is basic Obanomics and completely untrue, of course.

Background (skip down to para 6 if you know this stuff, most people don't)

1. Remember:

a) A bank is a balance sheet exercise - assets are positive and liabilities are negative, and the two always net off to precisely zero. If asset values fall (because of reckless loans on land and buildings which fall in value) then the value of the liabilities fall as well (i.e. if you own shares or bonds in a bank which is making big losses, the value of your shares or bonds fall).

b) A financial asset is unlike a real asset (a building, a car, a television, a painting) because there can only be a financial asset (notes and coins in your pocket, cash in the bank, corporate or government bonds) if there is an equal and opposite financial liability. The two always net off to nil. So, for example, if you have a mortgage on your house, you have a liability but the bank records it as an asset.

2. The traditional books explain how banks started off using 'fractional reserve banking', i.e. they take 100 gold coins as deposits and lend out 90 of them, keeping 10 in the safe in case depositors come round to make a withdrawal.

3. So in the old fashioned view of banking regulation (or self-regulation), we look at the assets side: as long as the bank has a tenth* of its assets in liquid form (i.e. gold coins in the safe), it will probably do OK.

4. The modern view of banking regulation (i.e. Basel rules), we look at the liabilities side, and say that share capital (a non-repayable liability or source of finance) should be at least a tenth* of total assets; so if the value of assets falls by a tenth or less, there are still enough assets left to repay depositors and bondholders.

5. Quite how the myth that a bank can lend out ten times as much as it takes in deposits (or bonds) arose, I have no idea, it is quite simply not true. The Basel one-tenth* limit is imposed by regulators, so it might be accurate to say that "The total amount that a bank can lend out is no more than ten times its share capital", but that is merely the upper limit, and depends on people wanting to borrow that much.

So much to the background

6. Modern banking, i.e. 'how banks behave once the government takes its eye off the ball' and which has been around for centuries, has very little to do with the old fashioned idea that the banks take deposits or otherwise raise money and then lend it out.

7. What actually happens is that bankers (i.e. employees of banks, who ultimately work on commission) just make loans willy nilly to all and sundry, usually 'secured' on land and buildings whether the bank has the cash in the metaphorical safe or not.

8. They do this because they know what happens after they hand over a cheque to the borrower to buy his house: the borrower in turn gives the cheque to the vendor, and the vendor then gives the cheque back to the bank.

9. So before the transaction the bank had net assets of nil (or so little as makes no difference - see para 1 a) above).

a) It makes a loan to the borrower of £100,000 to buy a house (this is a liability to the borrower so it is an asset from the bank's point of view - see para 1 b) above) and

b) accepts a cheque from the vendor (taking all banks to be part of a closed loop, which they are). The vendor clearly has a financial asset (a bank account with £100,000 in it) so again, referring to para 1 b) above, that deposit is a liability from the bank's point of view, so

c) the new asset and liability of £100,000 each net off exactly to nil. The bank's net assets do not increase or decrease as a result, but their gross assets do.

10. Having achieved this new state of affairs by 'splitting the zero' (TM Onus Probandy, I think) into a debit and a credit (in the same way as empty space sometimes splits into matter and anti-matter) the bank can then start making money by charging the borrower five per cent interest and paying the depositor three per cent interest, pocketing two per cent for itself.

11. Some refer to the process outlined in para 7 to 9 above as 'printing money', which it is - but the problem is that people don't realise what money is, namely the physical or electronic record of who owes whom how much; 'money' is a liability as much as it is an asset; you can only have cash in the bank if somebody somewhere owes the bank money.

12. As a final thought: the Basel capital requirement rules (see para 4 and 5 above) are of very limited use in preventing credit bubbles. All the banks would have to do is tell the vendors who arrive in their branches brandishing cheques for £100,000 that their deposit accounts are only paying 3% interest and that they would do better to subcribe for new shares in the bank, which pay 5% or 10% (in the good years). Shares in a bank are just a slightly different kind of 'money', but can be created out of thin air the same as the mortgage loan or the deposit.

I hope that clears things up a bit!

* I'm using "a tenth" for illustration purposes only, it's a bit more complicated than that.

Four or five economic thought experiments rolled into one

Ralph Musgrave, who did a good summary of Modern Monetary Theory, emailed me a link to a splendid article titled How to exit the Euro which is ostensibly about Quebecois independence, on which the author has no strong views one way or another, but also builds in the following:

i. What Modern Modern Theory is, i.e. fiscal and monetary policy boiled down to a single variable.
ii. Why there's no need for deficit spending
iii. How to introduce a parallel currency
iv. Why taxes on land values are far better than taxes on income, output and profits
v. Introducing a Citizen's Income by the back door.

There's no point me cutting and pasting bits, as you have to read the whole article, which might take you ten or fifteen minutes to understand, but we can use this model as a non-confrontational way of introducing a Georgist system where taxes on land values are used to pay a Citizen's Income, as follows:

1. The government issues every UK citizen with one thousand special tokens (whether physical or electronic does not matter), maybe 500 for kids and 2,000 for pensioners.

