For my final post of 2011, I'll admit that I sometimes wonder how many hits other 'blogs get from mine, but unfortunately I see no way of finding out the long run figures (Statcounter only tells me what happened over the past day or so).
However Blogger Stats tells (tell?) me from which other 'blogs I've had most hits since May 2009, so thank you to Leg-Iron (twenty referrals a day) and everybody else on the list. I hope that traffic flows both ways:I have no idea what googlecorrection.com is, or what I did to deserve 1,935 visits, but I can tell you where a lot of the visits from google.co.uk or google.com (eighty a day) end up. Yup, the top six search results are all non-serious, non-economic posts of no intellectual merit whatsoever (but pleasing to the male eye):Finally, here's the overview. What is puzzling is that if my blog truly gets a thousand pageviews a day, how come the four serious posts in the list above have only had a five hundred hits each in the past thirty months? I suppose the only way to explain this is the incredible turnover - Blogger tells me that I average four new posts a day (is it really that many? I'd have guessed two or three), so maybe each post just gets two or three hundred pageviews and then disappears off the radar:
Saturday, 31 December 2011
For my final post of 2011, I'll admit that I sometimes wonder how many hits other 'blogs get from mine, but unfortunately I see no way of finding out the long run figures (Statcounter only tells me what happened over the past day or so).
For my penultimate post of 2011, I will hand over to Fraggle, who spent a lot of time and effort earlier this year dismantling all the arguments which Murray Rothbard advanced against LVT and/or Georgism decades ago.
Rothbard's counter-arguments are themselves completely irrelevant to anything, but for some unknown reason, The Faux Libertarians take Murray's Word As Gospel and recite it to this day (clearly without having ever given any of it a further moment's critical thought). So next time a Faux Lib's tries to throw it in your face, you might be able to save yourself a bit of thinking time by using Fraggle's counter-counter-arguments.
Some of Fraggle's posts are still work under construction, hopefully he'll get round to polishing them off, but here are the links anyway:
Land - Abundance and the landlord's function
Rent and the effect of LVT
Who benefits from economic progress?
The Morality of LVT
To save to-ing and fro-ing, I've disabled comments to this post, please leave comments over at Fraggle's if you have any.
Two common misconceptions about banking are that:
a) Banks can create money out of thin air.
b) Banks take money from depositors and then lend it to borrowers.
There is a small element of truth to either, but clearly they are contradictory
a) If banks can create money out of thin air, then how could there ever be a run on a bank? How could banks ever be short of 'capital'?
b) Why would banks bother waiting for people to deposit money before lending it on if they can just create it?
So there must be 'something else' which most people have overlooked which bridges the gap between the misconceptions. That 'something else' is a golden rule of economics generally which is that for every liability there is an asset. It is not true to say that for every asset there is a liability*, but it is certainly true to say that for every financial asset there is a financial liability (and liabilities are of course usually financial liabilities as most debts are to be repaid in cash rather than in kind, i.e. if you have been paid in advance to do a job).
In bookkeeping, there is also the 'balance sheet rule' says that any corporate entity has both assets and liabilities and they net off to precisely £nil. Yes of course, successful companies have share capital and retained profits, which do not have to be paid out, but those are still liabilities - that money (or that value) does not belong to the company, it belongs to its shareholders.
Onus Probandy had another crack at explaining how banking and double entry bookkeeping work using his analogy of splitting the zero again recently, but he made it a bit complicated by using the ECB to illustrate the point.
i. A far simpler way of explaining banking, the golden rule, double entry bookkeeping and 'splitting the zero' is to remind people what happens when you go to the bank to take out a personal loan for (say) £10,000.
ii. Assuming you pass the credit checks etc, the bank creates two accounts for you - a deposit account and a loan account, and it simultaneously credits £10,000 to the deposit account and debits £10,000 from the loan account. No coins and notes change hands, nobody had to deposit money first, nothing, the banks just 'splits the zero'.
iii. So you, the customer, now have a financial asset (£10,000 in your deposit account, which you can withdraw and spend) and an equal and opposite financial liability (£10,000 owed on your loan account, which you will have to repay).
iv. As mentioned above, a golden rule is that one man's financial asset is another man's financial liability*. So your asset (the deposit account) is a liability from the bank's point of view (you can wander into the bank and withdraw cash, or you can make payments to other from that account), and your liability (the loan account) is the bank's asset (they will receive money from you in future as you pay off the principal and interest).
v. We can illustrate this by drawing up a balance sheet at each stage for you and for the bank, see 1) and 2) below.
vi. The balance sheet in 3) is the overall picture taking you and the bank together, you can draw diagonal lines between your asset and the bank's liability (the deposit account) and your liability and the bank's asset (the loan account). The overall position immediately after the loan is made is still a big fat £nil on all sides.
vii. "Why do the banks lend money then?" you may ask, "Their net wealth does not increase when they split the zero." Well, that's because they can charge you 6% interest on the loan and they only pay you 2% interest on the deposit. Of course, you will withdraw the money from the deposit account, spend it in the shops and the shop keeper (or his suppliers, employees etc) will pay it back in to the banking system as a deposit. So until and unless the loan is repaid, the bank will be earning £400 in interest margin. Whether you repay your loan or whether the shop keeper in turn repays a loan he had taken out earlier makes no difference - at this stage, the assets and liabilities merge into one and turn back into zero again.
viii. So what banks really want to do is to ensure that the two sides never merge into zero again, by tricking people into taking out ever larger loans, and making sure that loans are only repaid by somebody else taking out an even bigger loan. There are only so many flat screen TVs you can buy and so many foreign holidays you can go on before either
a) you reach the limit of your own willingness to get further into debt or
b) the bank no longer sees you as a good credit risk.
So the tried and tested method is house price bubbles. There is no such thing as net land wealth, of course*, so all a house price bubble means is that banks are earning more and more money for doing nothing but carry out a huge great confidence trick.* Footnote: The modified rule that for every asset there is a liability (as it applies to financial assets and financial liabilities) also applies to land, because one man's rental income is another man's rental expense; even if you are an owner-occupier, the land only has value to you because being excluded from that plot places an equal and opposite burden on 'everybody else'; alternatively, the value to you is that you alone are not subject to this burden.
By analogy, let's imagine that the playground bully takes ten pence from every other child in your class every day, that's the bully's asset/income and every other child's liability/expense. But one day, you do him a favour (like giving him an alibi), and so he stops taking money from you. You might consider yourself to be ten pence a day richer than all the other children, and indeed you are, but only because you are neither payer nor recipient of ten pence (like an owner-occupier). If the bully later gets expelled, you cease to be ten pence a day richer than all the other children and your 'wealth' disappears.
The modified rule clearly does not apply to buildings and improvements on land, as there is no such thing as a negative building or a negative improvement, and if one person builds a building, he does not impose a burden on other people. He might diminish the rental value of neighbouring plots of land by building the building, and most bits of land ultimately belong to other people (who thus might feel themselves burdened by the building), but...
a) Unless the planning department is staffed by complete idiots, the increase in the rental value of his land/buildings is at least equal to the fall in the rental value of neighbouring plots (so worst case, total rental values are the same) and
b) More subtly, by reducing the rental value of those neighbouring plot, he also reduces the burden which being excluded from those plots places on 'everybody else'.
The new building is real net wealth and the change in net land wealth is precisely zero because it was zero before and is still zero afterwards.
Via Newgate News, the Delit Maille, where they knit caricatures. I find it difficult enough getting a likeness with pen and paper and I have established that even knitting a flat square is mental torture, so they have beaten me into a cocked hat on both counts
Last December, cows and humans appear to have declared a temporary truce and there were only four incidents in the whole month. This year, there was no let up in hostilities. The theme for the month seems to be 'cows trying to escape' and there were only three actual attacks or attempted attacks on humans, none fatal.
South Tyrol, 2 December: Ein Hirsch hat am Donnerstag einen Jäger in St. Pankraz in Südtirol attackiert und verletzt. Nachdem der Hund des 71-Jährigen den Hirsch gestellt hatte, geriet das Tier in Panik und ging auf den Weidmann los..
