Wednesday, 31 January 2018

That leaked Brexit report. I think this is what's called "cognitive dissonance"?

From Buzzfeed:

The government's new analysis of the impact of Brexit says the UK would be worse off outside the European Union under every scenario modelled, BuzzFeed News can reveal. The assessment, which is titled “EU Exit Analysis – Cross Whitehall Briefing” and dated January 2018, looked at three of the most plausible Brexit scenarios based on existing EU arrangements.

Under a comprehensive free trade agreement with the EU, UK growth would be 5% lower over the next 15 years compared to current forecasts, according to the analysis. The "no deal" scenario, which would see the UK revert to World Trade Organization (WTO) rules, would reduce growth by 8% over that period. The softest Brexit option of continued single-market access through membership of the European Economic Area would, in the longer term, still lower growth by 2%.


Straight off, it's not the "government's" new analysis, this is something cooked up by civil servants, who have their own agenda (Project Fear/Remain).

Be that as it may, let's take the report at face value. People's responses are a whole mess of contradictions.

1. They can't forecast GDP changes even one year in advance, they don't even know what GDP actually is, it's all based on sampling and interpolation. So doing two forecasts 15 years into the future and then subtracting the difference is pretty meaningless. Even if they are right about 8% lower GDP after 15 years, that's losing half a per cent a year. Instead of GDP growing 2% a year it grows 1.5%. Who'd even notice?

2. The usual suspects are rubbing their hands with glee at this. From The Guardian:

Why are the latest leaked forecasts so damaging?

They spell out that all varieties of Brexit on offer would make Britain poorer, significantly so in the case of anything other than staying very closely linked to the EU through single market membership. While some ministers maintain they can still flout EU wishes and achieve this without full membership, it is telling that this option is not even among those presented to ministers in the “cross-Whitehall exit analysis” obtained by Buzzfeed. The economic modelling used also punctures the still popular claim among Brexiters that new trade deals overseas would more than compensate for lost EU trade.


Hang about, isn't The Guardian full of articles like this:

The idea that GDP growth is the wrong measure of a nation’s progress has become so widely accepted as to be the new common sense. Yet it is still the go-to number for lack of a credible alternative. Measuring happiness or wellbeing is fraught for numerous reasons, not least of which is that such indices make questionable assumptions about what it means to live a good life...

It is a truism that money has no value in itself, only in what it allows you to buy. Money is only a proxy for wealth, and a deeply imperfect one at that. Real wealth consists in what we are able to own or consume, not in the size of our bank balances. Real wealth therefore grows when we can have more of, or better of, the things that enable us to live well. We are truly enriched by warmer houses, better medical care, healthier food.


Sounds a bit like "... let's spend it on the NHS instead" to me. So they can piss off.

3. Labour MPs are clamouring for the report to be published. It has been published - by Buzzfeed.

4. The Conservative Party have an undeserved reputation at being better at managing the economy than Labour (they're both equally bad, and it's down to luck as much as anything). So why are Conservative MPs now in such a hurry to dismiss concerns about the economy? And why didn't they ask the civil servants to do projections for whatever post-Brexit agreements the Conservative government would prefer? That's the economically competent thing to do. Unless they still haven't come up with a plan, even 18 months later (like unilateral free trade, replace VAT with LVT, that sort of thing). And it appears that they haven't.

5. We had Project Fear for a year before the referendum, with predictions far bleaker than the latest "analysis". A lot of "Leave" voters were quite clear about this: they don't care about a percent or two of GDP growth gained or lost, they "want their country back". Be that as it may, people's main concern is that things don't get worse, things don't change too much too quickly, job security etc. Whether your income next year is 2% higher or 1.5% higher than this year doesn't matter, as long as it's not drastically lower.

6. The Home-Owner-Ists, which is most politicians and most of the electorate, Leavers and Remainers alike, can fuck right off, fuck off a bit more and then keep going. They engineered the last land price bubble/credit bubble and were happy for others to pay the price of the "financial crisis". Worse than that, they refuse to learn the most obvious of lessons and are happy for everything to be thrown at maintaining the house price/credit bubble (in London and the South East, at least, rest of the country can go hang) and don't give a shit about how long the recession drags on for.

The IFS estimate is that GDP is currently fifteen per cent smaller than it would have been in the absence of the "financial crisis". OK, that's also a projection and subject to a wide margin of error, but at least they are comparing a projection with actual reality and not two future projections. And the IFS are pretty reliable/neutral.

We could add a percent or two to GDP growth each and every year in perpetuity and more or less eliminate recessions by shifting taxes from earnings and output to land values. But that would push land prices down, which the Homeys don't think is a price worth paying.

British justice at its best

From the BBC:

The four ringleaders behind the Hatton Garden raid must pay a total of £27.5m or serve another seven years in jail. John "Kenny" Collins, 77, Daniel Jones, 63, Terry Perkins, 69, and Brian Reader, 78, were ordered to pay the money back during a confiscation ruling at Woolwich Crown Court.

Seems fair enough, especially as one of ringleaders appears to be a VIZ character.

Here's the fun bit:

Plumber Hugh Doyle, who helped the burglars, was ordered to pay £367.50 for his "general criminal conduct" at the court on Tuesday. Doyle, of Enfield, was convicted in 2016 of providing access to a yard where goods from the raid could be moved between vehicles.

The judge said Doyle, 50, had not received any benefit, payment or reward for his participation in raid, but that he had been deemed to have benefitted £27,194.44 from the proceeds of a "criminal lifestyle". He said Doyle had "limited assets" and ordered him to pay the sum within 14 days.


Not reported was whether Collins' grand-daughter, aged 13, who showed him how to Google "diamond drilling equipment for sale" and helped him place an order on eBay was ordered to repay £10 pocket money and surrender the Wii console he bought her for Xmas.

Tuesday, 30 January 2018

Killer Arguments Against LVT, Not (434)

From Farmers Guardian:

[National Farmers' Union] head of tax Michael Parker said: “We would not support the introduction of a land value tax which included agricultural land as it would simply increase the cost of UK food production with no benefit for shoppers. We would prefer to see the introduction of fiscal measures which encourage economic growth – ensuring farming businesses can be profitable, productive and progressive now and in the future.”

Jolly good, he would say that, wouldn't he. The first sentence is clearly bollocks and his second sentence is just waffle.

But out of interest, how does the NFU calculate its membership fees..?

If you are a farmer, crofter or grower involved in agricultural production then you can join NFU Scotland as a full member. Your subscription will be based on... the area and type of land you farm if you are a farmer...

So basically, a very low-level kind of LVT.

Admittedly that's from the NFU Scotland website, but I'm sure the English NFU does exactly the same.

Questions to which the answer is "no"

From the BBC:

Gambling ads: Would a pre-watershed ban protect young people?

This is an ineffective solution to a non-existent problem. Fun article though, they're really jumping the shark.

Next.

Monday, 29 January 2018

Economic Myths - high house prices are down to lack of supply

Further to Bayard's post of the weekend, another way of illustrating the (lack of) effect of additional supply on house prices is to look at the new build premium.

Countrywide do a detailed quarterly report on the topic:

Last year the average new home sold for 17% more than a comparable second-hand one, up from 15% a decade ago. This figure is an average from the thousands of developments up and down the country, each of which is competing for buyers in their local market. Breaking down this headline number shows that the level of premium developers are able to achieve depends on what, how and where they’ve been building....

So in fact, averages prices go up when more homes are built. Aha, cry the supply numpties, that's because they aren't building enough.

Here's the impact of subsidies on house and ultimately land prices:

Developments offering Help to Buy tend to achieve above average premiums.

Moving on...

Over the last decade large housebuilders have steadily increased their share of the homes built in the UK. These developers tend to focus on big sites, generally places where they can build at least 50 homes to achieve economies of scale. Last year these sorts of sites delivered just shy of half the properties built.

Smaller developments, those with less than 10 homes, carry the largest premiums. Over the last five years, homes in developments of less than 10 properties have carried an average premium of 20%, over and above comparable homes in the surrounding area. This compares to a 16% premium for sites with between 20 and 49 homes and a 14% premium for sites containing 100 homes or more.