2. So it has issued (say) 75 billion of these tokens.

3. It then values each house and each building and each plot of land and demands the payment of exactly 75 billion of these tokens from the owners of all UK land and buildings, proportional to the value of the land and buildings.

4. So some households end up with a surplus, and some end up with a deficit. Let's say a mum dad two kids family gets three thousand tokens and the payment demanded for an average home is three thousand tokens (75 billion tokens divided by 25 million homes).

5. How surpluses and deficits (and hence net redistribution) are distributed is illustrated by the Georgist Flag (click to enlarge):6. All the surplus tokens are put up for auction, and because the surplus which some have is exactly equal to the shortfall which other people have, they will somehow end up with a market price in £-s-d for each token, that might be 1p, it might be £10, I do not know and do not particularly care.

7. The auction would be run in the same way as stockbrokers match bid and ask prices, i.e. every seller sets the minimum price at which he will sell; and each purchaser sets the price which he is willing to pay, with the bolt-on that all tokens are then redeemed/sold at this price (to prevent unwilling sellers holding out for an unreasonable price). Having established a market price, let's say it comes out at £2 per token.

8. The next step is to somehow replace the existing tax system; if we remember the lessons of Modern Monetary Theory, it's actually quite simple: you just reduce other taxes in absolute terms and other cash (non-token funded) spending in real terms. So in Year Two, we scrap VAT or Employer's NIC (or whichever your most hated tax is). The dynamic revenue shortfall is usually only half the static shortfall, so cash tax receipts go down by (say) £50 billion and people end up better off by (say) £75 billion because they get not just the cash value of the tax cut, but the benefit of lower dead weight costs.

9. Most of that extra £75 billion flows through into higher house prices or rents, so next year, when the government repeats the exercise with 75 billion tokens, the market value is miraculously bid up to £3 per token (instead of £2).

10. Then you just keep cutting other taxes and allowing the market to sort out how much should be redistributed from land owners to citizens. The two groups overlap to a large extent so the net redistribution is only a sixth of the total value of all tokens, i.e. assuming they change hands for £3 each, total revenues/spending is not 75 billion x £3 = £225 billion, it's more like £40 billion (i.e. the area on the flag between the vertical axis, the blue line and the red line).

11. No doubt the Homeys and Faux Libs will cry foul, but hey. At least we can find out in practice what people really think of Georgism. If a majority of people (who end up with a surplus of tokens) really think nothing of it and are happy for people on whom society bestows the most benefits to continue to enjoy them tax free, then they are free to set a price for their surplus tokens of nil, or 1p each (thus cutting off their noses to spite their faces as they are giving away money), or to hand them over to charities collecting tokens for the Poor Widows In Mansions Benevolent Fund and nothing actually changes either.

Friday, 20 May 2011

Silver Fox tipped to become new head of MFI

Killer Arguments Against LVT, Not (134)

I must admit, I blather on about the rental value of land being created by 'society' or 'the community'; the notion that if the government spends taxpayers' money wisely, it channels the gains in the direction of landowners; and the assumption that the value of your particular plot of land is largely influenced by what the occupants of surrounding plots do and not what you do, etc, but as a fair minded sort of chap, let's have a look at what the hard core Home-Owner-Ists have to say about it...

According to Channel 4 - who broadcast a lot of Kirstie Allsop's programmes, and she should know - if you want your 'investment to show capital growth', here is what you should look for when deciding where to buy:

1: What's The Area Like?
If you're worried about whether or not you'll feel at home with your new neighbours, fear not. Discovering everything, from your neighbours' incomes to what paper they read, is a cinch with a neighbourhood profile from www.upmystreet.com. Similar concerns about crime? This site will also provide the latest statistics.

2: High Street Hints
It's true that newly opened coffee shops, delicatessens and especially estate agents suggest an upward shift in an area. Unfortunately, shops tend to follow shoppers, so you may have missed your chance to get in early and snap up a bargain. However, it's still an encouraging sign that the times (and area) are changing.

3: Smartening Up
Many post-war town centres have become concrete wastelands, but planners are realising that braving the urban jungle is not what we want. Some quick enquiries at the local council may reveal if there are plans afoot to redevelop a town centre, which will make the area a more pleasant place to be.

4: Architectural Delights
Sought-after building styles - Victorian terraces or well-proportioned 1930s semis, for example - can push one area to the fore if surrounding neighbourhoods are less architecturally strong.

5: Mapping It Out
You're not the only refugee from gorgeous but unaffordable areas. Take solace in the 'ripple effect' - places on the boundaries of good areas often become desirable, so the best advice is to get out the map and look for likely candidates around your dream location.

6: Look To The Future
Thinking ahead is a must when buying, so don't just consider what you want from your house now - factor in what future buyers might want, too. Even if you don't have kids, your future buyers might, so try to pick an area with good schools. And it doesn't matter if you're a gym-dodger - potential purchasers may want one locally. No car? No matter - inadequate parking in an area will discourage car owners, so remember to bear this in mind too.