A deer attacked a hunter which had cornered it, stabbing him in the leg and hand with its antlers. The man slid 50 metres down a steep embankment. Another man came to his aid, between them they killed the deer and the hunter was later taken to hospital. You can't really fault the animal, can you?
Hesse, 7 December: Eine ausgebüxte Kuh hat die Polizei im südhessischen Gernsheim (Kreis Groß-Gerau) über Stunden auf Trab gehalten... Als das Tier in einer Garage Zuflucht suchte und dort von einem Polizisten durch das Schließen der Garagentür festgesetzt werden sollte, rannte die Kuh den Beamten einfach um, wobei dieser leicht verletzt wurde...
A stray/escaped cow led the police on a merry chase which lasted hours. She managed to jump over the barrier and cross a motorway, dodging several police cars as she went. She tried to hide in a garage, and just when a policeman tried to trap her by slamming the door shut, she charged out again, knocking him over and injuring him. She was later cornered in a carpenter's storage area and a vet managed to hit her with a tranquiliser dart at the tenth attempt.
Salzburg 8 December: Nichts genutzt hat einem Kalb in Bergheim bei Salzburg die Flucht. Das am Nikolaustag ausgebüxte Jungtier ist am Mittwochabend von einer Garnitur der Lokalbahn gestreift und verletzt worden. Als die Polizei eintraf, rannte das Rind auf die Beamten zu, woraufhin einer auf das Tier schoss. Das verletzte Kalb wurde später von Mitarbeitern des Nutzviehmarktes abtransportiert und wurde oder wird getötet, sagte Polizeisprecher Michael Rausch.
This one is really sad. A calf managed to escape from a slaughterhouse and was hit and injured by a passing train. On the next day, the police discovered it hiding in a ditch. It charged at a policeman who shot it from 4 to 6 metres away, it is not clear whether the shots hit or missed. It was then finally rounded up and dragged back to the slaughterhouse and has been or will be duly slaughtered.
Hesse 12 December: Frankershausen. Eine Kuh ist Sonntagfrüh durch das Dach einer Scheune im Berkataler Ortsteil Frankershausen (Werra-Meißner-Kreis) gebrochen. Zuvor war das Tier ausgebrochen und in Panik auf das Dach der Scheune gesprungen, die etwas in den Warteberg hineinragt.
A cow broke out of the shed and managed to climb onto the roof. The tiles gave way and the cow fell through and was trapped. She was so badly injured that a vet put her down. They then had to saw through the beams and lower the carcass down with a fork-lift truck. The article is worth a visit for the splendid photo' of a cow's front and back legs dangling through the holes in the roof.
Lower Austria 18 December: ngewöhnlicher Einsatz für Beamte der Polizeiinspektion Traisen im Bezirk Lilienfeld. Einer Bäuerin war Freitagfrüh ein Stier entkommen, das Tier lief direkt auf die Schienen der Traisentalbahn und wurde prompt von einem Zug erfasst. ..
This story is similar to the Salzburg one above, but it happened in a different part of Austria. Bull escaped from its owner, ran onto the railway track and was hit by a train. It was later tracked down by the police. It was badly injured so they shot it dead. train services were not affected and the train which hit him was not damaged.
Zürich 19 December: Ein Landwirt aus Fehraltorf hat eine entlaufene Kuh mit seinem Jeep gejagt, angefahren und so schwer verletzt, dass sie eingeschläfert werden musste. Am Montag wurde der Bauer wegen Tierquälerei verurteilt.
Back in 2010, a pregnant cow had escaped and trotted off down the road. The farmer couldn't catch her on foot so he went back to get his jeep. He couldn't round her up so he resorted to driving into her back legs. As she lay on the floor, he drove into her again for good measure. Both her legs were broken. The man simply left the scene but a witness reported the incident. He lied in court and claimed he had only hit the cow once by accident and was duly found guilty of animal cruelty and fined CHF 9,900.
The idiot appealed against this verdict. The police now provided further evidence based on the jeep's skid marks, the verdict was upheld and the fine increased to CHF 11,700 plus CHF 6,000 court costs.
For more examples of cruelty to cows in Switzerland, try the excellent Swiss Police Report website, e.g. this from June or this one from July. Unfortunately, you can't filter articles by date.
Baden-Württemberg 21 December: Eine Kuh trat beim Impfen einen Tierarzt. Der verletzte sich gravierend am Knie und forderte Schmerzensgeld. Doch das Tübinger Landgericht wies seine Klage ab.
Another court case (which I mentioned last month).
A vet had been attacked by a cow, he sued the farmer for €15,000 compensation, plus costs, plus loss of earnings. The vet had turned down an out-of-court settlement of €6,000 and the court has now turned down his claim on the basis that he is the expert and ought to have known about/minimised the risks and/or taken out his insurance, accept it as one of the risks of his job.
Seems fair enough to me, this is similar to English law (as it stood ten years ago at least). The owner of any premises owes the highest duty of care to third parties such as neighbours or passers by; the next highest duty to paying visitors (who ought to be vaguely aware of certain risks); a high duty to non-expert employees; and the lowest duty to outside experts paid to carry out a particularly risky task. Had an electrician been attacked by a cow, that would be a different matter, in the same way as if the vet had been electrocuted by faulty wiring.
Styringia 21 December: Beim Verladen von zwei Kälbern ist am Mittwoch in St. Marein bei Graz ein 55-Jähriger schwer verletzt worden. Der Mann wurde von einem der Tiere gegen die Heckwand eines Lkws gedrückt und von den Hörnern im Brust- und Baubereich verletzt.
A butcher was trying to load two 600-kg calves onto a transporter. One of them crushed him against the side of the lorry, he ended up underneath the loading ramp and a calf attacked him its horns. He suffered injuries to head, chest and stomach. The butcher initially went inside the farm house to recover but his brother persuaded him to go to hospital.
Brandeburg 21 December: Eine Herde von 20 Kühen ist am Mittwoch bei Löwenberg (Oberhavel) von einer Koppel ausgebüxt und auf der Bundesstraße 96 herumspaziert... Die Ordnungsbehörden prüfen jetzt, ob der Halter seine Pflichten verletzt hat.
A herd of twenty cattle did a bunk and wandered about on the motorway for an hour. Even though it is a busy road, all the passing cars managed to avoid hitting any. It took half an hour to round them up again and the authorities are investigating whether the cattle's owner breached his duty of care to third parties (see previous story for legal stuff).
Switzerland 30 December: Luzern/LU. Gestern Abend ist ein Zug der BLS von Entlebuch Richtung Wolhusen gefahren. Im Gebiet Rossei standen plötzlich Kühe auf dem Geleise. Trotz sofort eingeleiteter Vollbremsung, kollidierte der Zug mit vier Tieren. Drei Kühe waren sofort tot. Eine vierte musste aufgrund der Verletzungen eingeschläfert werden. Personen kamen keine zu Schaden."
Four cows suddenly appeared on the tracks in front of a train. Although the train driver braked as hard as he could, he hit them, killing three instantly. The fourth had to be put down. The train was not derailed but was damaged. No passengers were injured and they were ferried on their way with a rail replacement 'bus.
Switzerland 30 December: Glück im Unglück für ein Kalb namens Roger: Am Donnerstag-mittag ist es in Küssnacht SZ aus einem Tiertrans-portanhänger gefallen. Dabei zog es sich lediglich einige Schrammen an einem Bein zu. Der Fahrer des Anhängers aber bemerkte den Vorfall nicht und setzte sein Fahrt fort.
A little calf called Roger fell off a transporter but only suffered scratches. The driver did not notice but a following car driver did, who alerted the police. The calf allowed himself to be tied to a tree and waited patiently until the transporter came back.
Crikey, the audience shouts, I knew Switzerland was boring but does this actually count as newsworthy?
Yes it does - the interesting bit is that nobody can explain how the little calf managed to jump out of a trailer which has 1.5 metre high sides. Well duh, as English child knows, cows can jump over moons, so of course calves can surmount 1.5 metre obstacles. Maybe one of the others gave him a leg up or something.
Burgenland 30 December: Kuh „Yvonne“, die im Sommer mit ihrer Flucht ganz Bayern unterhielt, hat im Burgenland einen männlichen Nachahmer gefunden: Jungstier „Ivan“ ist beim Einzug in sein neues Quartier in Wulkaprodersdorf (Bezirk Eisenstadt-Umgebung) Anfang Oktober ausgebüxt und seither untergetaucht...
