Wednesday, 8 April 2015

More Picketty-related nonsense

James James refers us to this article about Matthew Rognlie, which contains the following embedded chart:

Although Rognlie is closer to the mark than Picketty He's got the shares going to 'capital' and to 'housing' completely upside down. Let's just look at UK household income not business profits (which is a bit artificial but avoids the need for adjustments for double-counting).

According to HMRC tables 3.6 and 3.7 for 2102-13, total taxable employment and self-employment income was £711 billion and total household income from capital (dividends and interest) was £53 bn. I'll ignore pension income because that is just a confusing mix of taxpayer-funded, deferred employment income, dividends, interest and rent.

The total annual rental value of all residential land is £200 bn. The return on bricks and mortar (the actual capital) is something in the region of £50 bn, which we can add to the £53 bn from above.

So... total income = £1,014 bn.

The percentages are actually as follows:
Employment and self-employment = 70%
Capital = 10%
Land = 20%.

If you want to treat 'housing' as a separate category, the split is:
Employment and self-employment = 70%
Capital = 5%
Housing = 25%

In other words, on average, one-third of tenants' gross earnings goes on rent, which we knew anyway. Rognilie's chart suggests that it is only one-seventh, which is clearly bollocks.


Random said...
"An environment suspectible to asset price inflation (particularly housing.)
Well first land is not an "asset."
Looks like they are missing out on the obvious solution - LVT again.

Random said...

"In that regard, I believe an appropriately designed taxation system with targetted policies to stop housing speculation would be far more efficient at controlling asset price bubbles than using the blunt end of monetary policy."
I do as well ;)
I will continue attempting to persuade Bill to support LVT and getting rid of monopolies.
I think Warren Mosler is also almost there with his suggestion of national property tax-
Unfortunately, most MMTers seem to support "wealth tax" nonsense spouted by Picketty and his ilk.

Mark Wadsworth said...

R, best of luck with Billy Mitchell, but he did a post recently saying he didn't approve of LVT and trotted out a few of the usual Killer Arguments, Not.

Mosler is much closer to the mark as well: "The currency is only as good as the government’s ability to enforce tax payment."

Sounds counter-intuitive, but true. It's like food rationing vouchers - they only had value because the government asked for them back.

For the benefit of Dinero, obviously, the private sector creates much more currency than the government does, but it is just a unit of measurement. Without government issued currency as a baseline, the private sector would have no guideline as to what "one pound" or "one euro" is worth.

Dinero said...

Its not a case of a lesser or greater amount
The government doesn't issue any currency.

A pound is worth a pound because the issuer of a loan contract that issues a pound sells something that the deposit holder values at one pound.

Random said...

D, if the bank is solvent.
Bank deposits are not "money" as such, but they are pegged to the central bank.
You have to pay taxes out of bank reserves.

Random said...
Labour to spray money at the housing market.

Dinero said...
This comment has been removed by the author.
Lola said...

MW Wouldn't that only be true of currency if it is a government monopoly? If currency was de nationalised...?

Dinero said...

> Random

A pound has value because the issuers of a loan contracts, the borrowers, that creates deposits, sell things in the process of honouring those contracts, that deposit holders value.

Taxes are not paid in reserves, taxes are paid in deposits.

The Government spending process is the government collects deposits from taxpayer and bond buyers. After these funds have been cleared through the BACS or CHAPS system they are then available for the government in its account , the Consoldated Fund Of The United Kingdom. Then the government Transfers the funds in that account using the BACS system to pay its contractors and employees.

Mark Wadsworth said...

L, ideally the government neither runs a surplus nor a deficit. So it spends as much as it taxes.

Or, as the MMTers express it, it prints as much as it destroys.

So far so good, that defines how much "one pound" or "one euro" is worth.

And then everybody else uses that as their unit of measurement.

In the good old days, we used "one ounce of gold" as a unit of measurement.

During rationing, an "egg voucher" or a "packet of cigarettes" was a unit of measurement, they could be traded for other things, in the same way as "a packet of cigarettes" is a unit of currency in prisons, allegedly.

Bayard said...

"In the good old days, we used "one ounce of gold" as a unit of measurement"

or a pound of silver: that is where our unit, the "pound" comes from.

Dinero said...

There is nothing uniquely profound about a pound of silver or an ounce of gold. There are multitudes of things that the deposit holders of loan contracts value equally to those commodities that debtors can present to honour those loan contracts.

Random said...

Din, I think we will just have to agree to disagree
B, where does "sterling" come from then?

Derek said...

The INET conference opened with a plenary session featuring Picketty and Joe Stiglitz. It's a bit long and not that interesting. But the great thing about it is that Stiglitz took a Georgist stance on it, explaining that there's a difference between capital and wealth, that inequality is caused by rent, championing LVT as a solution and even mentioning Henry George.

Way to go, Joe!

Mark Wadsworth said...

B, or a pound of silver, you can use anything as a unit of measurement.

Din, it's all just numbers on bits of paper. It is nothing tangible or physical. They ascribe lots of fancy names to "money" to make it seem more mysterious, but it's not. It's numbers on bits of paper (or on computers)

D, good link. Is Stiglitz one of us yet?

Bayard said...

D, R, M, from Etymonline:

sterling (n.)
c.1300, "silver penny," probably from Middle English sterre (see star (n.)), according to OED "presumably" from the stars that appeared in the design of certain Norman coins, + diminutive suffix -ling. But starred coins were not especially common among Anglo-Saxon currency, and the stars on them tended to be small. The other theory [Kluge] is that it derives from Old French estedre "stater" (see stater). Sense broadened by 1560s to "money having the quality of the sterling," and c.1600 to "English money in general." As an adjective from early 15c. From 1640s in general sense of "capable of standing a test" (as a sound coin would). A pound sterling was originally "a pound weight of sterlings," equal to about 240 of them.

Derek said...

I don't think he's ever going to stand up and say "I am a Georgist", Mark. And I don't know that I want him to. But going by this speech and by some of his previous lectures, I think it's pretty safe to say, "Yes".