7: Home Improvements
Look out for any new developments and skips outside private homes, as they're signs of new blood moving in. Large disused buildings are also prime candidates for refurbishing into flats for professionals.

8: What Are Local Schools Like?
Check performance tables at the Department for Education and Skills and Ofsted inspection reports to see how schools are performing - marked improvements are a good sign. Also, see if there are universities in the area, giving you the option of future rental income, either for the whole property or just a room.

9: Quiet Life Or Night Spot?
An area that is peaceful during the day can turn into a swinging hotspot by night, so it's always a good idea to visit at different times, both during the day and week. Gangs of unsupervised kids hanging around are not a good sign of an area on the up.

10: Are Transport Links Decent?
New transport links signal investment, so investigate planned improvements on roads with the Highways Agency. To find out about existing travel links, contact National Rail Enquiries for trains, or Travel Line for buses.

Maybe I've missed something, but isn't that exactly what I've been saying all along?

It's just that I think this through to one logical conclusion - that it is better to tax community-created land values than to tax incomes; and the Homeys and Faux Libs draw the opposite conclusion - that skimming off the profits resulting from the efforts of others is a good way of making money. I don't think there is any disagreement on the actual facts, is there?

Thursday, 19 May 2011

Daily Mash On Top Form

Commenting on the Fury over 'black women are less attractive' psychologist story:

Christopher Ryan, co-author of Sex At Dawn: The Prehistoric Origins Of Modern Sexuality, said Kanazawa had tried to insult ‘pretty much everyone’ during his career. ‘Essentially, I don’t take him seriously because he’s clearly motivated more by attracting attention than by any enthusiasm for science or truth.’

Dr Kanazawa’s previous blogs include one entitled ‘Are all women essentially prostitutes?’ and in 2008 he suggested dropping 35 nuclear bombs on the Middle East to rid the US of terrorism. Other contentious posts provisionally titled 'Should ugly Middle Eastern women cover their faces in public?' and 'What temperature is a burning Koran?' never made it past the drafting stage.

X/Y times Y = X (Part 2)

Sobers, commenting on part one:

If you recalculate the LVT rate in year 2 to 10% to get the same amount of income, what will happen? The people at the bottom of the pile will see their gains eroded and many will tip into losses. Those at the top will be even greater losers and thus have even greater incentive to sell their houses thus reducing the price.

The house prices get pushed into a smaller and smaller band in the middle (because most incomes are in that middle band) and thats where the majority of the LVT burden will eventually fall, on the same people tax does now, the masses.

As I explained in the footnote, LVT is a tax on rental values and what Sobers thinks will happen will not happen to any great degree.

Let's boil all UK houses down to two sample houses, one Up North in a low wage area costing (presently) £100,000 (HUN) and one Down South in a high wage area costing (presently) £200,000 (HDS). The main reason for the difference is because the higher net wages bids up the price of HDS (there is a very close correlation between wages and house prices).

So the rental value of HDS is clearly (say) £4,000 a year more than the HUN, which is because net wages are (say) £5,000 higher. And with a marginal tax rate of about fifty per cent, that means the person buying or renting HDS is paying £9,000 more in [rent + tax].

Let's say in Year One, the tax on the house Up North is £8,000 and Down South it's £16,000 and all other taxes are scrapped. What happens if Sobers is right, and the HUN rises in price to £120,000 and HDS falls to £150,000?

Answer: not much.

In Year Two, our required tax take from those two houses 'X' is still £24,000, and the tax base 'Y' is now as follows:

HUN: [selling price x 5%] + [current LVT bill] = £14,000
HDS: [selling price x 5%] + [current LVT bill] = £23,500
Y, total tax base = £37,500 (rental value, not selling prices).

So X/Y now becomes 64% (£24,000 ÷ £37,500)

The tax on HUN is adjusted to £14,000 x 64% = £8,960
The tax on HDS is adjusted to £23,500 x 64% = £15,040.

We see that because it is a circular calculation, in Year Two, despite the large change in relative prices, in absolute terms, the tax on HUN goes up £960 and the tax on HDS goes down £960, and so on every year in ever smaller increments, because people will anticipate the changes

Now, let's also focus on the difference in the total tax bill; if you live in HDS, in Year Two you are paying £6,080 a year more in LVT than the bloke in HUN. Under current rules, you would be paying £9,000 more in [tax + rent], and that balance of £3,000 (in round terms) will still feed into a higher rent receivable by the landlord of HDS, clear of all taxes, which, capitalised at 4%* still means that HDS will be worth £75,000 more than HUN - so it's clear that the difference in price between HDS and HUN would not fall significantly.

* I used 4% for consistency with the example above; you could just as well argue that under current rules, £4,000 rent before tax = £3,000 after tax, and the capitalised amount is £100,000. Therefore under LVT, £3,000 extra rent before tax = £3,000 after tax, so the capitalised amount remains £100,000, and there is no change in the price differential between HUN and HDS.