The premiums achieved by small developments tend to be driven by their rarity. Often they’re refurbishments of old buildings or bespoke designs for small plots. In other cases they bring something to a neighbourhood which hadn’t previously been available – like flats in a town of terraces.

Small developments also avoid competition from later phases of the same scheme. Builders of bigger schemes often find their new homes competing with almost identical ones being sold by sellers who bought into the first phase.


This fits in with the reasonable assumption that the 'large housebuilders' are profit maximisers and just dribble new homes on to the market in such a way as to maximise the prices they can achieve and/or minimise costs.

Continuing with their incorrect assumption, the right wingers blame the planning system and the lefties blame the land bankers. For once, the lefties are closer to the mark. Either way, you can give them as much planning permission as you want, there's no reason to assume that they would build more - why would they?

And how do you force them to build more if they don't want to? Questions which the numpties don't even address, except I suppose the more hard-left who say "We can't leave it to the land bankers, the way forward is more council housing", which again is the better answer to a question which we shouldn't be asking.

Then there's a nod to agglomeration benefits, which knocks the argument that "they should build even more to get prices down" on the head:

However in the cheapest parts of towns and cities, often where its flats rather than houses being built, big developments tend to carry larger premiums than smaller ones. Here the ability of a large development to regenerate a neighbourhood by providing better quality housing and new infrastructure outweighs the effects of competition from the scheme itself.

They then calculate that on average, the new build premium erodes down to nothing over the next ten years.

That's only a relative value though. It is not so much that the price of new homes falls over the next ten years. They go up and the selling prices of existing homes in the same area increase even faster. It's partly because of agglomeration benefits and partly because people want to buy in 'up and coming' areas, so they build more in 'up and coming areas' so inevitably, overall, prices in the areas where they are/were building will go up. Maybe faster than they would have done, maybe slower...  but probably faster.

The report provides more evidence for this.

The average person who sold their new home for the first time in 2017 had bought it brand new from the developer seven years ago.

They then provide a map and table showing that about 80% of these sellers made a profit, and the average profit is still huge, not that much less than house prices generally.

Saturday, 27 January 2018

Supply and demand

This should be interesting.

The current wisdom is that we need to build more houses to bring the price down, it's all about supply and demand. Here we have a good example of oversupply, so, the prices should start coming down and a long way down, if the "current wisdom" is correct, because if oversupply is to reduce prices from their current level to an affordable one, it's going to have to have a really powerful influence.

Funny that the Guardian didn't mention massive price falls in their article though...

Pensions, Tax Subsidies Charges and Incentives to Save

We recently enjoyed a lively exchange on this topic here.  And I said I’d write up something from experience on the coal face as it were.

First a little history.  Pensions originated much earlier than you might think. Quite a few centuries ago some notable taking on a Kings Patent was often obliged as the price to pay the outgoing tenant an income for life. Pensions are therefore strictly a regular payment to someone from someone else.  Annuities were sold by the government to raise money for wars. These annuities morphed into Gilts, which is largely why today annuities sold by insurance companies are mostly backed by Gilts, Gilt cashflows being relatively certain of being sustainable as they are funded out of taxation. By coercion if you prefer.  Private individuals could buy deferred annuities which came into payment at a set date or age in the future, the forerunner of today’s personal pensions.  In time large employers started to offer company pensions to their workforces.  These were offered not generally out of altruism but as an employee retention incentive. From memory at this time it was agreed between employers and the state that as company contributions were an expense they should be treated as pay, and as this pay would not be drawn until retirement age all income and capital taxes should equitably be deferred until those benefits were drawn, with the quid pro quo that the pension benefits – the ‘annuity’ – would be taxed as pay on the whole amount not just on the interest element.  Clearly these tax breaks were an incentive to join the company scheme or if you were a professional or self employed take out a Retirement Annuity Policy. So far so all well and good. 

Over the years as the size of the pensions fund grew it was obvious that the tax breaks were ‘costing’ the state revenue.  (In fact to align with the deferred pay philosophy) these taxes were not lost, merely deferred until the pension came into payment.

Also over time many insurers got in on the act, notably outfits like Hambro Life, Abbey Life and so on  - early examples of sales led unit linked insurers.  Some of the antics of their reps and the inveterate tendency for the state to prodnose into stuff led from the 1970’s to a series of official investigations and reports into pension and private savings, and various ‘reforms’ were mandated leading to the Financial Services Acts of 1986 which made some very fundamental changes.

In my view these Acts were very flawed, not because they ‘deregulated’ (which they did not – they introduced regulation) but because they made a fundamentally flawed intervention into the sanctity of private contract by forcing employer final salary schemes to make cash equivalent transfers of benefits to any member who requested one. This inevitably led to the pensions transfers scandal.  The problems with pensions do start there but the final nails in the coffin came under the New Labour government between 1997 and 2010. The worst financial services act ever, the Financial Services and Markets Act 2000 imposed an entirely flawed regime on the FS industry and effectively crippled company pension schemes.

In the above I have ignored the history of State Pensions, SERPs, S2P, Stakeholder, Auto Enrolment, etc. etc. all of which in one way or another have been largely flawed initiatives.  I have also ignored the failure of Equitable Life which gave me a great feeling of schadenfreude.

In any event pensions regulations themselves are now immensely complicated.  The Common Man has no hope of understanding them, at all.  And in my humble opinion there is no one man in the UK that understands them.  I have an employee who is nominated as our pensions guru and he is backed up subscription access to a specialist technical service who have specialists in separate bits of the legislation and rules.  That is a bill to my business of possibly £20,000 per annum – and we are a very small business.

Pensions Tax

As stated above pensions are deferred pay. The deal is that you pay no tax on the contributions you make, but you’ll be taxed on the whole annuity payment when you take your benefits.  I think that that is easy to understand, simple, and fair.

The question is what proportion of these tax breaks end up in the hands of the scheme providers?
Well, for defined benefits schemes of a reasonable size which are well funded and well run, the answer is not much.  The Trustees can access institutionally priced investment funds which have very low charges. Nil initial and as low as 0.1% TER (See below for TER explanation).  Where these schemes tend to lose out is when they employ ‘consultants’.  These are the usual rent seeking culprits like Capita or Aon (the latter has atrocious administration). I have seen the most stupid recommendations for investment from these outfits.  I also know that they routinely churned Group Personal Pension schemes for the initial commission.

For company money purchase schemes/GPP’s the same factors apply.  They can be run very efficiently, and we have done so.

Total Expense Ratios

These are now called OCR’s.  Ongoing Charges Ratio.

I started in FS in the late 1980’s.  By the early 90’s we were asking fund companies what their total charges were and the good ones would tell you.  In 1996 two blokes Paul Moulton and Hughes Gilibert set up Fitzrovia Fund Research to research and analyse funds costs.  That business developed the Total Expense Ratio methodology and was latterly sold to Lipper.  Gilibert and another ex-Fitzrovia alumnus now run fitzpartners.com.

The Fitzrovia data was used by many pensions (and fund consultants) to drill down into the full costs of fund management.  Good managers published their Fitzrovia TER’s on their own fund fact sheets.
If you want to you can Google these outfits and check their methodologies and see just how thorough they were in getting this data right.

Today, with their usual johnny come lately skill the regulators mandate the publication of TERs (now OCR’s) as if they’d just thought of it.

Fund Charges

Take two sample funds. One a global all cap equity fund the other a global bond fund.  A typical asset split in a pension would be 60% / 40% equity to Bond

Fund                                                                                                      OCR

Vanguard Global All Cap Equity Fund                  0.24% (Institutional class would be less)
Vanguard Global Bond Index Fund (hedged)       0.15%  (for the institutional class it would be 0.1%)

Total weighted OCR                                             0.20%

Pensions admin (Aviva Platform)                           0.25%  (This varies between 0.10% and o.40%)

Total charge                                                            0.45% per annum.

If you want / need to use the services of someone like us then that would be in addition to that figure and again would vary with both quantum and the extent of the services you wanted / needed.

Final Comment

There are lots and lots of investment managers and thousands and thousands of funds out there who charge a whole lot more and definitely soak up the tax subsidies.  This is especially true of things like VCT’s and EIS’s and Cash ISA’s.  And there are certain outfits who are notorious (IMHO) for overcharging, St James Place for example.