Inspired by Bavaria's Yvonne, a six-month old bull called Ivan escaped during transport and has now been on the run for three months. It is assumed that he is hiding in a 500-acre stretch of forest. They tried tempting him out with a cow but this didn't work.
Best of luck, little fella!
Friday, 30 December 2011
The first article from July 2011 is about Ireland's first attempt at a property tax, which was to be a flat €100 per household, i.e. rather less than the TV licence fee in the UK (i.e. a kind of Poll Tax) and which didn't go down too well in certain quarters.
The second article from December 2011 explains that the Irish government has binned this idea, and will have something more similar to Domestic Rates in Northern Ireland (which is a tax of about 0.7% per annum on each house's selling price as at 1 January 2005), albeit only a quarter as high (the average bill will be €312.50). The list of exemptions is so long as to be meaningless and to partly defeat the object:
It is likely that the 400,000 households currently due to get exemptions from the household charge will also be exempted from the property tax. They include those renting houses from local authorities or private landlords and those living in 1,300 ghost estates. And the 18,000 people who are getting Mortgage Interest Supplement from the state to help them pay their mortgages will not be liable."
But what cheered me up was this bit from the first article:
The minister for the environment says the tax is an interim measure, set at the lowest possible level, and will hold for just two years when... some other form of property tax is introduced. But this is predicated on systems being in place to make that possible ... a register of house sale prices and the introduction of postcodes in Ireland, which [ Limerick University economist Stephen] Kinsella describes as "the absolute bedrock" of a fair property tax.
Either he's been reading my 'blog or great minds think alike. As I've always said, doing the valuations is a doddle, as HM Land Registry has all this information and it is already all computerised and readily useable. Information on selling prices (which we can use as a proxy for rental values, see iv) is also publicly available, and is available at Rightmove (and probably plenty of other places, but theirs works quickest out of the ones I've tried).
For simplicity, let's assume that we replace just about all taxes (except duties and income tax on a narrow class of payments from the government, such as civil service pensions, PFI stuff etc) with LVT. And no doubt HM Land Registry/The Valuation Office would be able to do these workings in a couple of hours, if they haven't done them already...
i. Rightmove allows you to search by postcode district (e.g. NW3), postcode sector (e.g. NW3 5) or postcode unit (NW3 5TY). All things considered, I think it is best to use postcode sectors with a couple of thousand dwellings - that's small enough to give accurate relative values and big enough to have a representative sample of recent sales.
ii. It will tell you the average prices paid for flats, terraced, semi-detached and detached dwellings. I prefer using semi-detached houses, because these are the most homogeneous in size and style across the country.
iii. It will tell you the average price paid over the last 1, 2, 5 or 7 years, it doesn't really matter which one you choose as long as you are consistent - it is only relative and not absolute values that matter. For example, the average price paid for a semi in my sector over the last seven years is £427,000 and over the last year it's £486,000. If the tax in my sector turns out to be £30,000 for an average semi (i.e. £75 per square yard), whether we express the tax as 7.0% of the former or 6.2% of the latter comes to exactly the same thing*.
iv. Purist LVT is on the site only rental value excluding buildings. HM Land Registry know exactly what the size of the plots were on which the average semi-detached houses stand, so in my area, the £30,000 mentioned above can be seen as a tax of (say) £75 per square yard per year (so small houses on smaller plots automatically pay less than large houses on larger plots,and an average house on a 400 sq yd plot pays £30,000). But before we divide by plot sizes, we can fairly easily convert selling prices to rental values of the whole house (including the buildings) by multiplying the selling prices by a percentage.
v. As Sobers has pointed out often enough, it's not enough to apply the same flat % rate to all houses, because the gross rental yield on selling prices of expensive houses in expensive areas tends to be lower than for cheaper houses in cheaper areas. This is because of four further factors:
- Council Tax, which is more or less flat on all houses, so tends to push down rental yields on houses in cheap areas.
- Housing Benefit, which sets a floor on rents in cheaper areas, so tends to push them up
- The costs of maintenance, insurance and depreciation of houses (which has to come out of gross rents after council tax) are much the same wherever the house is (tends to level out gross rents by setting a floor under rents in cheaper areas - if the gross rent doesn't even cover these costs, the house will be abandoned).
Let's assume these effects cancel out.
- Finally, landlords apply a lower discount rate to the location element of the rent than to the bricks+mortar element, because the former tends to increase but the latter depreciates. So the more expensive the area, the larger the 'location element' and the higher the selling price relative to gross rent (and hence the lower the yield relative to selling price).
vi. We can sweep all these up when converting gross rental value to site-only rental value to a single net adjustment, which boils down to either
- deducting a large figure (i.e. rebuild cost/value) from the purchase price before applying the final percentage, or
- by applying the percentage to the selling price and then deducting a smaller figure (the maintenance, depreciation costs) from the result.
vii. The big unknown is of course what will happen to the rental value of land when all other taxes are scrapped. We'd need to raise (say) £300 billion a year from LVT but the notional site-only rental value of all UK land at the moment is only (say) £150 billion a year. The gimmick here is that a large part of the cuts in taxes on earnings, output and profits of (say) £300 billion will flow straight through into higher rental values. Let's ignore Citizen's Income for now, because this is not an increase in total cash welfare payments/tax reliefs, it's just spreading out existing cash welfare payments/tax reliefs more evenly. So if two-thirds those income tax cuts go into higher rental values, that still gives us a tax base of £350 billion a year, so with an LVT rate of 85% we are all sorted.
* Let's assume that £30,000 a year is pretty close to the average tax paid by all the households living in semi-detached houses in my sector - less than what recent purchasers or tenants are currently paying/bearing and more than what semi-retired people who bought their houses decades ago are currently paying/bearing.
For recent purchasers, the calculation is thus: one working adult buys a £486,000 house with a 20% deposit and a mortgage of four times income. Gross income is £97,000 on which income tax and Er's NIC is £34,000, Er's NIC is £12,000, VAT is approx. 7% of gross income = £7,000, plus £3,000 for council tax, TV licence, insurance premium tax etc etc = £56,000. If there are two working adults with equal wages, the corresponding figures are 2 x £13,500; 2 x £5,500, £7,000 and £3,000 = £48,000.
Other couples might be paying next to nothing, so the average is (say) £24,000. If we knock off the £7,000-odd Citizen's Income which each couple will be getting from the £30,000 LVT they will be paying, this gives us a tax bill of £23,000 a year, only everybody pays the same or similar.
Continuing the workings for my hypothetical two-earner recent-purchaser couple, after mortgage repayments of £20,000 a year, they have £29,000 disposable income for fun stuff like food, clothing, utility bills, Tube tickets etc. So just to keep our minds active, let's work backwards from that £29,000 figure to see how high your income would have to be to be able to buy in my sector once LVT came in and still have the same living standards.
£29,000's worth of goods and services today will be reduced by the £7,000 VAT = £22,000, house prices and mortgage repayments will be halved to £10,000, plus LVT £30,000 minus £7,000 Citizen's Income, so in future, a couple with earned income of £55,000 would be able to buy, so instead of my sector only being affordable for the top 1% or 2% of households, it would now be affordable for the top 5% or even 10%.
Thursday, 29 December 2011
Back in November 2010, I bodged the front cover of the Evening Standard to make it look like this: This was tongue in cheek, but a few months after aforementioned wedding, we had the worst/best*(delete according to taste) riots that this country has seen for decades. I was reminded of this yesterday, when Peter Snow, in his review of 2011 programme on Channel 4, covered the Wills/Kate wedding and then went on to describe the later riots as entirely unpredicted and/or unpredictable, but I don't think they were:
In 1977, we had a Silver Jubilee and in the build up to that we had the Notting Hill riots.
In 1981, we had a Charles/Diana wedding and riots.
In 2002 we had a Golden Jubilee and in the build up to that we had the Bradford Riots and Oldham riots.