It's all very simple, really. As a general rule, not much will happen apart from some people trading down and others trading up.
"People have a natural aversion to paying tax, so while the people losing out will definitely want to downsize to something they can afford, the people below will not want to upsize to somewhere they can't afford."

Simply not true.

Rich people are happy to spend £60,000 on a flash new car, even though the price includes £10,000 VAT. (While I'm on the topic, the total taxes paid by car drivers is over £50 billion a year; twice as much as Council Tax!) Rich people are happy to pay £10,000's a year in rent (or mortgage interest) to live in a flash house. If all people had such an aversion to paying tax or rent or interest, why don't rich people all drive round in battered old VW Beetles, or live in bed sits?

X/Y times Y = X

I don't know much about higher maths, but I do know some things: the above fraction is quite simply true.

Applied to my favourite topic, shifting taxes from incomes to land values, what it means is this:

X = the required tax take

Make up your own figure, but the total tax receipts from incomes or output in the broader sense (income tax, National Insurance, VAT, corporation tax) are around £340 billion a year (which is only enough to cover about half of total government spending - the rest is made up of an infinite number of other stupid little taxes; other income and receipts; and a MASSIVE GREAT ANNUAL DEFICIT - but we'll deal with that later)

Y = the tax base

A. If we decide to raise that sum of money from incomes and output, then let's guesstimate total wages at £750 billion (30 million workers x £25,000) plus £100 billion corporate profits, we have a tax base of £850 billion, so the required average rate is 40% (which looks 'about right' - the average marginal rate is about 50% if you take into account Working Tax Credits withdrawal, but the personal allowance and the Working Tax Credits themselves reduce the average rate).

So X = £340 billion, Y = £850 billion, X/Y = 40% and 40% times Y = £340 billion.

B. If we decide to raise that sum of money from the rental value of land, we could simply take the total market value of residential and commercial land and buildings, which at current selling prices (as a proxy for rental values) are worth (say) £4,250 billion, which gives us an average rate of 8%, which looks 'about right' to me (but I've done these workings a thousand times). The purists say you shouldn't tax the value of the buildings, but we can deal with this via personal allowances (or a Citizen's Income).

So X = £340 billion, Y = £4,250 billion, X/Y = 8% and 8% x Y = £340 billion.

That's the same amount of money raised from the same people - us. (Again, the fact that the government should be spending a lot less and spending it more wisely is a separate debate).

Clearly, incomes are not distributed the same way as land 'ownership' is. The former is skewed, but that has largely to do with people's inherent differences; the latter is far more skewed, and that has largely to do with the government defending the interests of land 'owners' above all else. To put it crudely, the top ten per cent of earners earn thirty per cent of all profits or wages; the top ten per cent of landowners own seventy per cent of all land (or whatever the figures are).
The basic formula will always hold, at all times in all situations.

The defenders of privilege (Homeys and Faux Libertarians alike) say that if we were to tax land values instead of taxing incomes and output, that value would be 'destroyed' (so the tax base would be eroded), and that everybody would be scrambling to move to the lowest rated houses, and so the selling prices of these would be pushed up and the selling price of the highest rated houses would fall.

Well, firstly, neither of those things would happen: all that would happen is that lower earners would trade down and higher earners would trade up. But even if they did, so what?

In Year Two, we would simply work out what the new tax base ('Y') is, maybe the total theoretical selling price would fall to £3,400 billion; maybe it would increase to £4,860 billion (scrapping taxes on incomes and output would be an enormous boost to the economy), and plug it back in to the formula.

In the former case, the nominal LVT rate goes up to 10%; in the latter case it falls to 7%. Either way, X (which is the figure we really care about) remains the same, and total tax revenues are £340 billion.
Footnote: LVT is ultimately on the rental value of land, so when the formula is recalculated, the actual rental value of any house would be taken to be:

[existing tax on that house] + [notional residual rental value, being selling price x 5%]

which would greatly soften the up- or downward swings, it's a slightly circular calculation which would quickly settle down to an equilibrium. Whether you go to the bother of deducting the rental value of the bricks and mortar or just make sure than there is a personal allowance or a Citizen's Income to cover it is just details.

Epic Employer's National Insurance Fail

Writing in today's City AM, Chas Roy-Chowdhury, Head of Tax at the Association of Chartered Certified Accountants, has this to say about the recent tax increases:

THE INDIVIDUAL - From the individual taxpayer’s perspective, it has been a busy year. VAT and national insurance contributions are up, while more people have been brought into higher tax bands to pay for a rise in the personal allowance for the worst off...

BUSINESS - Business, by comparison, has fared better. National insurance went up for employees but not for employers...


As HM Revenue & Customs' website clearly states, the main rate of Employee's NIC went up from 11% to 12%, and the main rate of Employer's NIC went up from 12.8% to 13.8% from 6 April 2011.

I could forgive this if it had been written by your average newspaper hack, who vaguely remembers the Tories attacking Labour's proposed 1% increase in Employer's NIC as a "tax on jobs" and foolishly assumed that the Tories simply hadn't implemented it, but this man is Head Of Tax at the largest (although not most prestigious) accountancy body in the UK.