But without a shadow of a doubt you are perfectly able to operate a personal pension for less than 0.5% per annum all in.  The real problem with pensions costs is not the investment management – it is the stupid complexity of the rules and regulations arising from a history of utterly flawed interventions by governments and their bureaucratic Satraps.

(Apologies for the length of this. Also I completed it in haste whilst motivated)

Friday, 26 January 2018

Paul Simon "Boy in the bubble"

It was a slow day
And the sun was beating
On the soldiers by the side of the road
There was a bright light
A shattering of shop windows
The bomb in the baby carriage
Was wired to the radio


Lyrics from Google Play Music

Thursday, 25 January 2018

AKA "holding the country to ransom"

From the BBC:

The head of Theresa May's new anti-extremism commission - set up after the Manchester Arena attack - has faced criticism from some Muslim leaders. Sara Khan, who has campaigned for women's rights in Muslim communities, has been given the task of rooting out extremism in the UK...

But her support for the Home Office's Prevent strategy has led to claims she is too close to the government.

Lady Warsi, the first Muslim woman to serve as a British cabinet minister, said many British Muslims saw Ms Khan as a "mouthpiece" of ministers. The Conservative peer questioned Ms Khan's likely independence as the Commissioner for Countering Extremism in a series of tweets and warned of "destructive and dangerous games" being played...

Harun Khan, secretary general of the Muslim Council of Britain, said: "The fight against terrorism requires equal partnership between all parties, including Muslim communities. This appointment risks sending a clear and alarming message that the government has no intention of doing so."


They might as well accuse MI5 or SO15 of being government stooges and demand that "Muslim communities" (whatever they are) be given a veto right over their operations.

Fun with numbers: Tax breaks for pensions vs UK annual deficit

From City AM:

Figures published today by HM Revenue & Customs (HMRC) showed the cost of tax relief on pension contributions rose by £950m over the last year to £41bn.

Other tax breaks on pension saving take the total cost to £55bn, Webb said, a figure the Treasury will be studying "with great interest".


OK, here's another figure that the Treasury ought to be studying "with great interest", from The Telegraph*:

Borrowing in the 2017/18 financial year to date is now running at £50bn, down from £56.7bn at the same stage in 2016/17 and the lowest to-date total since 2007.

The figure means Mr Hammond is on course to meet the target set by the Office for Budget Responsibility, the country’s fiscal watchdog, of borrowing £49.9bn in the 12 months to the end of March 2018 - equivalent to 2.4pc of gross domestic product.


I know that it's not big and not clever to compare random items of taxation and spending; or to match the total deficit with individual items of spending (or tax breaks, or subsidies), but it puts it in perspective. We could, in theory, more or less eliminate the current annual deficit by getting rid of tax breaks for pensions (more accurately, people with spare income, more accurately than that, higher earners, and even more accurately than that, subsidies for the lads in The City who soak it all up in fees, charges and commissions).

Broadest shoulders, and all that?
------------------------------
* Particularly sick-making is that the article makes great play of this factoid:

Public sector borrowing in December dropped by £2.5bn, much more than had been expected, thanks to a £1.2bn credit from the EU. It was the smallest December borrowing figure since 2000.

As if this £1.2 bn were a) some sort of triumph by the UK government and not just a drop in the ocean compared to b) UK deficits/spending or c) the massive overall drain that the EU is/will be or d) a completely made-up number.


Satire copies satire

The Onion, 2014:

Explaining that her statements indicated a failure to understand and implement the district’s goal of providing a comprehensive education to all children, Southwest High School officials reportedly fired ninth-grade history teacher Jennifer Steenman today after she was heard saying she learns more from her students than they do from her.

The Daily Mash, 2018:

Tom Logan, who claims to be a history teacher, caused alarm at a recent parent-teacher evening by saying, ‘I like to think the children are the real teachers’.

At a personnel hearing, Logan was asked to explain exactly what the children had been teaching him that was more important than the Great Reform Act or the origins of the First World War.

Logan said: “I just think they’re really wise”, before being told to leave and never come back.


Wednesday, 24 January 2018

What's sauce for the goose...

From the BBC:

The Association for Consultancy and Engineering (ACE), which represents companies involved in designing the UK's infrastructure, admitted some people were suspicious of road pricing.

However, in its report "Funding Roads for the Future" it said charges for road usage should be introduced which took into account:

- whether a driver's journey was on motorways or country lanes
- the time of day
- how much congestion was on the network
- drivers' financial circumstances - for example, whether they were students, pensioners or unemployed

ACE said relying on money raised through fuel duty, Vehicle Excise Duty and the HGV levy was outdated. "The growing uptake of zero-emission vehicles means revenue from Vehicle Excise Duty and Fuel Duty will continue to decline as a percentage of the UK's GDP in the future," it said.


That's the beauty of fuel duty, it acts like a rough and ready road pricing (which is a good thing, in principle, it's rent for road space). If you drive during the rush hour, you cause more inconvenience, use more fuel for a given distance and pay more per mile. Lorries cause more wear and tear, accidents and pollution, but use a lot more fuel and pay a lot more per mile. Whizz round in a small car at the weekend, you're not getting in anybody's way, using less fuel and paying less per mile. It all sorts itself out nicely.

Fuel "costs" average 15p/mile, two-thirds of that is VAT and fuel duty, so petrol/diesel drivers are already paying 10p/mile road-user charge. The actual fuel cost is more like 5p/mile.

Cost of electricity/mile, at residential tariff is in the region of 2p - 4p/mile, i.e. not a huge difference in absolute terms. The real saving is not because electricity is "cheaper" than petrol or diesel, but because the former is lightly taxed (5% VAT) and the latter is heavily taxed. Depending on how the electricity is generated, the amount of C02 emitted (to the extent that we worry about this) is pretty much the same either way.

So by all means, level the playing field by having road pricing of 10p per mile, or whatever, but as a quid pro quo, ditch VAT and duties on fuel completely. This is the problem with electric and hybrid cars and all that nonsense - the end result is we will need road user charges to reduce congestion.

The notion of having means-tested road user charges should be consigned to the dustbin of shit ideas, obviously.
-----------------------------------------------
From City AM (comment appeared as reader's letter today):

Why should we pay the EU for access to the EU market on services, financial or otherwise, if they will not be paying us for access to our domestic market on goods?

Let's be consistent about this, if the EU really believes in payment of fees for market access then they could start with an offer of the fees they are prepared to pay us for access to our wine market, our car market etc etc. Then we could add up all the market access fees payable in each direction, and given that they enjoy a chronic massive trade surplus with us they could pay us the net annual fee.

Or, if they prefer, let's go back to tariffs and they can pay us through that mechanism.

Denis Cooper

Tuesday, 23 January 2018

Publicity stunt of the day

From The Daily Mail:

The boss of Lotus sports cars has been banned from driving after he was caught speeding at 102mph.

Jean-Marc Gales, 54, was handed a 30-day ban after he was clocked breaking the 70mph limit as he test drove one of the company's new cars on the busy A11. The Luxembourg-born businessman avoided more points being added to the eight he already has on his licence because it is 'vital' that he test drives new cars, his lawyer told magistrates.


If the aerodynamics of their cars are as slippery as the boss' excuses..!

One thought springs to mind... many car models don't have proper names, just a random collection of letters and digits, would it not have been cooler if Lotus had a model "A11" (for example), and their boss just bombed up and down the A11 at ever increasing speed until he got caught?

Then the next model could be be the "A14" (let's skip the A12 and A13), and they get an employee to repeat the stunt on the A14 etc (assuming that these letter/digit combinations haven't already been taken).

Monday, 22 January 2018

When Oxfam talk more sense than the ASI and the IEA..

From Oxfam's actual report (page 10-11 of summary):

The mainstream economic justification of inequality is that it provides incentives for innovation and investment. We are told that billionaires are the ultimate demonstration of the benefits of talent, hard work and innovation, and that this benefits us all.

Yet there is growing evidence that the current levels of extreme inequality far exceed what can be justified by talent, effort and risk-taking. Instead they are more often the product of inheritance, monopoly or crony connections to government.

Approximately a third of billionaire wealth is derived from inheritance. Over the next 20 years, 500 of the world’s richest people will hand over $2.4 trillion to their heirs – a sum larger than the GDP of India, a country of 1.3 billion people. Monopolies fuel excessive returns to owners and shareholders at the expense of the rest of the economy.