In 2005, we had Charles/Camilla wedding and Birmingham riots
This may all be a complete coincidence, of course - I cheerfully admit that there were no riots at the time of Edward/Sophie wedding and that there were riots (notably in 1985) when there was no royal 'occasion' - but it is equally possible that there is a connection. It could be:
a) The politicians sense when the huddled masses are getting a bit uppity, and so they get the Royal Family to put on a bit of a show to take people's minds of things and to make them feel a bit patriotic and hence willing to buckle under,
b) The politicians and Royal Family are so hopelessly out of touch that they put on these extravagant shows anyway, and this just reminds the huddled masses of the huge inequalities (perceived or actual, justified or not) which exist, and they respond by rioting, or
c) Some combination of both.
There appears to be some confusion over the inter-action between Land Value Tax and planning permission, which I suppose boils down to a complete misunderstanding as to how the rental value of bare land arises in the first place, and people confusing rental values with capital values/selling prices.
To cut a long story, it is people who create land rental values. Where there are more people, there is more economic activity and vice versa, and it makes sense to have better transport links, schools, hospitals, public parks where there are most people. All these make an area more suitable for economic activity and thus more desirable to live, thus pushing up land values further and attracting yet more people/businesses, thus making it more likely that transport links in that area are improved further and so on in a self-reinforcing pattern. These are 'centrifugal forces' which is why, if you drew a contour map of land values, there are huge towering peaks in land values in city centres, which manifest themselves as sky scrapers and tower blocks.
There are of course also 'centripetal forces' because there are plenty of other people who like [the illusion of] living in the countryside, and having a view over, or at least being near, fields, beaches, woodland etc. So the whole thing reaches some kind of equilibrium. The population of Greater London increased from 1 to 6 million during the 19th century, i.e. relatively speaking, the population of Greater London was growing faster than the total UK population - but even though the total UK population has nearly doubled since 1901, the population of Greater London had already reached its peak by then and has hovered between 6 and 8 million ever since.
1. What the NIMBYs always say is that "If we had LVT, then farmers would be forced to sell their fields to developers and England would be concreted over"
This is clearly nonsense.
a) nobody said that if we had LVT that all planning restrictions would be abolished anyway.
b) the annual rental value of farm land is very low, maybe one penny per square yard as against £10 per square yard for lower value residential land. Even if we bothered to collect LVT from farmland, it would be less than farmers currently pay in income tax, NIC etc, so farmers would be able to make more money from farming than they do now and there would be less incentive to sell their land for development as there'd be no massive windfall planning gains.
c) the centrifugal forces mean that nearly all new development would be at the edges of existing towns and cities, even if these increased in size by a tenth (enough for five million extra homes) this would only use up one per cent of existing farmland.
d) LVT sets a cut off point and actually restricts development at the very margin, so marginal land would remain untouched.
2. The Faux Lib's go one better and say that if we had LVT, people would be forced to put their land to inefficient uses to try and raise enough money to pay the tax, which would lead to malinvestment etc. This is of course utter nonsense as well, in a rational world, people are already putting their land to its most profitable use anyway, and the LVT would always be based on any plot of land being put to its most profitable permitted use, so if we decide that a farmer is not allowed to develop some fields or woodland because they provide people with a nice view, then his LVT bill would only be £5 an acre for the woodlands and £50 an acre for the farmland (or similar low figures). As long as the increase in rental values of the houses with the nice views is greater than the reduction in the rental value of the woodland or farmland, this makes good sense.
3. If we assume we have LVT and that 'local people' will still be allowed to prevent any new development in their area as at present, then there is a pleasing symmetry to this. Those people who try to push up the selling price of their own house, i.e. the scarcity value of the planning permission, will end up paying a larger share of the total LVT bill. So at least they are compensating those people who are forced to live somewhere they don't really want to live or in a home that is smaller than the one they would be able to afford if there were more homes.
4. If we assume that we have LVT and we allow things to be built where people need or want them, then this is even better. We know that LVT discourages 'urban sprawl' so we don't need to worry about England being concreted over, and we also know that planning restrictions reduce the total potential rental value of land in the UK, therefore, in the absence of planning restrictions, the total rental value of land would go up, however slightly, thus giving us a higher tax base (and hence a lower tax rate to generate the same amount in revenue).
5. Regular commenter Sobers is pretty much world champion at confusing all these issues, see his various comments here, as he keeps bringing capital values/selling prices into it.
His view appears to be that housing is so expensive for young people because of restrictive planning permission, therefore if we abandoned planning restrictions, more houses would be built and they would be cheaper, and therefore that there is absolutely no need for LVT. At the margin, yes, house prices might fall, but the total rental value of all UK land would go up, by definition. It is just that all this extra rental value would fall into the laps of farmers who happen to own a bit of land at the edges of towns and cities (and Sobers just so happens to own a fair bit of farmland at the edge of a large UK town...) and the rental value of those houses who currently benefit from the 'unspoiled' view over his farmland would fall a bit.
In summary, LVT works perfectly well with or without planning restrictions, both conceptually and administratively. LVT would push down capital values anyway (by definition) and it would also be much easier for young people to 'get on the property ladder' because the Citizen's Income they receive will more or less cover the LVT due on an average house (especially if you include Child Benefit), they won't have to pay income tax etc any more and the mortgage they have to take out will be much smaller.
From The Metro:
One-third of unemployed people 'have criminal record'
One in three of those claiming Jobseekers Allowance in Britain has a criminal record, according to new statistics. The figures show that 400,000 of the 1.2m people currently on unemployment benefits has been convicted of an offence.
Of those, 47 per cent are still claiming benefits more than two years after serving their sentence. And a quarter of claimants either have at least one conviction or have been cautioned by police for an offence in the past ten years. A further one in 20 of those have spent time behind bars... Other statistics revealed those who are out of work have far more likelihood of having a criminal record than those who have jobs - with just over half of those convicted or cautioned in the past year having claimed benefits the previous month...
‘Given that so many of these people are criminals, it makes you wonder how many are actually seeking work and available to work,’ said Tory MP Philip Davies, ‘It appears the taxpayer is paying twice. We are being attacked on the one hand as victims of crime and on the other we seem to be paying for them to go out and commit more crimes.’
Well duh, we could have guessed all this.
Putting morals aside, crime as a way of life is relatively more attractive for people with low or no earnings potential, and once you have a criminal record, it is far more difficult to get a job, so once you've started you then tend to stick to a life of crime/claiming benefits. So it would be interesting to know how many people with criminal records, ex-prisoners etc remain unemployed and how many of them manage to find a job, go straight etc.
But they twist the whole logic round and say that 'the unemployed are more likely to be criminals' rather than 'criminals are more likely to be unemployed', even though two-thirds of those on Jobseekers' Allowance have managed to resist temptation and have not turned to crime (or at least not been caught yet).
And I'm very disappointed to see Dick Puddlecote's favourite MP turn authoritarian and join in the populist frenzy.
Wednesday, 28 December 2011
I recently had to look something up in my BA final year project (written 1995-96) on the differences in the taxation of and subsidies for housing in the UK and Germany. I worked for a tax advisor in Germany for four years, this was our bread-and-butter business. The facts and figures are of course historic, but the basic principles still stand. You can test your understanding by attempting the questions at the end.
Example One - the split purchase
One unusual thing (from a UK perspective) about buying a new house/flat in Germany is that it is normal to buy the land as one transaction and then to pay for the construction entirely separately.
Why might this be?
i. In the UK, new housing is zero-rated for VAT, in other words, not only does the builder not have to charge VAT on the selling price, he can reclaim most of the input VAT. Stamp Duty was a flat 1% of the price paid for the house if above £60,000.
ii. In Germany, construction of new housing is liable to VAT like anything else, the rate was 14% at the time. This does not apply to subsequent sales by a private owner. Their Stamp Duty ('Grunderwerbsteuer') was much higher, call it 3% of the price paid for land or for land and buildings.
iii. So let's take an example where the land costs £50,000 and the construction costs another £50,000 (or their Deutschmark equivalent). A UK purchaser buys the finished house for £100,000, pays £1,000 Stamp Duty and that was the end of that. He could have saved himself the £1,000 by buying the land for £50,000 (below the £60,000 threshold) and then paying a builder £50,000 for the construction, but this would involve a lot of hassle and faff and would be barely worth it.
iv. For the German purchaser, the decision is much easier. He can either:
a) Buy the finished house for £100,000 and pay £14,000 VAT and then pay £3,420 Stamp Duty on top, total tax cost £17,420.
b) He can buy the land for £50,000 and pay £1,500 Stamp Duty. He then orders himself an off-the-shelf house from a local builder for £50,000. The builder charges £7,000 on the price, total tax cost £8,500.