As a secondary issue, if you look at economic incidence rather than legal incidence of a tax, you will know full well that Employer's NIC is largely borne by the employee in lower wages; and VAT is largely borne by the business (shared between employer and employees in whatever ratio) and not the consumer (the clue is in the name; VAT is a tax on "Value added", i.e. gross profits), so he's got the whole thing on its head anyway, apart from being factually wrong.

Wednesday, 18 May 2011

The Sperminator

I'm not happy with the first attempt. Second attempt.

Health Not Scare Story Du Jour

From the BBC:

Coffee has been linked to a reduced risk of dying from prostate cancer in a study of nearly 50,000 US men.

Those who drank six or more cups a day were found to be 20% less likely to develop any form of the disease - which is the most common cancer in men. They were also 60% less likely to develop an aggressive form which can spread to other parts of the body...

That's great news, isn't it? Oh, wait...

"But charities say the evidence, reported in the Journal of the National Cancer Institute, is still unclear. They do not recommend that men take up coffee drinking in the hope of preventing prostate cancer."

At the risk of writing what you're already thinking, do we not suspect that if the study had shown that drinking lots of coffee increased the risk of prostate cancer, these cancer 'charities' would find the evidence to be crystal clear?

PS, the National Cancer Institute is a department of the US government, if that's relevant.

Tuesday, 17 May 2011

Free School Woes

Ladies and Gentlemen,

Forgive me for promoting another blog.

I have a client who is trying to set up a free special school in Suffolk. Needless to say, it's a bureaucratic nightmare.

I am sure that she would welcome any support.


Killer Arguments Against LVT, Not (133)

The ever reliable Sobers went to the trouble of putting some figures on the number of people who might want to move if we replaced ALL taxes on wealth, income, profits etc with LVT. I think he double-counted, it would be 25%, not 45%, but hey, and he concluded with this:

... what do you do to people who have their house on the market but can't sell it, but don't have the income to pay the LVT? Bankrupt them and sell their house for a pittance and throw them on the street?

1. On a practical level, there is no urgent need to sell, as by definition, the LVT will be always rather less than the rental income you can get from that home, so even taking mortgage repayments and letting agent fees into account, each home (or at least, all but 1% which are in a terrible state of repair or have an extravagantly large garden in an expensive area) will still generate some net income for the owner. For the owner, it is then just a question of renting somewhere which he can afford out of the net rental profit from his old house, his earned income and his Citizen's Income.

2. Further, as matter of principle, the selling price of houses will never fall to 'a pittance', because LVT is only a tax on the rental value of the location; if the tax on a house were so high that it depressed the selling price to lower than the replacement cost/value of the bricks and mortar, then it is clearly too high; it would be as daft as having an income tax rate of more than 100%. The idea that LVT would so depress selling prices is no more an argument against LVT than the argument "If we had income tax, a government could increase the rate to more than 100%" is an argument against income tax. In either case, I'll assume that while the government is greedy it is not insane.
But I accept that the 'transitional period' will be a bit icky, so, as a thought experiment - and not as a serious policy proposal - how about this for a short, sharp transition (glossing over the fact that these things all take time), all figures are annual figures.

Year One, Day One; Government replaces entire welfare system with a Citizen's Income (£1,800 for kids, £3,600 for working age adults and £7,200 for pensioners, let's say, which is well within current spending limits).

Day Two: Government abolishes ALL taxes (except petrol, booze and fags duty; a bank asset tax; income tax on public sector pensions and pension which have received tax relief 'on the way in'; and Business Rates), repeals all other tax legislation and destroys all historic tax records. This leads to a revenue shortfall of about £320 billion (workings here).

Day Three: Government tells people there will be one year's, tax free breathing space, but that starting in Year Two, full-on LVT will payable, which will raise that missing £320 billion, publishes the rates for each postcode sector and send every homeowner (or landlord) an assessment so that he knows what LVT will be payable. The LVT on the cheapest houses, smallest flats will be a one or two thousand pounds; the average will be about £12,000 per annum (so two thirds will be less than that); and tax on a house at the top of the ninth decile will be £24,000 (without any upper limit, but these lofty heights need not concern us).

Day Four: Government mentions, as an afterthought, that in Year Two, the universal Citizen's Pension will be doubled to £14,400 per year per pensioner.

People then have twelve months to plan their next move.

i. Half of all households will notice that the jump in their net pay, plus their household's Citizen's Income or Citizen's Pension, plus the fact that stuff in the shops is now much cheaper, is more than enough to cover the LVT on where they live and they come out ahead. (By and large, people's disposable income will double).

ii. Half of that half (i.e. a quarter of households) will realise that they'd be so far ahead of the game that they'd be able to afford to trade up, and will start saving up a bit of cash for the new furniture and perusing the 'homes for sale' and 'homes to let' pages, taking care to note what the LVT bill for that house will be if they intend to buy it. There are plenty of young couples who have delayed starting a family, who'll want to trade up from the flat they currently live in, and never underestimate people's urge to keep up with the Joneses!

iii. A quarter of households would be in a break even position and will come out plus/minus no better or worse off, are basically happy where they are, and these need not concern us further.

iv. A quarter of households will work out that it would be difficult for them to scrape the money together to pay the LVT, although a pensioner couple due to receive £28,800 a year between them would still have plenty of choice, and so they start looking to trade down.