The power of monopoly to generate extreme wealth is demonstrated by the fortune of Carlos Slim, the sixth richest man in the world. His fortune derives from an almost complete monopoly he was able to establish over fixed line, mobile and broadband communications services in Mexico. The OECD found that this monopoly has had significant negative effects for consumers and the economy.

Monopoly power is compounded by cronyism, the ability of powerful private interests to manipulate public policy to entrench existing monopolies and create new ones. Privatization deals, natural resources given away below fair value, corrupt public procurement, or tax exemptions and loopholes are all ways in which well-connected private interests can enrich themselves at the expense of the public.


And so on and so forth. That seems like a fair summary to me. Their actual recommendations are a bit wishy-washy and vague, but at least they are on the right lines in identifying the causes of massive concentration of wealth - monopolists who add nothing to the economy and are only rich because other people are poorer. In no way can you construe the report as anti-capitalist or anti-free trade.

I'll mark Oxfam down for confusing "wealth" with "income" though. If interest rates fall and share prices go up, then that doesn't really change anybody's net income. You can't live off share prices, you can only live off the dividends. Similarly, it is the ongoing payments of rent which make tenants poorer and the landlord richer, not how much the house changes in value. Who cares what Carlos Slim's business is worth - what matters is that every Mexican is overcharged by a few $ a month, which all goes into Mr Slim's pockets.

Enter stage right, the Neo-Libs, who clearly couldn't be arsed to even read the summary document and just trot out the usual irrelevant story about capitalism and free trade being A Good Thing. Well of course they bloody well are, and the Oxfam report doesn't say that they aren't.

Mark Littlewood in City AM:

More needs to be done to break down trade barriers and to encourage more countries to replicate the radical free market policies that led countries like South Korea, Japan, and more recently China from grinding poverty to great wealth in a single generation.

This means advancing property rights and ending corruption in countries like Zimbabwe, privatising state monopolies in Venezuela, and working to abolish trade barriers such as the EU’s Common Agricultural Policy.

Charities like Oxfam should be out leading the charge on these issues. But instead of focusing on those who have too little, this report again relentlessly targets those the charity believes have too much.


From The Daily Mail:

Sam Dumitriu of the free market Adam Smith Institute said that every day for the past 25 years, capitalism has lifted 138,000 people have been lifted out of extreme poverty.

He said: 'The report is, as ever, exceptionally misleading and misses the point - we should care about the welfare of the poor, not the wealth of the rich. As China, India and Vietnam embraced neoliberal reforms that enforce property rights, reduce regulations and increase competition, the world's poorest have received a massive pay rise leading to a more equal global income distribution.'

'It's the countries that rejected free markets that have bucked the trend. In Venezuela, the move to socialism under Chavez and Maduro has meant that more than 75 per cent of the population now live in poverty with many unable to afford basic necessities like food and medicine, despite having the world's largest proven oil reserves.'


All of which highlights that these Neo-Libs are being paid to dress up privilege, corruption and monopoly power as free enterprise.

Cow news

From The Daily Mail:

A fleet of supercars owned by Grace Mugabe have [sic] been involved in a pile-up as the disgraced former First Lady attempted to spirit them out of Zimbabwe.

A rare £250,000 Rolls Royce Ghost, a Porsche and a Range Rover were damaged as they were driven at night, in convoy through back roads of Botswana to a safe haven in South Africa.

Mrs Mugabe, who is known as ‘Gucci Grace’ and ‘Dis-Grace’ for her violent temper and extravagant spending habits, organised the transfer after fearing she will lose her ill-gotten gains in a crackdown on corruption in the wake of the bloodless coup which ended her husband Robert’s 37-year rule.

The 52-year-old’s attempt to put her supercar collection out of harm’s way backfired spectacularly last week when her son and his drivers were stopped for seven hours as they crossed over Zimbabwe’s border in Botswana...

However, some hours after they were given permission to drive on, the valuable convoy was involved in a freak collision after cows wandered onto their remote route, as they sped through the night.

Eyewitness Orabile Tebegano, who was also on the road at the time, told ZimEye.com; ‘There were cows passing and the guys in front of me stopped, but I looked into my rear view mirror and I saw a car spinning in the middle of the road, it was a white Corolla, and he hit the Porsche and the Range Rover.’


Yeah! Go cows!

I do hope that the cattle involved were not seriously hurt.

Sunday, 21 January 2018

UKIP MEPs well on course to hit 2019 target number of resignations

Back in 2014, I ran a Fun Online Poll on the topic of how many UKIP MEPs would have resigned by 2019 (the end of the current term of the current EU Parliament).

During previous terms, on average just over a quarter of their MEPs resigned/were sacked (summary here). Having gained 24 MEPs - the highest number of MEPs of any UK party in the 2014 elections, please note - I would expect at least six of them to have resigned/been sacked by the middle of next year.

The weighted average result in the Poll was six, although the results were pretty evenly spread between "none" and "more than half".

According to the BBC, their sixth MEP resigned yesterday, which the BBC says that brings them down to 18.

The UKIP page still shows 19 (having promptly removed Jonathan Arnott). I suspect that the difference is because one UKIP MEP, Roger Helmer didn't resign or leave UKIP, he did the decent thing and retired, which allowed somebody else to take his seat (as a UKIP MEP). So a bit of misreporting by the BBC there, methinks.
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On a personal note, I really liked Jonathan Arnott. He was highly intelligent, approachable and seemed pretty liberal. IMHO he was too good for UKIP, but I couldn't swing him round to a more Georgist point of view.

Friday, 19 January 2018

Killer Arguments Against LVT, not (433)

From the comments at The Guardian:

KLN 1. "What happens when all land owners sell sell their property to the lowest bidder, run for the hills and the economy become non-existent?"

KLN 2. "LVT will allow rich people to live in the best areas and push poorer people out as the town develops. The well to do will live within walking distance of the local amenities - including the best schools..."


Are those two not complete opposites? Both are wrong (KLN 1 being wronger than KLN 2), but they cancel each other out.

So what's it to be, you Homey twats? The rich will sell up and move abroad, or the rich will happily pay to be in nice areas? The poor will live in slums, or poor will snap up the nicer homes which the rich abandoned?

Every now and then, the Daily Mail manufactured outrage is perfectly justified

From The Daily Mail:

A Pakistani paedophile who claimed he didn't realise it was illegal to have sex with 14-year-olds intends to use his conviction for grooming to help him claim asylum in the UK...

He now claims his conviction means he cannot return to his homeland, as anger over a recent child rape case means it is now unsafe for him.


If he gets away with this..? FFS.
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What is not quite clear, is how and why it is a crime to ask online vigilantes posing as 14-year olds for sex.

You ask a 14-year old you know to be 14 for sex, you're in trouble. You ask a 14-year old you genuinely believe to be 17 for sex (because she told you and she looks it), surely that's a defence or a plea in mitigation.

Let's assume having sex with a 17-year old you know is 17 is OK. What if you have sex with a 17-year old you genuinely believe to be 14 (because she told you and she looks it)? Would it make a difference if you knew she was lying?

They tried to explain inchoate offences on the criminal law unit, stuff like "attempt".
One of the questions was, is it a crime to (attempt to) do something you believe is a crime, but actually isn't?

Or would be impossible, like sinking a ferry by firing an airgun at the hull? IIRC, they can do you for criminal damage to the paintwork, but not for attempted murder.

IMHO, it would be impossible to have under-age sex with online vigilantes posing as a 14-year old, so attempting to do so can't be a crime either. Or perhaps it is. I never understood that bit.

But hey, in the instant case, deportation would seem like a reasonable punishment.

Thursday, 18 January 2018

Indian Bicycle Marketing: Big businesses v small businesses

Bayard left a throwaway comment on a thread about Carillion a couple of days ago:

"But the govt (and the EU) ignores small businesses because we don't so as we're told, can't lobby for bungs, oops contracts, and push back against their regulationism."

Not only do they ignore small businesses, they pretend that they don't exist. "Businesses" to the government, are only large ones run by the likes of Richard Branson or Philip Green. The left wing happily go along with this myth, as the image of silk-hatted millionaire boss profiting from his low-paid cloth-capped workers suits their rhetoric so much better than the owner-operator working long hours on slender margins and even thinner profits.