Example Two - privatised tax collection
Another unusual thing is that in Germany, landlords who bought newly built homes were given very generous capital allowances on the cost of construction, allowable against income tax.
i. To simplify things a bit, under §7(5) EStG, for the first six years, the landlord could claim capital allowances of 10% of the construction cost against his total taxable income (not just rental income), and the top rate of income tax was over 50%. So the landlord was refunded about 30% of the amount paid for construction. These allowances were of course not clawed back if and when the home was later sold.
ii. In these cases, the purchase price would be carefully split so that lowest reasonable value was ascribed to the land and the highest reasonable value to the construction (the seller of the land and the building company were often connected or they colluded).
iii. According to the German building societies association, the average price paid for second hand homes was DM 300,000 and the average price paid for new ones was DM 433,000. So the potential landlord was indifferent between paying DM 300,000 and paying DM 433,000 and getting DM 133,000 back in tax breaks. (Sure, the maths is trickier than this because the land element of the DM 433,000 did not qualify for capital allowances, but let's assume that's balanced out by the fact that new builds commanded higher rents).
iv. Look at it now from the point of view of somebody who owns an undeveloped site, suitable for one home. The second hand home next door just sold for DM 300,000 and the costs of building a new one is DM 150,000, so the implied land value is also DM 150,000 (sticking with the £50,000/£50,000 split, the exchange rate was about 3),
v. So this lucky landowner can have a house built for DM 150,000 and sell it for DM 433,000. The transaction has to be [artificially] split up between the land and the construction as explained above (let's say a fifth for the land and four-fifths for the construction) and the landowner has to take the VAT of 14/114 of the construction element on the chin, which works out at about DM 42,000.
vi. So the landowner pockets DM 433,000 minus DM 150,000 minus DM 42,000 = DM 240,000, which is DM 90,000 over and above what the plot was really worth.
a) Let's assume that the top rate of income tax is increased from 50% to 60% but that everything else remains constant. Would the price which the owner of an undeveloped plot go up or go down?
b) Any guesses by how much the price would go up or down?
Click and highlight to reveal answers:
a) The value of the tax break was 30% of the price paid for the construction, calculated as income tax rate 50% x capital allowances of 60% in total. Two-thirds of the tax break - DM 90,000 out of DM 133,000 - fed into a higher land price. If the income tax rate is increased to 60%, the value of the tax break is now 36%. So the bulk of that extra 6% would also feed into a higher land price.
b) As things stood, the gross value of the tax break to the purchaser was DM 133,000, which is 30/70 x the second hand price of DM 300,000. The new gross value of the tax break is 36/64 x DM 300,000 = DM 169,000, an increase of DM 36,000, two-thirds of which would go into a higher land price = DM 24,000.
Anon alerted me to this in The Daily Telegraph:
Fearful banks parked a record €411bn (£344bn) with the European Central Bank (ECB) last night in a further sign that Europe's financial institutions are becoming increasingly wary of lending to each other.
The record amount was deposited just a week after the ECB lent 523 eurozone banks a total of €489bn in cheap loans in an attempt to keep credit flowing through the economy and prevent a full-scale credit crunch. Banks borrowed the money at the ECB's benchmark rate of 1pc, but receive an overnight rate of just 0.25pc, well below what they could earn in wholesale markets.
This means lenders are depositing any new cash back with the ECB at a loss in order to guarantee safety.
There's not much I can add to that, except to note that maybe this is how the ECB borrowed the money which they lent out a week or two ago, and the ECB is taking a 0.75% cut as insurance for guaranteeing inter-bank lending between banks with spare cash and banks with not enough cash, which seems perfectly fair to me.
The other possible explanation is that there are banks so stupid that they borrow money from the ECB with the sole purpose of depositing it back with the ECB.
Tuesday, 27 December 2011
A tactic which the Home-Owner-Ists often adopt is basically to go completely hysterical and focus on one or two hardship cases. The BBC did this recently with regards to the new Greek 'property' tax, wheeling out a couple of Poor Widows with unemployed children, one of who has a mother with cancer.
The Fat Bigot then took it to extremes with this comment:
Mr Wadsworth, the more you comment on your beloved LVT the more statist (1) and oppressive (2) your position becomes.
The facts as reported - and you cite no basis on which they should be disputed - are: (i) these two people live in a small apartment, (ii) they have no rent or home-purchase loan to pay, (iii) one is beyond the age at which it is reasonable to expect her to work for a living, (iv) the other is a student, (v) they need little income to live and receive what they require mainly from relatives. (3)
Clearly they are prime candidates for a tax (4) in the eyes of those who consider ownership of a tiny bit of real estate (5) to be an evil (6) that should be punished. (7)
1) The very concept of land 'ownership' is statist. You can't have land 'ownership' without a state and you can't have a state without land 'ownership'.
2) Land ownership in itself, or the right of individuals to exclusive possession of specific bits is not oppressive in the slightest. What is oppressive is the Home-Owner-Ist dream of being able to occupy land rent free and tax free, benefitting from everybody else's efforts while you do so, and then being able to cash in to the tune of tens or hundreds of thousands of pounds when you sell up. The flip side of this dream is the young person's nightmare that they are excluded from land without compensation, and if they want to 'get on the ladder' they have to pay ransom of tens or hundreds of thousands of pounds, with as much again in mortgage interest.
So call LVT 'oppressive' if you will, but not having LVT and having income tax instead is twice as oppressive.
3) Let's take those facts as a given - the BBC only had to find a couple of hardship cases out of millions of Greek households, but let me add that all the hardship cases mentioned depended on other people's taxes, whether pensions or student grants, and expensive cancer treatment. If these people truly live in such small apartments, then by definition their property tax will be minimal, and certainly a lot less than all the benefits they receive. Problem is, they want it both, they want to live in the nice houses tax free and get stuff paid for by everybody else.
4) No they are not 'prime candidates' for the tax. Adam Smith didn't recommend LVT with the sole intention of prising Poor Widows out of their mansions. Anybody who really thinks that this is the whole point of LVT reads the Daily Mail too much. Winston Churchill got bored dealing with the Poor Widow Bogey a century ago, suffice to say, the rougher corners of LVT (i.e. the Poor Deserving Widows In Small Apartments Who Can't Afford It) can be rounded off with exemptions, discounts, deferments, higher state pension, whatever.
5) Under a full-on LVT system, everybody would own "a tiny bit of real estate" from birth and as of right, because they would receive a Citizen's Income or Citizen's Pension funded out of the LVT collected. If they choose to occupy an average size/value plot of land, then the CI they receive and the tax they pay nets off to +/- nothing each year, mortgage free, hassle free.
6) People having exclusive possession of land is not evil in the slightest, I rent a house and a garden and I want to have exclusive possession of it. What is 'evil' is the system whereby the state taxes incomes (which is theft), doesn't tax land 'ownership' (which is theft) and at the same time subsidises land 'ownership' with the money raised income tax (yet more theft). Why not make the punishment fit the crime and replace taxes on income with LVT?
7) Remind me - taxes on income, output and profits are not 'punishment' of individual efforts because..?
More to the point, LVT is just a tax on consumption of common resources, a bit like fuel duty. So The Fat Bigot could just as well find a few elderly widows on meagre state pensions, who only occasionally use their Fiat Pandas to visit their Sick Relatives and then rail against fuel duty along the following lines:
"Clearly they are prime candidates for a tax in the eyes of those who consider ownership of occasional use of a small car to be an evil that should be punished. "
The point is that fuel duty only costs those elderly and deserving widows a few pounds a week, a tiny fraction of the meagre pensions they receive, which are partly funded out of the £40+ billion collected in taxes on fuel* (fuel duty and VAT), of which only a quarter of which is spent on road maintenance. And if we can afford to pay £40+ billion a year in taxes on fuel and have the government's profit spent on other stuff, who's to say we can't afford to pay £300+ billion in taxes on the rental value of land (assuming £300+ billion of other taxes were scrapped)?