Over the next couple of years, the up-sizers from group ii. will swap places with the down-sizers from group iv. Sure, that's about six or seven million households, but for young people this is no big deal, they'll just have to muck in a bit if their own parents or grandparents want to downsize (and why wouldn't they? Why would they want their potential inheritance to be swallowed up by LVT?).

So that's two or three million sales/purchases a year for two or three years, depending how quickly people respond, which is perfectly do-able; at the height of the house price bubble in 2007 there were nearly two million sales/purchases, so if removal men get used to working every day of the week and not just Fridays, it can be done.

Hey presto, problem solved. Apart from the one-off tax shortfall of £320 billion from not raising any taxes at all in the transitional period, that's only a fifth of the accumulated public sector debt which the Tories plan to have by the end of this Parliament.

Caught with his Straussers down

Deeply Gratifying Google Searches

Sixth hand smoke

Killer Arguments Against LVT, Not (127b)

Once more unto the motherlode:

The flaw in a land value tax is that some land simply does not generate an income from which it could be paid...

Woah! Stop right there!

No land generates [cash] income, never has done, never will, although all land generates some non-cash income. It is merely that the owner can (or could) demand payment from those who wish to occupy it (and is prepared to forego that payment if he wishes to occupy it himself):

a) It may be that the land contains valuable minerals or occupies a prime location from which to carry on a business, in which case people will pay large amounts to occupy it. The large amount = the total income they can generate minus a reasonable payment for their own efforts i.e. wages + profit.

b) Or it may be land in a residential area, and people pay a large proportion of [the wages they can earn within easy commuting distance minus the costs of 'reasonable minimum standard of living'] for the privilege of exclusive possession of that site [plus or minus how nice or not that particular area is].

c) The rental value of any site (and hence the taxable amount) in either case is just that balancing figure of [total income minus 'reasonable payment for own efforts' or 'the costs of a reasonable minimum standard of living'].

d) If no business can generate a super-profit by trading from that location or if wages within easy commuting distance of that residential site only just cover the costs of a 'reasonable minimum standard of living', then clearly the rental value of the land is zero (and there are plenty of areas in the UK where the rental value of land is so close to zero as makes no difference).

e) So, provided tax rate is set correctly (which is not difficult, you just do your workings and set the tax rate at less than 100% - as long as land and buildings are still selling for more than their rebuild cost, you know the tax rate is less than 100%), the owner of the land will always have a source of income to cover the tax. Either he is taking advantage of the opportunities which that site offers himself; or he can rent out or sell the site to somebody else who wishes to do so.
To prevent this post from becoming too lengthy, I'll just post the rest of the comment without further analysis. See if you can spot the only sentence (or inference) which is factually and logically correct (I've numbered the paragraphs so that you can just leave a number in the comments when you spot it):

1) ... A rental value tax claims to address this, but doesn't entirely because the theoretical calculation of what rent a property might generate is no guarantee that it actually does so.

2) Relief in the basis of ability to pay just turns it back into a variety of income tax.

3) If you insist that land for which the tax is not paid reverts to the state would that appropriation be compensated or would it just be theft in the guise of a penalty?

4) If owners without the liquidity to pay the tax will have to sell to avoid forfeiting it, the result of which will be the further concentration of land in the portfolios of the rich.

5) Non-owners may be attracted by promised reduction in their income tax but they'll be less happy to find themselves paying as much by rent rises instead while socially this would be the creation of a new economic feudalism.

Absolutely bizarre

From The Metro, earlier today:

Rome officials are preparing for thousands of residents to leave the city today amid widespread fears of an earthquake - which was apparently predicted by seismologist Raffaele Bendandi more than 30 years ago. [He] made a series of predictions that the Italian capital would be destroyed by a huge quake on May 11th 2011, which would be followed by two more events next year.

Bendandi's reputation for accuracy was cemented by his correct prediction of a similar earthquake in 1923 that killed more than 1,000 people. The meteorologist, who died in 1979, was honoured by former Italian leader Benito Mussolini in 1927 and he is so respected in Italy that his prediction of today's events has led to mass panic in Rome...

From the BBC, later this evening:

At least 10 people were killed after a magnitude 5.3 earthquake toppled several buildings in southern Spain, near the town of Lorca, officials say.

The quake struck at a depth of just 1km (0.6 miles), some 120km south-west of Alicante, at 1850 (1650 GMT), the US Geological Survey reported. Lines of cars lay crushed under tonnes of rubble and a hospital was evacuated as a precaution...

Apart from the fact the earthquake was a thousand miles to the west (not a huge distance in tectonic terms), was Bendandi really on to something or is this just a blind coincidence?