Then I noticed similar comments by people I follow on Twitter:

@aTalkingDude:

It's interesting that right leaning libertarians I follow are saying little about Carillion. I've noticed that most of them are much more interested in topics like multiculturalism and the EU than they are about corporatism.

Capitalism needs as level a playing field as possible. The Carillion mess shows so many ways in which markets are horrendously distorted. Market Libertarians have to call out this stuff as vigorously as lefty folks do.

In fact, pro market libertarians need to be more vigorous than lefties in exposing corporatism. This is because if lefties are the only ones doing it, then people will assume that the only alternative to corporatism is socialism.


@Land_Liberty, regarding an article in the fairly hard-left Jacobin mag, headed Small Businesses Are Overrated*:

Left and right on the same hymn sheet here. “Current state of small biz poor, ergo anti-monopoly movement bad.” Nope.
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This is actually another fine example of nominally left and right, for example the UK Labour and Conservative parties, both subscribing to the same basic lie, each to serve their own nefarious ends.

The Conservatives promote the Protestant Work Ethic myth, if only you work hard enough, you too could be Richard Branson, a billionaire merchant banker or the next Duke of Westminster. Labour, under Corbyn in particular, seem to throw all employers in one pot; the little bosses are as guilty as the big ones - so let's regulate them all to death.

As ever, the key is to distinguish between:
a) rent-seeking, corporatism or outright corruption and
b) proper wealth-generating businesses.

The actual size of a business is irrelevant. There is some correlation - large businesses can hold out for bail-outs and subsidies; similarly businesses which collect rent find it easier to grow - but that is not correct way of looking at it, there are plenty of gigantic corporations who do a decent job, and plenty of small businesses who live off bungs.
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* The article includes a chart showing that average wages are higher in larger businesses. Which is why "small businesses are overrated".

Well duh.

It's clear that entry-level, bottom rung wages must be pretty much the same in small and large businesses. So you earn much the same in the local corner shop as at the checkout in Tesco. A car mechanic in the local garage earns the same as somebody on the production line at Ford.

Small, local businesses only have one or two levels in the heirarchy, there are the workers and the boss, the boss earns a bit more than the workers, but not much more. The larger the business, the more levels there are, and people in each level earn a bit more than in the level below, so in massive corporations, the top dogs earn (or pay themselves) a hundred or a thousand times as much as the bottom level.

Therefore, average wages in large corporations are higher than in small businesses. That's neither a good thing nor a bad thing in itself, it is just is the way it is.

Large corporations can only exist to exploit economies of scale, and those economies go into higher wages at higher levels of the hierarchy. The higher paid workers are exploiting the business' owners, rather than the other way round.

Wednesday, 17 January 2018

Schrödinger's missing beats

I haven't spotted any wonky timing in ages, but there is something wonderfully weird in a song from Keith Richard's last solo album.

Listen to the chorus at about 25 seconds in, the first "Trouble..." is on the last two beats of the bar (third and fourth), but the next "Trouble..." appears to be slightly too soon, on the first two beats (until the next bit makes it clear that they weren't, they were on the last two beats).

What actually happens is that the next bar (after the first "Trouble...") containing the line "... is your middle name" is actually six beats long, so the "Trouble..." still comes on the last two beats (in 6/4 time) but appears to come on the first two beats, if you have been tricked into splitting it into 4/4 and assume that the left over 2/4 bit is the first two beats of the next 4/4).

So are there two extra beats, or two missing beats? I'll leave greater minds than mine to debate that one.

"... because they didn't teach us about it at school." is the short answer to that.

From The Daily Telegraph, April 2015:

Why has everyone forgotten about male suffrage?

... Before 1918, the vote was restricted not simply by sex but also by property qualifications. Roughly 60pc of adult men were then entitled to vote. At the 1910 general election, 7,709,981 men were registered to vote. By the time of the 1918 general election there were 12,913,166 registered male electors in the United Kingdom.

The 1918 Act is, rightly, most famous for having brought more than eight million women into the electorate; but, for the first time, it also enfranchised more than five million men over the age of 21 without regard to property or class.


I knew that the number of men allowed to vote crept up gradually over the centuries, as the "property owning" condition became less and less onerous, but I didn't realise that universal (male) suffrage was as recent as that.

Which makes the outcomes of the 1906 election and the second 1910 election, when the Liberal Party won on a platform of Land Value Tax, all the more surprising.

Economic Myths: Local taxes

Let's refer back to the handy cut-out-and-keep guide on what makes a good tax:



I've been prompted to think about this a bit more from the various KLNs that were advanced in response to a tweet by @tomcopley.

There is this brainwashing that taxes on land and buildings are only appropriate for paying for "local" services (this is actually embedded in the German constitution, at the suggestion of the Americans).

The Homeys always start flailing about and saying that LVT is the worst way to pay for "local" services, and either a Poll Tax or Local Income Tax is better (despite those two being diametric bloody opposites, with LVT being the Goldilocks middle. Sales taxes go round the clock and start behaving more like a Poll Tax, "on closer inspection, everything becomes something else", as Steve S and I like to say).

That's actually a minor issue.

I compiled that handy cut-out-and-keep-guide on the assumption that we are looking at national taxes. National taxes which serve to reduce regional discrepancies, so the wealthier regions subsidise the poorer ones (in return for leeching off them in the first place), are surely inherently better than "local" taxes?

Think about it, Council Tax operates like both LVT and Poll Tax at a hyper-local level. Me, the wife and two kids live in a detached house in Band G, so we pay about twice as much as a two-person household in a one-bed flat across the road in Band B. So we could express this as a modest LVT (our house is worth about twice as much as a one-bed flat across the road) or a Poll Tax of £700 per person.

Whichever way I look at it, that seems fine to me if I am just comparing what we pay with what the people across the road pay.

What is not OK, is when an arbitrarily defined amount of arbitrarily defined "local" spending is to be funded out of a "local" tax.

They could replace Council Tax (which pays for a tiny fraction of "local" spending) with a "local" income tax. To get £700 per person where I live, the appropriate income tax rate would be something like 3% of local incomes (assuming no personal allowance), no biggie and I'd be happy to pay it instead of Council Tax, it's a few hundred quid either way.

To raise £700 per person from the most depressed areas of the UK, the income tax rate would have to be more like 15%.

Does that outcome not seem like madness? That higher earners in high income areas pay 23% basic rate income tax and people in depressed areas pay 35% basic rate income tax?

Try this again with Poll Tax, local LVT or local Sales Tax and you get the same answer. They are all inherently regressive.

Which is why, if you really want LVT to come into its own, it has to be a national tax.

Here endeth.

Tuesday, 16 January 2018

Some people are a bit confused

From The Daily Mail:

Last April, federal prosecutors filed charges against two men suspected of spying on the opposition People's Mujahedin of Iran (MEK) on behalf of Iranian intelligence, Deutsche Welle reported.

The Paris-based MEK is an Islamist-Marxist-feminist militant group seeking to overthrow Iran's theocratic government. Iran has blamed the group for stirring up protests earlier this month in Iran.


I know what each of those four adjectives means, and I am sure there are plenty of groups which tick two of those boxes; if you drop "Islamist" then a group which ticks the other three is plausible; going for all four is a comedy sketch.

Killer Arguments Against LVT, Not (432)

From Farmers' Weekly:

The Scottish Land Commission has been instructed by the government to investigate the tax as part of a wider piece of research on land reform issues.

The taxation would raise public revenue through an annual charge based on the rental value of land, typically levied against the unimproved value of that land, not taking into account any buildings, services or infrastructure.


So far so good, here's the classic one-liner:

Shadow rural economy secretary Peter Chapman said the prospect of such a level could be “catastrophic” for farm incomes.

Woah! His argument is totally devoid of facts - without knowing the proposed tax rate (anything between 1% and 100%) it is impossible to say what the impact will be. It could be anything between "very modest claw back of agricultural subsidies" (which average out at £40 per acre per year in Scotland, as far as I can make out) all the way up to "quite a lot".

Then we get into logic free arguments:

Andrew Wood, partner with property consultant Bidwells, said this plan would increase food production costs and put Scotland at a further disadvantage for doing business and securing investment.