* Bonus points to the first idiot who says "Old age pensions are funded out of National Insurance". National Insurance is just another kind of income tax, it all goes in the pot and gets spent on whatever the government wants to spend it on.
Dearieme left a comment recently to say that ALDI's Passions were better than Tyrrell's, which is not actually saying much, as Tyrrell's came a distant fourth in the Fun Online Poll, so honour bound, I drove to my nearest ALDI this morning (which unfortunately is half an hour's drive away) to buy some.
We had people round for lunch today and I road tested their entry level flavour ('sea salt with crushed black pepper'). The five adults and three children present agreed they were very tasty indeed. If you ask me they are a lot better than Kettle's as well, but I don't really go for these 'hand cooked' crisps so maybe I'm not the best person to judge.
In the next few hours and days we will also sample the other two flavours available, 'sea salt and cider vinegar' and 'mature cheddar and onion'. I note to my horror that they only charged me for two packets of hand cooked crisps but I'm not going back now. ALDI's Cava was excellent as well, a snip at £3.99 a bottle.
Monday, 26 December 2011
From The Telegraph:
Baby boomers shouldn’t feel guilty about being better-off than younger generations, because people aged over 50 today saved harder and spent less when they were young than is the case today. That’s the conclusion of analysis of more than 2,000 people by the Chartered Insurance Institute (CII).
The study acknowledges that baby boomers – or those born within 20 years of the end of World War II – were fortunate to enjoy easy mortgage availability and decades of house price inflation plus final salary or defined benefit pensions denied to most young adults today.
As a result, about 80pc of the Britain's net personal wealth of £6.7trn or £6,700bn is owned by people aged over 50 while younger folk often have no savings, substantial debts and little hope of becoming homeowners any time soon. The average age of first-time buyers is now 37 or about 10 years later than two decades ago.
But the CII claims that ‘generation rent’ are partly to blame for their own misfortune because many fail to follow their elders’ example by starting to save early. They have come to expect regular foreign holidays, among other treats once regarded as luxuries, often funded by credit cards taken out earlier than their parents did.
That is all complete hogwash. As I said over at HPC, it is pointless comparing living standards now with what they were at any mythical time in the past, fifty years ago, people did not fly abroad on holiday or all have colour TVs and iPods and so on, but nowadays they do.
People who were young fifty years ago didn't nobly forego these fripperies because they were so thrifty and hard working, these fripperies simply didn't exist. And nowadays everybody spends money on these things, young and old alike. That does make today's young people feckless and wreckless and the authors of their own misfortune.
In turn, living standards fifty years ago were vastly higher than they had been fifty years before that. Fifty years ago, at least everybody had mains electricity, nearly everybody had a gas or electric cooker and a fridge, most of them had a black and white telly and a gramophone, and plenty already had a car or central heating. So from the point of view of somebody born in 1900, those born in 1950 lived in the lap of luxury.
And no doubt in future , they'll invent new stuff and manufactured goods will get ever cheaper and in another fifty years time today's young people will be playing the same card and saying "Ee by gum, in my day an iPod cost half a week's wages, nowadays you get them free with a packet of Corn Flakes."
If you're a Baby Boomer and you feel aggrieved when reading this, then that proves that you have a computer and internet access, probably broadband, which costs you under £20 a month. They didn't have that fifty years ago, did they? And as we well know, having broadband increased the value of your house by thousands of pounds, because nowadays it's a must-have utility, despite it was somebody else who dug up the pavements and did the cabling.
What it really boils down to is that fifty years ago, you could buy a house for four or five times the cost of a fairly crap original Mini car, and nowadays, a house costs fifteen or twenty times as much as a vastly superior modern Mini. It's land prices which make all the difference and which have transferred so much wealth from young to old, it's land values which make up the bulk of that £6.7 trillion supposedly hard earned net personal wealth.
Well, it's land values and decades of government deficit spending, which was just the Baby Boomers spending on young people's credit cards (to paraphrase George Osborne).
Thank you to the 218 people who took part in last week's Fun Online Poll, results as follows:
Who is Britain's least funny comedian? (Multiple votes allowed)
Marcus Brigstocke - 123 votes
Jo Brand - 84 votes
Lenny Henry - 64 votes
Jeremy Hardy - 63 votes
Dawn French - 47 votes
Mark Thomas - 38 votes
Lee Evans - 37 votes
Phil Jupitus - 36 votes
Harry Hill - 30 votes
Harry Enfield - 18 votes
So Brigstocke aced it, leading strongly from start to finish. I must admit I'd never heard of Brigstocke before, but having watched a couple of his clips on YouTube I agree that he is not funny in the slightest. Brand easily coasted into second place and Henry and Hardy battled for third place throughout, with Henry pipping Hardy at the post.
Make up your own question for this week's Fun Online Poll, I've provided you with the answers.
Sunday, 25 December 2011
Saturday, 24 December 2011
Lady Antebellum is one lucky cow. After nine months alone, wandering the wilds of... Vancouver, Lady Antebellum is now enjoying the much more pastoral setting of the Critteraid Farm in Summerland.
The story begins last March when motorists in the Lower Mainlaind complained to the RCMP about a cow that was seen near the freeway. Despite their best efforts, the young Angus cow eluded capture. She ended up in a Surrey park bog and at one time she was seen under the Port Mann Bridge, all the while avoiding coyotes, vicious dogs, and humans.
She found some vegetation through to the Fall, then concerned park walkers started feeding her so she would not starve to death. She was nicknamed Nellie by some and April by others...
On December 19, they managed to get Lady Antebellum into a corral to allow her to become calm enough to be transferred to a safer location. It took a couple of tries to get her loaded. The first attempt ending spectacularly, as she bolted and literally went airborne over a huge rock. Finally, last Wednesday, the CDART transport trailer came from Summerland, loaded her up and had her on the way to a safe sanctuary for the rest of her life.
It's funny isn't it, as long as animals and doing what they are supposed to do, people are quite happy to kill them and eat them (and as a meat eater, that applies to me as well), but if an animal ever manages to escape (or behaves otherwise out of the ordinary), people will go to inordinate lengths to recapture them and then put them in a sanctuary where there's no question of them being slaughtered. I mean, that story wouldn't look right if it ended up with the cow being sold to a butcher.
Friday, 23 December 2011
There's a stomach churning semi-tone gear change 2 min 20 seconds into Cliff Richard's gloriously awful version of "When a child is born"
From the BBC:
One of those who cannot afford to pay the [property] tax is 87-year-old Katerina Leta. She lives with her grandson, Tasos Dimitriadies, a mature student in a small apartment in north Athens. The property has been in their family for generations (1) but without a single income between them, they are dependent on relatives for most of their expenses...
He says he cannot afford it and won't borrow the money because he is angry there is no exemption for people in his position."They are asking us to pay a tax that we paid when we bought the house and the constructor paid when he built the house," (2) he tells the BBC World Service...
In cafes and tavernas, talk of the tax seeps into almost every conversation and many refer to it as the "haratsi", a name for the hated levy imposed on them under the Ottoman occupation. Mayor Iraklis Gotzis is encouraging his constituents not to pay the tax Even the union representing electricity workers at state run company DEI has called on its members to boycott the tax, describing it as "barbaric"...(3)
The Greek government further alienated itself when Deputy Prime Minister Theodoros Pangalos, part of the government that devised the tax, told Mega TV channel that he could not afford to pay the €7,500 (£6,250, $9,785) bill for the many properties he owned... (4)
And new Prime Minister Lucas Papademos decided earlier this month that the levy would not be withdrawn at the end of the year because it was "absolutely necessary to ensure that public finances did not stray from the targets set". But he did offer some concessions, promising to seek a fairer way of excluding those unable to pay the tax, which ranges between €0.50 and €20 per square meter depending on the location of the property...
With a mother who has cancer and a son who is a full-time student living at home, Dimitra Koutsis struggles to make ends meet on her meagre pension. Unable to afford the tax, she has been given another fortnight to pay up.
"I am hoping that something will change, that they will see that this is madness," she says, "My mother has cancer and she needs to be comfortable. We even keep her medicines in the fridge so I don't know how we would manage. (5) It is pure blackmail, that is what it is. (6) Next we will be finding taxes on our water bills and who knows where it will end."
Greece's highest court is considering whether the threat of withdrawing people's power supply is unconstitutional, but so far the measure seems to have been effective. The government says it has already collected 80% of the first wave of property taxes (7).
1) What relevance does that have to anything? Is he suggesting that only arrivistes should pay it? This attitude has been drummed into the British, that the longer land has been occupied by the same family, the worthier the family is. Why? It just means they could never be bothered to do anything apart from collect rent.
2) Well obviously he didn't. That's like saying "I don't want to pay my car tax because the manufacturer paid corporation tax".
3) Ooooh! An adjective! "Barbaric"! Well that proves it then, doesn't it?
4) So it's not huge amounts of money, is it? And if he can't afford to pay for them all, then he can sell a few.
5) Wow! What a sob story. Mrs Koutsis is an even Poorer Widow than Mrs Leta!
6) No it's not blackmail, it's a tax and you have to pay it. It's funny how she's quite happy to collect her "meagre pension", pick up the drugs for her poor sick mother or send her son to a subsidised university, all of which are paid out of taxes levied on other people.
7) 80% is pretty impressive by Greek standards, which is yet another argument in favour of such taxes.
Via Drewster at HPC
Our local UKIP branch chairman recently reminded me that there was going to be a Parish council by-election in my ward, but I assumed that he was going to sort out the paperwork and he assumed that I would. Suffice to say, I didn't get my name on the ballot paper.
I was doing my pre-Xmas tidy today, which consists mainly of opening unsolicited mail and chucking it in the recycling when I stumbled across the voting cards for me and the Mrs.
Oh dear, I thought, I even forgot to vote! But lo and behold, the election was being held today, so en route to somewhere else this evening, I fulfilled my democratic duty. I lit up my usual rollie on the way, which usually lasts me from my front door to the train station. The polling station is half way between my house and the train station, so I politely asked the two gentlemen sitting outside (the ones with the rosettes sitting on plastic chairs who ask for your voting card on the way out) whether there was an ash tray handy for me to park it.
I'm afraid not, replied the younger of the two, but I can hold it for you. Result. The chap behind the desk handed me my ballot paper and solemnly informed me that I could cast no more than two votes. Once at the polling booth (about two paces away from the desk and not even curtained off) I looked at the ballot paper and established that there were only three candidates on the paper - two Conservatives and one Green Party. Short of spoiling my ballot paper, this left me with little choice.
On the way out, I was duly assailed by the two gentlemen on plastic chairs, who went through the usual routine. I merrily handed over my voting card and answered their question. The younger man with the blue rosette gave me a sour look and handed back my rollie. The older man with the green rosette was slightly taken aback but said 'Thank you' anyway.
Thursday, 22 December 2011
The Daily Mail has mentioned this topic often enough, but today they really get down to facts and figures...
The Treasury must bite the bullet and tell Britons the whole truth about pension fees even though the shocking facts risk 'permanently damaging' our savings culture, advisers say.
This is Money can reveal the inside story on a damning presentation on pension charges, in which consultants showed the Treasury evidence of a £67billion-a-year hit. (1) Advisers from a low cost investment provider laid their facts bare for officials, revealing how hard-hit retirees are sometimes left with less than they paid in once an average 3.2 per cent in fees is siphoned off each year. (2)
The presentation warned the Treasury the truth is so explosive it would put off some savers forever. It said the UK's 'fragile savings culture (3) may be permanently damaged' if all hidden charges were exposed. Their words will have terrified the Treasury, which would be forced to pick up a rapidly ballooning bill from pensioners falling back on state handouts, (4) in turn heaping more pressure on Britain's bloated £127billion deficit.
1) £67 billion a year looks a little on the high side to me, but broadly speaking that ties in with my own calculations and estimates of about £50 billion a year. Their total commissions are broadly equal to the total value of tax breaks for pension saving, which are about £44 billion a year (workings here).
Either way, this is an inevitable result of tax/subsidy arbitrage*. In the absence of tax breaks, people who wanted to save £100 would buy shares for £100. If you know that the tax man will give you (say) £30 back (or pay it into your pension fund) for every £100 gross (or £70 net) which you invest via a pension fund, then as long as the pension fund invests at least £70 in shares and helps itself to no more than £30 in commissions, you are still no worse off for having invested via a pension fund.
Of course the maths is more complicated than this, because your pension income is taxed when it is paid out again, albeit at a lower rate (call it 15%), so the pension fund helps itself to (say) £10 on the way in and another £5 on the way out, leaving the gullible pensions saver no better or worse off than if he'd just saved up out of his net income.
2) Again, that does look very much on the high side. But the total value of investments managed by UK pension funds is about £2,000 billion, according to the ONS, so if total charges are £67 billion, then 3.2% looks about right.
3) Which 'savings culture'? We are a debt culture, that's a vital aspect of Home-Owner-Ism.
4) So what? It's up to the government to decide what level of 'state handouts' to give older people. The best idea is to roll the basic state pension, SERPS, public sector pensions, pension credit, winter fuel, bus passes, free TV licence, the whole lot, into a flat rate Citizen's Pension, fiscally neutral would be about £200 a week let's say.
But let's imagine we only have the £44 billion a year tax breaks to play with. There are about 11 million people in the UK over pension age, so simply giving every pension an extra £20 a week, cash in hand, no questions asked, would only cost a quarter as much as the tax breaks and would do a damn' sight more good. And if that were non-means tested, it would not discourage people from saving up for their old age in the slightest.
Via Taffee at HPC.
* I covered another example of tax/subsidy arbitrage in my final year project at Uni. In Germany, there were no tax breaks for buying a second hand home but the tax breaks for a new home were worth about 30% of the cost of the new home. At the time, the German association of building societies sent me statistics saying that the average selling price for a second hand home was DM 300,000 and for a new home it was DM 433,000.
This is hardly surprising, is it? A potential landlord was indifferent between paying DM 433,000 for a new home and getting 30% of that back in tax breaks, bringing the net cost down to DM 300,000 or buying a second hand one for DM 300,000 without tax breaks. The irony is that the DM 133,000 didn't even result in higher earnings in the construction sector, because that's a competitive industry, most of it went straight into higher land values, because land is always a (local) monopoly and cannot be competed away.
Hence and why the Germans are so keen on knocking down buildings and building new ones in their place, by doing this, you can trigger the tax breaks all over again!
From the BBC:
Christmas may be a time of indulging for many, but health experts believe it is the perfect time to tell a loved one they are overweight. The National Obesity Forum and International Chair on Cardiometabolic Risk said it was important to be upfront because of the health risks...
And no, the NOF is not a traditional fakecharity, it is primarily a lobbying front for Big Pharma. And why people would take advice from pieces of furniture is beyond me, no matter how fancy the name for it.
I note that the article does not end with a Department of Health spokesman promptly agreeing that something must be done, as is so often the case.
Wednesday, 21 December 2011
From The Daily Mail:
Britain is shaking off its reputation as a nation of beer drinkers.
Consumption has fallen by almost a quarter since 2006 largely because many men have given up on going to the pub, research shows. Increasingly, they are drinking at home with wives and girlfriends, where they are more likely to share a bottle of wine, cider or spirits.
Beer sales through pubs, restaurants and the High Street are down from 4.1billion litres a year to 3.2billion over the past five years – a drop of 23 per cent. The net effect is that the nation is drinking about 4.3million fewer pints each day, taking the figure to around 15.2million.
The research comes from Mintel, which suggested the high cost of beer in pubs was a major reason for men staying at home...
There was an interesting debate in the comments at VGIF. Here's my adaptation of Pub Curmudgeon's theory on how countries set their tobacco duty rates...
It is clearly impossible for every country to set the duty rate a little bit higher than their neighbours, neither is it possible for every country to set it lower than their neighbours.
Assuming equal size countries, the rate would be the same everywhere (with a lower upper limit for booze than for tobacco). We can then introduce your perfectly valid observation about the ideal rate being lower in small countries and higher in large countries and we lead to some sort of equilibrium.
My caveat would be that it's not 'size of country' that matters as much as 'how easy it is for your citizen's to go abroad' i.e. UK and France are similar size/population, but we Brits are stuck with buying in the UK, the French can go to E, CH, D or Benelux quite easily.
So let's see whether this stacks up in real life...
The price of a packet of twenty in various European countries is relatively easy to find, e.g. here, plus two missing ones from here. Populations are easy to find e.g. here.
The resulting scatter graph looks like this:The generalisation that big country = high tobacco duty clearly holds for the seven largest countries. In order from left to right these are Romania, Poland, Spain, Italy, UK, France, and Germany, the coefficient of correlation between population and price per packet is quite high at 0.76 (see footnote).
But for the smaller countries with populations under 20 million, there is no correlation whatsoever, and the coefficient of correlation for the whole data set is only 0.13, practically meaningless.
So let's strip out the 'big seven' and do another chart plotting price per packet against 'how easy it is for a country's citizens to pop over the border to buy cheaper elsewhere' for the remaining countries. The simplest way of measuring 'how easy it is [etc]' is to count the number of land borders a country has with other countries. The resulting chart looks a lot more promising - rather unsurprisingly, the most expensive cigarettes are to be found in countries which have no or only one land border(s) with another country (Iceland, Malta, Ireland, Norway).
The coefficient of correlation for this sub-set is -0.55, not staggeringly high but enough to mean something:Footnote: The 'border' effect also conveniently explains why line for the big seven diverges at the top. Germany is larger than the UK but it has land borders with nine other countries whereas the UK has none (ignoring the border between Northern Ireland and Ireland). The 'border' effect thus has a stronger impact than the size effect and cigarettes are cheaper in Germany than in the UK.
Finally, we can put the two theories together.
Let's assume that the price per packet is EUR 9, reduced by EUR 1 for each border a country has, plus EUR 1 for every 15 million in the population of that country, and then plot price per packet against the result. The constants 9 and 15 million are arrived at by observation, trial and error* so as to end up with the highest possible coefficient of correlation, which is 0.52. The resulting chart looks like this:* For example, Germany has borders with nine other countries, so the border element of its tobacco duty is EUR 9 minus 9 x EUR 1 = EUR 0. It has a population of 82.2 million, divided by 15 million = a population element of EUR 5.48, EUR 0 + EUR 5.48 = EUR 5.48. The actual price of a packet of cigarettes = EUR 5.16.
At the other extreme, Malta has no land borders, so has a full border element of EUR 9. It has a population of 400,000, divided by 15 million = population element EUR 0.03. EUR 9 + EUR 0.03 = EUR 9.03. The actual price of a packet of cigarettes = EUR 9.
Hungary is somewhere in the middle. It has borders with 7 countries, so the border element is EUR 9 minus 7 x EUR 1 = EUR 2. It has a population of 10 million, divided by 15 million = EUR 0.67. EUR 2 + EUR 0.67 = EUR 2.67. The actual price of a packet of cigarettes = EUR 2.51.
From the BBC:
Eurozone banks have rushed to take out cheap three-year loans offered by the European Central Bank, borrowing 489bn euros ($643bn; £375bn). The central bank had hoped to lend up to 450bn euros to stop another credit crunch crippling the banking system. When the plan was announced, French President Nicholas Sarkozy said banks could use the money to invest in eurozone sovereign debt.
Right, so the ECB, which is explicitly or implicitly backed by EU member state governments, has borrowed money from
sources unknown the German central bank* (it has no real money of its own) and lent this to commercial banks cheaply, in the hope that the self-same commercial banks will then lend the money back to EU member states, thereby presumably generating a profit for themselves?
Yes, I know Article 123 of the Lisbon Treaty the EU Constitution says that member states aren't supposed to lend directly or indirectly to other member states** (since when have they ever cared about their own rules?), so they can't just brazenly cut out the middleman, but isn't the transaction entirely circular anyway?
If you strip out the commercial banks as middlemen, all that is happening is that member states have clubbed together to create their own supra-national central bank, the ECB and are not only financing this but also borrowing from it.
* UPDATE: Ralph Musgrave emailed me that bit.
** UPDATE, Denis Cooper has emailed me to say this:
It's Article 125 which prohibits member states from becoming liable for or assuming the commitments of other member states, while Art 123 prohibits the ECB from direct purchases of debt instruments, but there's also Art 124 preventing
"Any measure ... establishing privileged access by ... central governments ... to financial institutions ... " and if the ECB is lending money to banks specifically to lend on to governments then that seems to me to be "privileged access".
Then there are articles about "the principle of an open market economy with free competition, favouring an efficient allocation of resources" and the ECB conducting "credit operations with credit institutions and other market participants, with lending being based on adequate collateral", and it seems that all of that is being disregarded so it's hardly worth reciting all the details.
Tuesday, 20 December 2011
From yesterday's Daily Mail:
The first pictures have emerged of James Argent's wrecked and blood-splattered car after it ploughed into a deer on a Scottish road...
The 23-year-old says he was left badly shaken but uninjured. Arg was traveling in a black Kia with his manager Neil Dobias and their female driver after the star sang at Dundee University on Friday night. They were on their way to the airport to fly back to London when their car collided with the deer on the A90 about 5.30am.
The animal was knocked into the air before being hit by another car travelling in the opposite direction. Arg said he and the others looked for the deer afterwards and could not see it anywhere but he believes it would have died from its injuries.
Pictures show the left side of the vehicle's bumper - close to where Arg was sitting in the passenger seat - smashed, exposing the car's battery. The left headlight is missing and tufts of the deer's fur is stuck to the blood.Ironically enough, my wife skidded off the road yesterday and demolished somebody's front wall, the front of her car looks a bit like that as well. Even more ironically, when my wife knocked on the door to explain, provide insurance details etc, the lady who lived there said that this was the second time in a week that a car had demolished her front wall and the third time in as many years. Her house is at the bottom of a hill on the wrong side of an adverse camber, you see.
By the same token, my wife interprets a 30 mph speed limit to mean that you should drive at 30 mph if at all possible and regardless of conditions or iciness, and that at this speed, nothing bad will ever happen and if it does. it's not your fault, it's the fault of the council for not imposing a lower limit.
Here's what I had to say on the topic of tax-breaks and subsidies fifteen years ago, based on real life i.e. working as a tax advisor in Germany where are large part of what we did was explaining to our clients how to milk the tax breaks (i.e. subsidies) for new construction and landlords. You then have to find the economic theory which explains the impact of taxes and subsidies and prices and quantity, then you test the theory against real life and so on until you find something which stacks up.
To enlarge, you have to right click on each image and choose 'open in new window'. You can then enlarge the image (click the magnifying glass) and they are perfectly legible:
The two 'shot guns' are not actually Nerf, they are Buzzbee, but they are just as good.While I'm downloading pictures, they're building an office block next door to me. They've spent the past two weeks putting down this rebar for ground floor:I watched a block of flats being built in Germany (also next door to where I lived, but I lived somewhere else then) and they used to do a whole reinforced concrete floor in rather less than a week. And their rebar looked about twice as solid.
Let's take this story in The Daily Mail at face value:
A frugal woman who saved more than £22,000 out of her benefits has been left penniless because she did not tell officials about her nest egg.
Pauline Ford, aged 58, lived in a rusty mobile home, never went out, smoked or drank, and only spent the bare minimum she needed to feed herself and her 15-year-old dog. She wanted to build up her savings for her old age but fell foul of the law by failing to declare her assets when she applied for means tested benefits.
There would have been no problem if she had spent all the money but now she has been forced to repay more than she saved and has been left with nothing at all. Ford, of Valley Walk, Plymouth, who is unmarried, had admitted three counts of benefit fraud and was jailed for four months, suspended for two years by Recorder Mr Jeremy Wright at Plymouth Crown Court...
I don't like means-testing for lots of reasons, not least because it is savage taxation of the income and assets of poor people, but what sickens most is the fact that housing 'wealth' is completely ignored. If this woman had used the £22,000 to pay off a mortgage on a house worth considerably more, then she would not have lost a penny in benefits, and if she played her cards right, the DWP might have stepped in to 'help' her pay off the mortgage as well.