Fun Online Polls: EU Referendum and West Ham's next manager

The result in last week's Fun Online Poll was finely balanced:

Would the EU be able to pump out enough propaganda in the run up to a referendum to persaude us to vote to stay in?

Probably yes - 49%
Probably not - 51%

IMHO, the whole thing's a bit chicken-and-egg:

1. There are plenty of people who have been campaigning steadfastly for a referendum (and thereby focus less on the actual 'issues'), but we know that They would only hold one if They were pretty sure They could pull off a result like the FPTP/AV referendum, i.e. bombard us with simple - yet patently untrue - slogans and get the result They want.

2. The alternative approach is not to waste time campaiging for a referendum as such, but to explain to as many people as you can what the EU is really all about (power, money and corporatism; dressed up with a bit of Greenery and Equality). But let's imagine that somehow most people woke up to this and there were a comfortable majority (say 70%) in favour of 'Out'? What are then the chances of a referendum being held..? Exactly.

See also Witterings' musings on the topic.
Going by the amount of coverage in the back pages of yesterday's and today's papers, one of the burning issues of the day appears to be who will replace Avram Grant as manager of West Ham football club.

So let's see if that 'wisdom of crowds' thing actually works in practice - vote here or use the widget in the sidebar.

My money is on Steve McLaren, for the simple reason that he has openly stated he does not want the job; in the footballing world, what this usually means is "I'm so confident I'll get the job that I can play hard to get, and thereby haggle myself an even more generous salary."

Sacked, Grant, Relegated, Ham, West

Monday, 16 May 2011

More infinite evidence

From The Daily Mail (article undated, but Google tells me it's from 1 May 2011):

Millions of Britons have traditionally headed South in search of a better standard of living. But research suggests those with aspirations of wealth could be better off staying put... A study of the true spending power of salaries around the country concludes that those in the North of England enjoy a higher standard of living and a better quality of life...

The study, by Barclays Bank, highlights the fact that, while the biggest salaries are available in the South, the high cost of living there means the money does not go as far as it does elsewhere. It measured average local incomes against the regional cost of living - which includes everything from mortgage repayments to the cost of a pint of beer or a bus ticket...

Barclays' spokesman Gordon Rankin said lower housing costs were a major factor in giving Northerners a higher disposable income. He added: "There is a small, but noticeable, group of people who are realising the equity in their properties in the South-East and moving to the cheaper West and North and buying property outright. Because they do not have to worry about mortgage payments, they are therefore able to survive on smaller incomes."

To cut a long story, yes, there are huge regional disparities in gross incomes; the disparities are reduced by the impact of income tax and the welfare system, and because there is free-ish movement of people and labour within the UK, the differences in net incomes will be competed away to some degree.

However, residual differences in net wages remain. So people try move from low income to higher income areas. Because there is a limited supply of housing in any area (in particular in high wage areas), what then happens is that rents and house prices are driven up in those areas, until they reach a stage where they are so high that there is no advantage in moving to a higher wage area - the extra net income is swallowed up by the higher rent or mortgage repayments. At this equilibrium stage, we observe (as observe we must) there is an equal and opposite pressure for people from 'the South' to cash in their house price gains and move to the West or North again.

As we know from an earlier article (also in the Daily Mail), generic consumer goods in the shops cost pretty much the same anywhere in mainland Great Britain, so we note that the other things which the article says contribute to the higher regional cost of living in 'the South' (cost of a pint of beer or a bus ticket), are both goods/services consumed at point of use, i.e. they include 'embedded rent' (there is no competition between a London pub and a Manchester pub, or a London bus route and a Manchester bus route).

Killer Arguments Against LVT, Not (131, 132)

Let's speed things up by doing two at a time, they tend to cancel out:

# 131, from The Guardian (this one was slightly tongue in cheek, hence the speech marks): One problem with a tax of this nature is that it 'punishes' pensioners who happen to live in a house for many years that goes up in value 'through no fault of their own'. You can't sell 5% of your house each year to pay the tax. The tax would force old people out of their homes. That may be a good thing but it doesn't play well on television.

#132, from the Adam Smith Institute Blog: ...it would effectively be like having a never-ending mortgage or renting forever - currently most mortgages are 25 years long, and then your living costs decrease as you approach and enter retirement...

Yes, it would be like a never ending mortgage, it would be like a variable rate, interest-only, non-repayable and non-recourse mortgage taken out to pay for the land element when you buy a home. It's like these shared ownership schemes, but instead of ownership being split vertically (e.g. you own 25% of the buildings and 25% of the land), the ownership is split horizontally; you own 100% of the buildings (subject to a normal mortgage) and you own 0% of the land (or own it subject to aforementioned non-repayable mortgage).

So instead of worrying about capital repayments (on the land element) or a 'repayment vehicle', your monthly repayments are correspondingly lower and you can divert the monthly cash saving into paying off the mortgage on the buildings element and/or saving up for a pension to pay the rent/interest. By and large, the two will net off.

So that's young people sorted. Anybody over the age of 45 or so has had their chance to buy a cheap house (any time before 2000, let's say, and could have paid off the mortgage by now) and so, compared to today's First Time Buyer, they have plenty of spare income to save up for a pension.