Whether it increases total food production costs or not depends on whether the Scottish government reduces other devolved taxes (income tax, business rates, LBTT and Council Tax). Because of the tendency of LVT to stimulate output per unit of land, per-unit production costs will probably fall, or worst case, stay the same.

LVT has little impact on "doing business", in fact it probably helps people wanting to "do business" because it strengthens their hand against land owners who want to hold them to ransom charge them rent, and after all, it's "business" which invests, land is just there to be used.

Money for nothing...

From the BBC:

Rudi Klein, head of Specialist Engineering Contractor, an umbrella group representing suppliers to the construction industry, said Carillion outsourced virtually all its work.

He said the government knew of Carillion's reliance on sub-contractors, but continued to award the company lucrative work despite growing concerns about its finances.

"It's that supply chain who is going to bear the massive loss," he said. "There could be a large number of firms that will experience substantial financial distress."


... and presumably their chicks for free, although that is not expressly stated.

Monday, 15 January 2018

Carillion: Winners and Losers

City AM have listed the winners to save me the bother:

... Amid the chaos, however, lurk some cunning opportunists – most of whom can be found in Mayfair.

In many ways, Carillion has been the story of the short sellers. The most bet-against stock in Europe will see hedge funds share profits of around £300m between them. Marshall Wace took the biggest piece of this as shares plunged in the autumn. After it exited stage left, the fund was quickly replaced by rivals, steadfast in the belief worse was to come. Blackrock, the world’s biggest asset manager, has stuck around and still holds a chunky bet against the contractor.

Then there is a raft of advisers picking up hefty fees. The jewel in the crown would be the administrator mandate. EY is reportedly in the box seat, but pension scheme adviser PwC may cry foul, arguing its rival has a conflict given EY’s six-month role helping the company right-size operations.

But never mind the winners, back to the many losers from Carillion's decline – including, of course, the government. A decade on from the financial crisis it is incredible the state yet again finds itself under pressure to consider a taxpayer bailout of a private company, this time during a period of economic growth. Such situations imperil public faith in business and the very principles of a market-led economy, and remind us that regulators – in the financial sector and beyond – have some way to go before we can be confident that the spectre of bailouts has been consigned to the past.


As to paying hundreds of millions for "administration", sod that. All the government needs to do is send somebody round to each site where Carillion operates and tell everybody "You're working for us now, here's your new employment contract". Those people will then get onto their own suppliers and tell them to send future invoices to the Department of [whatever] and everything continues as was. It'll save the government taxpayer a fortune.

This is also another argument for deposit funded corporations - like building societies, co-operatives or partnerships, they don't have a share price, so speculators will have to find something better to do.

Sunday, 14 January 2018

Daily Mail on top form

Black cab rapist John Worboys set to live in £300,000 seaside flat near FOUR of his alleged victims after his release from jail

Friday, 12 January 2018

Killer Arguments Against LVT, Not (431)

Arch-Tory/NIMBY Nicholas Clarke on Twitter @drmagwai

And what you fail to mention is that lvt only works properly when all land is already developed. Do we want the UK to become a mega city?

This is the sort of baseless crap that we have to deal with.

I remember that Sobers (I think it was him) once advanced the argument that LVT would only work for an agricultural economy, also without justification or explanation.

As per usual, we are presented with two baseless arguments which cancel each other out.

Let's take a breath and do facts and logic:

1. Most of the UK by surface area is 'developed'. Up to one-tenth is actually built on (incl. roads, reservoirs, back gardens etc) and most of the rest has been 'developed' or adapted for farming and some bits have been kept close to pristine for tourism, leisure, wildlife etc.

2. Even if both arguments, taken in isolation had some validity (which they don't), then it would be quite easy to split up the UK (or any similar country) into two regions - the urban bits (where LVT would work properly, even by Nimby Clarke's own admission) and the remaining rural area (where LVT would work fine by Sobers' admission).

3. The UK is not going to become a mega city any time soon - with or without LVT - it would require a twenty-fold increase in population to about one billion to make it worthwhile. So that is the stupidest rhetorical question of the day.

What is the tax base under a LVT + Citizens Income?

One objection against LVT I recently stumbled over was that as a single tax it violated the principle that everyone should contribute to state spending.

Saint of Bacon who recorded a video on Youtube critiquing the LVT said "My argument is the idea of a single tax isn't going to fly in the US because we've adopted the view that everyone should pay into the government. Meaning having some segment of the population be tax exempt by choice isn't how America likes to function. Efficiency only gets so far and that is my point, quoting philosophy that I don't subscribe to isn't going to convince me. You're literally in the position of a Christian quoting Bible courses to an atheist."

Let's assume for arguments sake the LVT could indeed cover all of state spending is Bacon correct?

Say a country spends £250bn on services and £250bn on benefits.  As the rental value of land is £500bn pa, for reasons of efficiency and justice it decides to shift to a LVT and Citizens Income , negating the need to tax incomes, capital or transactions.

The principle behind the LVT is that it is a compensatory payment to those excluded from valuable natural resources. That it is collected and redistributed/spent by the state is a separate issue.  As we are all equally excluded we are therefore all entitled to an equal share of the rents, so this hypothetical country does this by paying out the £500bn pa as a Citizens Income.

This country still has to finance £250bn of spending on defence, schools, hospitals etc, which it does by imposing a Poll Tax on each citizen.

For accounting purposes this makes no sense. So instead of collecting the Poll Tax, it's less bureaucratic just to deduct £250bn of the LVT at source, and pay the other £250bn out as a Citizens Income.

This is viewed by Bacon that only those that pay the LVT pay into state coffers, but that's not correct because that's not what is happening in principle.

The correct view is that the LVT  doesn't belong to the state as tax. The state is merely its collector and redistributor. Therefore any citizen that does not receive their full amount of compensation with no deduction is paying a defacto Poll Tax.

And as all taxes on income, capital and transactions are to some degree incident upon land, that's also true of all current tax systems around the world.  That is, we pay into state coffers simply by not receiving our full share of  land rent.


Thursday, 11 January 2018

Oh shit, here we go again...

From the BBC:

Former UKIP leader Nigel Farage says he is close to backing a second EU referendum to end the "whinging and whining" of anti-Brexit campaigners.

Mr Farage told Channel 5's The Wright Stuff a fresh vote could "kill off" the Remain campaign for a generation. He said "the percentage that would vote to leave next time would be very much bigger than it was last time round".

Pro-EU campaigners welcomed his comment, claiming "support is growing" for another referendum.


I'm all in favour of democracy, but this was TPTB's Plan B all along.

As soon as they realised that a slim minority had voted Leave, they decided to mess up Brexit as badly as possible, really drag it out, sign up to some unacceptable terms and conditions (like massive future payments) and agree to impose massive import tariffs that would really hurt the consumer.

Then, acting all innocent, they would announce a second referendum asking people whether they would like to jump out of the frying pan and into the fire, the outcome of which would likely be "Sod it, if it's going to be that bad, let's stay in."

Suitably heartened, the EU would then swiftly impose loads of federalist measures, like what they are trying to do to Poland, Hungary and the Czech Republic.

We also have to assume that Farage's vanity trumps his political intelligence.

Wednesday, 10 January 2018

The world has gone completely mad.

A lot of diesel cars are clearly labelled 'diesel' somewhere near the filler cap so that you don't put in petrol by mistake, that's a good idea.  I can never remember which fuel my wife's car uses, so it's good that there's a visual reminder that it's a diesel. If an organisation runs a large fleet of cars with lots of occasional users, I suppose it makes sense to label the petrol ones 'petrol' as well. That's all fine.

But I walked past a parked police car today and noticed that next to the filler cap, in one inch high letters was the word "UNLEADED".

FFS, can you even buy leaded petrol any more and if so, where? I thought you had to buy unleaded and chuck additives in.

(I didn't dare take a photo to prove it because some coppers don't take kindly to that sort of thing, and I was going to take the piss out of them anyway).

Nearly as stupid are all the vehicles with a sticker on the back saying "Limited to 70 mph". That's the maximum speed limit anyway, so nobody would reasonably expect them to drive any faster.

Fun with numbers

From City AM:

Last month Persimmon chairman Nicholas Wrigley and Jonathan Davie, the chair of its remuneration committee quit, after it was revealed Fairburn along with 140 senior management were in line for payouts totalling an estimated £800m in aggregate...

Persimmon said it has made a "significant contribution to increasing UK housing supply" since 2012 by building more 80,000 new hones. Annual production has jumped by 70 per cent and cash coffers swelled in 2017 jumping, from £913m to £1.3bn.


Let's be generous and assume that the bonuses relate to the whole five year period.

£800 million ÷ 80,000 homes = £10,000 per home.

Based on an average selling price of a Persimmon home of £225,430, the SDLT for a first time buyer would be £nil and for a second home buyer it would be £8,771.

Funny how the likes of City AM/The Taxpayers' Alliance wail about Stamp Duty Land Tax but not the extra £10,000 which these companies can charge for a home (largely because of Help To Buy). City AM's editorial even praises such bonuses (Bonuses are the best motivators we have)!

Environmental Kuznets curve - alive and well.

I first heard of this basic correlation decades ago, when I read that this was a likely explanation for e.g. rules on cars emissions being strictest in the wealthiest countries - California and Germany - and it therefore seems obvious to me.

Tim Worstall put a name to this phenomenon four years ago* (I didn't realise that all these basic observations need to be named after somebody, but hey, useful shorthand), explained by the ever helpful Economics Help as follows:

The environmental Kuznets curve suggests that economic development initially leads to a deterioration in the environment, but after a certain level of economic growth, a society begins to improve its relationship with the environment and levels of environmental degradation reduces.

Various possible explanations are offered, the most salient one is this:

9. Diminishing marginal utility of income

Rising income has a diminishing marginal utility. The benefit from your first £10,000 annual income is very high. But, if income rises from £90,000- £100,000 the gain is very limited in comparison. Having a very high salary is of little consolation if you live with environmental degradation (e.g. congestion, pollution and ill health). Therefore a rational person who is seeing rising incomes will begin to place greater stress on improving other aspects of living standards.


There then follow some counter-arguments and limitations, the least plausible of which is probably this:

5. Countries with the highest GDP have highest levels of CO2 emission. For example, US has CO2 emissions of 17.564 tonnes per capita. Ethiopia has by comparison 0.075 tonnes per capita. China’s CO2 emissions have increased from 1,500 million tonnes in 1981 to 8,000 million tonnes in 2009.

Well no, that's just choosing three countries at different stages on the curve, it is not comparing like with like. Taking GDP per capita figures for PR China from here and population figure from here...

1981 - 1.5 kg CO2 and $1,000 GDP per capita
2009 - 6 kg CO2 and $8,000 per capita

The 'CO2 intensity' per $1 of output has therefore fallen by half.

Question: which effect will win out - higher GDP or lower CO2 per $ GDP (taking CO2 as a proxy for pollution - it is not harmful to humans, animals or plants, but is a good way of measuring how fast we are using up natural resources)? And if it's lower CO2 per $ GDP, when?

Answer: it is happening already.

6 March 2017, China pledges to cut pollution and boost food safety

24 October 2017, China Has Shut Down Up to 40% of Its Factories in an Unprecedented Stand Against Pollution

2 January 2018, China, Moving to Cut Emissions, Halts Production of 500 Car Models

And the one that really caught the headlines here because it affects us directly:

1 January 2018, Toxic plastic to be 'burned in Britain' due to China import ban:

Hundreds of thousands of tonnes of toxic plastic could be burnt in Britain rather than recycled due to a Chinese import ban, officials have warned... But the new ban, imposed as part of a drive towards self-sufficiency and in order to prevent environmental contamination, means councils will be forced to send the majority of the waste for incineration or landfill unless alternative markets are found.

So PR China has had enough and wants to move to cleaner, more upmarket/value added activities. It is highly unlikely that there will be mass incineration or landfilling of plastic over here, there will be too much of an outcry, so either we will use less plastic (like the 5p plastic bag tax, which appears to have worked, see also Landfill Tax) or we will incinerate it in such a way as to minimise pollution/use it for generating electricity and/or there will be more people employed sorting the stuff. All of which are wins, from a purely environmental point of view.

* Damn and blast! I finished this article, did a Google search on that link and it turns out that he has written an earlier article with pretty much exactly the same title and content as this. So see it as an update.

BBC stoops to Daily Mail standards.

From the BBC:

Heavy rain run-off caused a mudflow in the community of Montecito, where some homes were knocked off their foundations, said Santa Barbara County Fire Department spokesman Mike Eliason.

Boulders the size of small cars were rolling down hillsides and blocking roads, reports BBC News Los Angeles correspondent James Cook... County Fire Captain Dave Zaniboni said that five people were found dead on Tuesday in Montecito and may have been killed as result of the storm.

The upmarket neighbourhood includes homes owned by celebrities such as actor Rob Lowe and chat show host Ellen DeGeneres. Oprah Winfrey also has a property in Montecito that is reportedly worth nearly $90m (£66m).

Tuesday, 9 January 2018

Economic Myths: Unaffordable Housing

Hardly a day goes by without some journalist or politician mention that housing has become "unaffordable". However, a few moments' thought is all it needs to realise that if a house is unaffordable then it must mean that no-one who would consider buying that house can afford to buy it. Such houses would then be sitting on an estate agent's books, probably empty.

That doesn't match up with what the RICS are saying,:
The Royal Institution of Chartered Surveyors (RICS) said the number of properties sitting on estate agents’ books fell to just 43 per branch in March, the lowest figure since the body started collecting the data in 1978.

Of course, what "unaffordable" really means is "I, a middle class, middle income person can no longer afford to live where I would like to live and where I could afford to live twenty years ago", but that's somewhat more long-winded than a single snappy word.

Economic Myths - NHS spending and the Baumol Effect

This theory (also known as Baumol's cost-disease) is given a lot of credence by e.g. The Economist, the LSE and Tim Worstall/Forbes.

The Economist explains it thusly:

HEALTH-CARE expenditure in America is growing at a disturbing rate: in 1960 it was just over 5% of GDP, in 2011 almost 18%. By 2105 the number could reach 60%, according to William Baumol of New York University’s Stern School of Business. Incredible? It is simply the result of extrapolating the impact of a phenomenon Mr Baumol has become famous for identifying: “cost disease”...

In 1913 Ford introduced assembly lines to move cars between workstations. This allowed workers, and their tools, to stay in one place, which cut the time to build a Model T car from 12 hours to less than two. As output per worker grows in such “progressive” sectors, firms can afford to increase wages.

In some sectors of the economy, however, such productivity gains are much harder to come by—if not impossible. Performing a Mozart quartet takes just as long in 2012 as it did in the late 18th century. Mr Baumol calls industries in which productivity growth is low or even non-existent “stagnant”.

Employers in such sectors face a problem: they also need to increase their wages so workers don’t defect. The result is that, although output per worker rises only slowly or not at all, wages go up as fast as they do in the rest of the economy. As the costs of production in stagnant sectors rise, firms are forced to raise prices. 


These increases are faster than those in sectors where productivity is improving, and faster than inflation (which blends together all the prices in the economy). So prices of goods from stagnant sectors must rise in real terms. Hence “cost disease”.

The theory is that therefore health spending will inexorably rise as a percentage of GDP.

It seems like nonsense to me. For sure, in relative terms the cost of labour-intensive services increases, but only in relative and not in absolute terms. In truth, the cost of labour-intensive services stays constant and the price of automated, mass manufactured products decreases.

Think about the two extremes.

a) Wages rise exactly in line with GDP, in which case, the cost of labour-intensive services, wages generally and GDP go up in step. Health spending stays constant as a percentage of GDP.

b) All the benefits of automation go to the people who invent and own the machines that make stuff and wages stay constant. In this case, wages fall as a percentage of new enlarged GDP and the cost of labour-intensive services also falls as a percentage of GDP.

In neither scenario does the cost of labour-intensive services like healthcare increase! That only happens when there is a sharp contraction in GDP, wages in protected sectors like health being inflexible downwards - the sharpest increase in NHS spending as a percentage of GDP was between 2007 and 2009.
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I think that the tried and tested explanations for the increase in healthcare spending are the correct ones, these apply to both extreme types of funding (USA and UK), in no particular order and these all overlap and tie in with each other:

1. Most treatment is paid for by insurance, whether that is private premiums or compulsory mass-insurance via the tax system, meaning that treatment is free or cheap at point of use, it is "other people's money".