Then we return to the eternal thorny problem of The Poor Widow In A Mansion who is asked to pay 'rent'*, but let's not forget that 'rentier' can mean either 'pensioner' or 'landlord'. What is an old age pension if not a form of rental income? The government collects income tax etc from working age people and gives it to older people, so people who live off rental income will be paying some of it back. AFAICS, there is no natural law that says that old age pensions have to be funded out of income tax and can't be funded out of LVT.

The first Killer Argument #131 is even easier, LVT is a tax on the annual rental value, not the capital value. On a street of identical houses, your tax bill is the same whether you bought it last week for £160,000; bought it at the peak of the market in 2008 for £200,000; or bought it half a century ago for £2,000. There is no concept of retrospectively taxing capital gains.

Even if you based the tax on selling prices rather than rental values, then absolute changes in prices do not matter, only relative prices. So if all house prices doubled (or halved) from one year to the next, then the tax bill on each individual house would be exactly the same.

And if half of all houses went up by 10% and the other half by 40%, the tax base goes up by 25% on average, so the headline rate comes down by 20% (to keep revenues constant) and so the people in the houses which 'only' increased by 10% would be paying 12% LESS in tax, and those whose house went up by 40% would be paying 12% MORE in tax (not 40% more).

* In practice, I would cop out and have exemptions, discounts, rebates, roll-up option. The purist view is make 'em pay full whack but double the old age pension.

Eltern John

Click and highlight for cluebat: "Eltern" is the German word for parents.

Infinite Evidence

Somebody over at HPC asked me what impact falling house prices would have on the Retail Price Index, so I had to gen up on this before giving an answer. The first port of call was to look up what's in the Retail Price Index 'shopping basket', which the NSO explain here.

It shows (page 3) that over the past 24 years, the share of 'housing' in the RPI shopping basket has increased as follows:
1987 - 15.7%
1992 - 17.2%
1997 - 18.6%
2002 - 19.9%
2007 - 23.8%
2011 - 23.8%

There is a big jump in 1997 because "Depreciation costs were added to the housing group in 1995" (I dunno why they didn't rework the old figures) and the only blip is in 2008 when the share was 25.4%. 'Housing' costs include (broadly speaking) rent, average mortgage interest payments, depreciation, Council Tax/rates, water and other charges, repairs and maintenance and DIY materials There is a separate category for 'Household services' which has also increased from 4.4% to 6.3%

Ho hum, what is the reason for this large increase in less than quarter of a century?

As I've mentioned before, Henry George (further developing Ricardo's Theory of Rent, which in turn was based on James Anderson's theory of agricultural rents) observed that land rents increase slightly faster than GDP growth generally, which is a bit counter-intuitive, because the share of the economy which we traditionally see as land-based (i.e. agriculture) is constantly declining as a share of GDP. The gimmick here is that land is fixed in supply, so as gross output rises and goods become cheaper and more abundant, the balancing figure goes to the least elastic factor, i.e. land.

Of course, while agriculture can be carried out quite happily without much infrastructure, a modern economy needs lots of 'infrastructure' and the areas where there is sufficient infrastructure to sustain it are of necessity quite small (the UK has plenty of physical land, that is not the issue here); more infrastructure attracts more people and more activity, which in turn attracts more infrastructure, which in turn attracts more people and more activity and so on (agglomeration). The lucky people who happened to 'own' the land on which all this takes place are now quids in, of course.

I've submitted other statistical evidence to support this. While house prices around the UK are broadly proportional to local average wages, the house price-to-wage ratio is higher where wages are higher, i.e. where the economy is more advanced, a larger share of local GDP goes in rent.

Problem is, as soon as you mention Ricardo or Henry George, the Homeys and Faux Lib's either stick their fingers in their ears and sing la-la-la or subject you to ad hominem attacks. And as Robin Smith never tires of pointing out, I'm probably wasting my time with 'infinite evidence' because people are so conditioned to believe that it is acceptable to tax incomes but not to tax land values, that they will simply deny the validity or relevance of any evidence which I provide to support the opposite conclusion.

The bitter irony is that arch Home-Owner-Ists like Kirsty Allsop know perfectly well that all this is true, which she expresses in the mantra "Location, location, location", i.e. the value of any plot of land is dictated by everything else that goes on in the vicinity of that plot, and not the efforts of the owner of the plot.*

Her advice is always to buy in an "up and coming area" where e.g. somebody else is going to pay (probably out of your income tax) for a new railway station to be opened in the future, on the assumption that you can then make a windfall gain by having bought a plot there beforehand (and hopefully get more back in windfall gain than you had to pay in income tax). My advice is that it would be better not to tax incomes in the first place and just to tax the rental value of the land instead.

* The occupant of any plot of land can have some small impact on the value of neighbouring plots (whereby pushing them down is easier than pushing them up) but not on the value of the plot he occupies (short of polluting it, but even that does not affect the location value, it's merely a negative improvement).