2. Healthcare is a victim of its own success. They invent new treatments for non-curable/non-fatal diseases/conditions, which means that such diseases are passed down to more children and people live much longer. So there are more people with those conditions, and healthcare gets more and more expensive the older people are, because there is more that can and will go wrong.

3. Healthcare feels like a necessity from the point of view of an individual (choice between living or dying), but is actually a luxury good i.e. the amount that people are willing/able to spend on it rises disproportionately as a share of income; so healthcare takes up a disproportionate share of GDP growth.

4. They keep inventing new and more expensive treatments. Heart transplants were a novelty fifty years ago, now they are almost routine. Thirty years ago, getting HIV was more or less a death sentence, so people just died. Luckily, the virus itself is nowhere near as virulent as it was, and they have developed medicines that enable people with HIV to live fairly normal lives for decades.

5. Politicians in Europe can always earn a few brownie points with the voters by promising to spend more on healthcare, even though the law of diminishing returns applies and a lot of the increase in health spending just goes into higher profit, salaries and white elephant spending and not actual additional treatments. This is particularly crass in the UK as there is a disconnect between 'spending on the NHS' and 'spending on healthcare'. Compare and contrast - all nurses and doctors get a 3% pay rise vs. the NHS employs 3% more nurses and doctors on the same salaries.

6. There is massive rent seeking in health care. Back in pre-NHS days, GPs would practice discriminatory pricing and charge wealthy people more than poor people for the same treatment. Faced with a choice of life or death, somebody with only a few hundred quid savings can't pay more than a few hundred quid. The GP can hold millionaires to ransom and charge them tens of thousands. Pharma companies love inventing medicines that will alleviate symptoms of long-term incurable diseases/conditions. The bigger the NHS gets, the higher the salaries that all the top dogs can pay themselves and get away with it. And I am sure that the US insurance companies really take the piss.

7. For the benefit of Ralph Musgrave, let's chuck in this phenomenon, this one and this one for good measure.

Here endeth.

Dear Daily Mail readers ...

... "My wife and I are soon to have a 'clean break' divorce. Her lawyer is wanting me to sign over the house in its entirety that I have paid for all my working life in exchange for not touching my pension."

There's no figures mentioned whatsoever to inform the advice.  But below the line, 'Just Retired' is winning the comments with 166 green arrows to 7 red.  Given that the correspondent mentions "the house in its entirety" and "all my working life" you'd have thought "his descendants" and "her descendants" would more than likely be the same people.  


And the voting in these comments says it all.  The fact the global equities have outperformed UK houses by about three to one seems to have completely passed them by.


But presumably at the crux of the problem is that the man would find it impossible to buy anywhere to live if he had to start again.  And so would his ex-wife, which is why she wants the house and not the pension.  As for what his job is and where he lives we're in the dark.

Monday, 8 January 2018

ATCOR and tax incidence

ATCOR is an acronym for "all taxes come out of rent". This means that apart from a poll tax, all other taxes are incident to some degree or another on land rental incomes and thus selling prices. It doesn't mean that every penny of every tax is incident upon land.

To illustrate, consider the simplified example of a hypothetical country called SmallLand.

SmallLand has a population of 1 million. They all rent their immovable property from a landlord called Mr Monopoly. Total incomes are £15bn per year. Due to agglomeration effects there is a linear relation between the size of a locations population and its average income.   Average incomes are lowest in the smallest town (A) Poorville at £10,000 pa rising to £20,000pa in the biggest town (B) StreetsofgoldCity.

Ricardos Law of Rent tell us that Mr Monopoly can extract the difference between the averages. Leaving the average discretionary incomes in SmallLand before taxes are applied at £10,000 pa(C), while Mr Monopoly gets a yearly income of £5bn(D) from land (leaving out income from bricks and mortar)



SmallLand's government needs to raise £5bn a year in taxes. It can do so by either a poll tax, a flat income tax, or a land value tax. The graphs below show how each of the taxes effect the incomes of the population.



To raise £5bn from a poll tax(F), everyone would pay £5000 pounds each, leaving total discretionary incomes at £5bn(E) for all those paying rent. Mr Monopoly's income becomes £5bn -£5000(G)



To raise £5bn from a flat income tax, it would be set a 33.3...%. For that part of incomes at £10,000 pa and under it would raise £3.33..bn(I). As incomes rise over £10,000pa the amount raised goes up in proportion to incomes, totaling £1.66..bn(J). This leaves total discretionary incomes £6.66..bn(h), leaving £6,666.66 for each renter. Mr Monopoly's income falls from £5bn-£1.66...bn, totaling £3.33..bn pa(K).



To raise £5bn from a LVT it would be set at 100%, so that the total income of Mr Monopoly (D) is converted into tax revenue (M). Therefore, in essence, those living in SmallLand who all rent become tax free so their discretionary incomes (L) is the same as (C).  The rent they pay is in effect rebated aback to them as State spending.

In conclusion, the incidence of a LVT and Poll Tax on land are at the opposite ends of the spectrum. Because incomes are dependent upon location, taxes upon output share their incidence between land, labour and capital in proportion to their "progressiveness".

In my example above, a flat 33% income tax is shared 1/3 land to 2/3 incomes. As the UK tax system is only mildly progressive in total, this this probably a good guesstimate of how much revenue a tax shift to LVT would raise.

Fun Online Polls: Donald Trump and Severn Tolls

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

Did Trump collude with Russia in the 2016 Presidential election?

No - 70%

We'll never find out - 11%
Trump is clearly trying to cover up something - 12%
Yes - 5%
Other, please specify - 3%


Well that's conclusive enough. I still think there was something fishy going on, but I'm in the minority.

Thanks to everybody who took part.
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I allowed this poll to run for far too long, partly out of laziness and secondly because I haven't been t inspired to start a new one. If anybody has any bright ideas on which burning issue of the day can be resolved by asking the internet, please advise.
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I just stumbled across this article of a year ago, from the BBC:

Estate agents in south Monmouthshire claim about 80% of home buyers are now coming from the Bristol area ready for the halving of the Severn bridge tolls. As a result, property prices have been rising quicker than the Wales average as Bristol commuters seek new homes, figures have suggested...

"House prices in Bristol are off the scale," said agent Charles Heaven, "People know the tolls are coming down next year and hoping to get a bargain... With the railway electrification of the south Wales mainline, the planned south Wales Metro, the proposed M4 Relief Road around Newport, coupled with the beautiful countryside of south Monmouthshire and the Wye Valley, this is desirable place to live."

Two big housing developments are planned at Chepstow's old dockyard and near its hospital while a new estate is heading for Undy, bordering the M4 motorway near Magor. Severn Tunnel Junction railway station in Rogiet, between Caldicot and Magor, has recently undergone an £8m refurbishment while a new train station at Magor has the backing of Monmouthshire council and is part of the new South Wales Metro proposal.

Nathan Reeks, owner of Nathan James Estate Agents in Caldicot and Magor, explained why south Monmouthshire is becoming attractive for commuters from Bristol.

"We recently had a couple from Bristol who bought a property in Rogiet near Severn Tunnel Junction station, they bought a four-bedroom detached house with detached garage for about £295,000, after selling their three-bedroom mid-terrace in Bristol for £390,000. So they made almost £100,000 on a bigger house and the new owner can get to his work in Patchway on the outskirts of Bristol quicker from Severn Tunnel Junction than from when he lived in Bristol.

"That's typical of our business in the last six months as since the government was announced they are reducing the bridge tolls, 80% of my buyers have come from over the Severn Bridge. The accessibility for Bristol, the Midlands, the south west, south Wales, London and Heathrow Airport is all the more desirable as south Monmouthshire offers a semi-rural location with a stunning backdrop. It's a great place to bring up children and with a new comprehensive school opening soon in Caldicot, the Monmouthshire market is very strong."


They say "location, location, location", the Georgists say "community-generated value of land", it's two ways of describing the same thing.

This all reminds me of a Winston Churchill speech when he was (fairly briefly) a land value taxer:

Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains -- and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.

He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived...

Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public conscience, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed.

All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted.