Move Over Fabian Gradualism. Enter Sharia Gradualism..

Here

I cannot think of a comment to make on the piece better than the piece itself.

Fun Online Polls: Midges & Grammar schools

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

Have you noticed/suffered more midges/midge bites than usual this summer?

Yes - 13%
No - 87%

Thanks to all who voted and left comments, if we adjust for those who've noticed fewer, there's probably no change overall, so either it is a very localised phenomenon or it's just me. Which has put my mind at rest.
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Apparently our new PM has floated the idea of selective state secondary schools i.e. "grammar schools". Rejoice! says the Torygraph. Boo! says The Guardian. Inevitably.

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

"What should we do to improve standards in secondary education and increase social mobility? (choose all that apply)"

Vote here or use the widget in the sidebar.

As to the last option, it sounds a bit socialist-authoritarian but is not without merit. If there were no private schools, then the most demanding/pushy parents would devote their efforts to keeping state school teachers on their toes; it would level the playing field and hence improve social mobility (downwards as well as upwards); and it would save parents a fortune in private school fees (so I have a vested interest in this and is the alternative to education vouchers), which are largely rental payments/an arms race anyway.

Further, in Germany (for example), private education is virtually unheard of (it is for backward children with rich parents), they have selection (into quasi-grammar and secondary modern) and their educational standards are very good.

The North West Passage vs Suez and Panama Canals

John Burns left a comment on my post of three years ago explaining the pricing policies of the two canals and how they would be affected if the North West Passage became ice-free.

The Northwest Passage is operating. The 69,000 ton Crystal Serenity will be the largest ship ever to navigate the Northwest Passage. Starting on 10 August 2016, the ship will sail from Vancouver to New York City with 1,700 passengers, taking 28 days for the journey. It needs pilots on board to get through.

If large container ships use the passage in summer it will knock off a substantial time from China and Japan to the UK/Europe. From Shanghai to London Thamesport it is 11,866 nautical miles. From Shanghai to Liverpool via the Northwest Passage is approx. 9,211 (using Google Earth). That 2,600 mile less is substantial. Liverpool is soon bringing on-line its container terminal extension capable of handling ships with 20,000 containers - average now is around 4,000 containers. So imported Far East goods may become cheaper*.

His source, CBC News.

We will have to keep an eye on the Suez and Panama Canals' prices; these are based on the days saved compared to any alternative route multiplied by the daily cost of having a container ship at sea. It's a rental payment like anything else.

If going via the North West Passage is a week shorter than going round the Capes of Horn/Good Hope, container ships cost $10,000 a day to run and the pilot/additional insurance is $20,000, we would expect to see their tolls fall by $50,000 per ship.

* This bit is highly unlikely. Chinese factories sell for cost-plus; container ships cost what they cost; Western retailers sell goods for what they can get; everything else goes to rent (Canal charges or higher rents for retail premises). In any event, the cost of shipping per unit is insanely low so even if it fell by half and the entire saving were passed on to consumers, this would only knock 0.05% off selling prices (or something).

"We choose to… do the other things, not because they are easy but because they are hard."

The World Staring Skipping Championship

The more you watch this, the funnier it gets. When the joke starts to wear thin, try and focus on the team in the background as well…

Killer Arguments Against LVT, Not (401)

Edward Lucas wrote a reasonable and well argued article in The Times arguing against SDLT and in favour of Land Value Tax (via MBK). The comments are a rich seam of KLNs, clearly the Homeys have a ready made list of this garbage which they fire off at every opportunity (I wonder whether any of them are cynical enough to cut and paste from the Killer Arguments blog..?).

I can't see anything new, but for the record, here they are...

Not everyone who owns their home is rich in terms of disposable income. Not everyone would be able to pay such a tax. What then?

Ghastly proposal. The main cause of high property prices is the imbalance between supply and demand. That demand has been created by excess immigration. Get net immigration down to zero, then let the property builders catch up.

"Taxing people to live in their own houses will cause howls of protest." Yes, it would indeed. Count me out.

The next crazy idea will be to tax them (on imputed taxi fares) to ride in their own cars, and similarly at restaurant rates for dinners at home. I suppose we could also tax a man sleeping with his wife on imputed brothel charges - and we could then prosecute HMG for living on immoral earnings.

House prices are too high relative to incomes because the last correction in the perpetual house bubble cycle never happened. The financial crisis got in the way. Interest rates were reduced to emergency levels meaning the cost of a large mortgage reduced. Now we are in trouble. It's been so long millions are up to the necks in large loans which they couldn't afford at normal rates, and the BOE knows it.

UK Population 1970 - 51million
UK Population 2015 - 64 million = 25% increase
Size of UK in 1970 and 2015 - unchanged.
'nuff said

Articles like this imply it's a UK or South East problem. It's world wide and even in countries with plenty of space to build. What the article's conclusion is the implementation of a wealth tax. No thanks!

One of the reasons for the leave campaign was mass migration as it is one of the causes of the housing shortage. A classic example of the gap between the political class and the victims was the house of lords report on immigration - issued with a blank section on housing impact!

Daft article. Media columnists get paid about £200,000 per annum. I suggest you check your sums, Edward. Your house doesn't earn a bean until you sell it and then, where are you going to live?

Why not lead from the front, Edward. Sell your house, and use the proceeds to help some young people out. Or just make an extra donation to HMRC. I'm sure they will welcome it. Here's a newsflash for you. Older people tend to be wealthier than younger people because... get ready for it... they have lived longer and had more time to accumulate wealth. Tell you what, instead of screwing with the property market why not renounce your entitlement to (say) a state-funded pension?

Balmy [sic]. Looks like when in doubt tax. Whoever heard of a taxation which is effectively designed according to a birthdate except in Britain?

Don't you just love tax, solves everything a bit here a bit more there...which is never enough because we are still 1.5 trillion in debt thanks to the states profligacy with other people's money... Reducing what the state takes, the regulations it imposes etc etc would go a long way to improving things across the board and that includes housing. State interference is the problem not the solution.

"The real answer is to remove some of the economic rent (unearned income) from the lucky generation — mine and my parents’ — and transfer it to 'Generation Rent'". A few years ago, I read that low interest rates on savings, which finance cheap mortgages and loans, cost senior citizens, who comprise the majority of savers, some £17 billion a year. If correct, that sum seems to me to be a very generous subsidy given by senior citizens to the younger generation, in addition to which, senior citizens are often called on to act as the non-repayable loan bank of mum and dad, or, of grandma and granddad. They also often provide cheap accommodation and free child care for younger family members. I believe the sums involved represent more than sufficient subsidies from the older generation to the younger.

How about parents paying to house their children instead of expecting others to continue paying for them after they left home. Taking responsibility for one's own actions appears a stretch too far for some.

In order to stem over-breeding, full child benefits are given for one child, half benefits for two children (half for each child) and no benefits for any children if more than two are born.

This so called research is nothing more than a big pile of academic waffle grounded in theory and not in reality. A land-value tax will indeed penalize those who have larger houses or plots of land. But unless those same people divide up their homes into multiple units or sell off their gardens so that developers can build new homes on them - which they clearly won't - it really won't solve anything or help anyone. There is also the issue of how someone whose house value has appreciated, but whose wage has remained somewhat more static, is supposed to afford such a tax. Or are we suggesting that they are to be forced out of their homes? As for the suggestion that tenants of private landlords be allowed to force those same landlords to sell their properties, there is a name for this: legalized theft. As this is the United Kingdom and not the People's Republic of North Korea we can file that particular suggestion in the bin. The main issue with the housing market is strict regulation on building and development: you don't solve that by trying to damage demand, you solve it by looking at how such restrictions can be removed so that supply may increase.

The size and value of one's house is a very unreliable indicator of ability to pay more tax. Many pensioners, in particular, are house-rich while income-poor, while the increase in value of a property is not "income" until the owners downsize. However, abolishing the hated Stamp Duty would certainly encourage easier and more frequent house moves and downsizing.

The reason property prices are too high is low interest rates with ZIRP causing more harm than good. But that will never change as non performing loans would finally destroy our banks.

Fer cryin' out loud, just increase the supply. It's almost impossible to add new taxes without creating genuine suffering for some. In the case of a land tax (or the mansion tax, whose effect would have been similar) it's the asset-rich, cash poor who would suffer. In the case of capital gains tax, it's those with young families who need to trade up and get an extra bedroom or two - confiscation of their gain would make it impossible to afford to move up a rung, especially if we don't add indexation back in. More taxation is NOT a solution to high prices caused by lack of supply. Extra supply is the solution to high prices caused by lack of supply.

Imputed rent is madness. All owner occupiers are deemed to be paying market rent for the purposes of calculating GDP, and that imaginary money is imputed to the household services sector. But why stop there? Why not impute money to the restaurant sector for every meal you eat at home? Or to the prostitution sector for every time you make love with your partner? But to reintroduce real imputed rents is money is even more insane when so many people are also paying mortgages on top - and you seem to forget that millions are paying mortgages of 4-5% despite the base rate being below 1% .Why should people who have stretched to borrow and meet their monthly mortgage repayments also have to pay an imaginary rent in addition to their mortgages? You talk as if you want to encourage home ownership but all you really want to do is make it less attractive. This would just make property even more unaffordable for young buyers and destroy the dreams of millions of people that have made life plans around retiring in their own homes because their pensions could never cover this new rent. Why not just raid peoples homes and take their possessions, or empty the bank accounts of those with more than £5k in savings? What you're talking about is little more than theft. The only sensible idea is to abolish stamp duty, improve social mobility and build more homes. You will never think your way around the basics of supply and demand - we live on a small island with a chronic shortage of housing - solve that, stop dreaming up punishments for owner occupiers.

Tax foreign investors at higher rates of stamp duty. They are adding little benefit to the UK economy as most money will be repatriated and not spent here. Restrict their purchase to new build apartments which if flipped within 5 years are taxed heavily. Require them to submit proof of letting income by using estate agencies or else tax them at a higher rate if it is left empty, to stop the rent spiral as well as leaving huge numbers of apartments empty..

My house is on a plot of 1/3 acre, my four neighbours' houses are the same, but it is on a steep hill and we have many trees all of which are subject to preservation orders that the council rigorously enforce. Would we therefore be subject to a special tax because of the large plots even though their potential for development is limited?

[The only one in favour of the proposal] How refreshing to see an article promoting one of the mainstays of Adam Smith's economic theory. It is utterly crucial to the affordability and stability of housing market that people pay a charge for occupying land, as happens in almost of the developed world. It should be remembered though, for those that fear a property tax, that it should be implemented along with a flat income tax. The current lack of charge is what enables the feudal superiors to maintain their excessive hold on the UK property market. If the Duke of Westminster had to pay property taxes, would he still own vast swathes of Kensington and thousand of acres of farmland across the UK? Can anyone justify this concentration of land, and its value in one hand? In the early 1900's Sweden introduced a strong land tax, with a penalty for letting, alongside a flat income tax. This created the greatest redistribution of wealth the world has ever seen, and Sweden became one of the most prosperous, equal countries in the world. It is little wonder that the rest of the world's richest people invest in UK property, especially in London, when they can make 7% a year in asset growth, without any significant taxation, and so it's little wonder that medium and low earners cannot afford to live there.

A land value tax seems a particularly stupid and impractical idea to me. Apart from the fact that there are too many taxes already, how would the value of land be assessed? It depends entirely where it is and is extremely open to dispute, for example an acre of land in Chelsea is probably worth £billions whereas an acre of unproductive rough hill farm land in Wales has practically no value. And of course farmers who own most of the land anyway would have to be exempt as most farming requires subsidies to be viable.

What a load of half-baked shite.

Let me help you with that "digital detox"...

Central bank interest rates cuts vs commercial bank profits

From today's Daily Mail:

Australia's wealthy banks are set to hang on to $917 million by not passing on the Reserve Bank's record interest rate cut. The big four banks - ANZ, Commonwealth Bank, National Australia Bank and Westpac - made only modest reductions to their standard variable mortgage rates and gave customers about half of the Reserve Bank's reduction of 0.25 per cent...

It comes after Prime Minister Malcolm Turnbull was left unimpressed and demanded an explanation from the bosses of the big banks for not passing the official rate cut on in full.

"They operate with a very substantial social licence," he said, "They owe it to the Australian people and their customers to explain fully and comprehensively why they have not passed on the full rate cut."

I like his emphasis on "social licence" i.e. government granted privileges.

Also from today's Daily Mail/This Is Money:

Britain's big banks are facing a £1.3billion hit to their profits if, as expected, the Bank of England cuts interest rates on Thursday.

There are fears that the banks could attempt to contain the damage by not passing on the benefit of lower rates to borrowers – risking fury from customers and regulators. Very low interest rates squeeze bank profit margins, so there will be further losses if the 0.25 percentage point cut is passed on to customers.

It's either one or t'other, surely? Unless UK banks are net depositors with the central bank and Australian banks are net borrowers from the central bank?

Here we go, the mid-cycle wobble...

As is easily observed, land prices/bank lending goes in 18 year-cycles, there is a credit crunch and associated recession every 18 years and a wobble after 11 which is soon forgotten.

The last credit crunch started in 2007-08, so we'd expect the mid-cycle wobble in 2018-19, i.e. in about 2 years' time.

Here are the first signs:

London Luxury House Prices Keep Falling After Brexit Vote (they blame all bad news on "Brexit").

NB - in the UK, every higher house prices are seen as A Good Thing and voters will re-elect any government that kept them going higher.

Home ownership falling in major English cities, says think tank

"What we particularly have seen since 2002-03 is that incomes simply haven't kept pace with house prices, so it's not just that house prices have gone up. We had access to lots of relatively easy credit and the position we're in now is that credit has been turned off.

"We have this sense now that house prices have become detached from people's earnings ... and we no longer have the route through 100% mortgages and the like for getting on to the housing ladder."

the flaws in the Bank of England’s stress testing programme

The report's release comes as Europe faces a renewed banking crisis. There is already a major crisis in Italy and mounting concerns about Deutsche Bank, the biggest bank in Europe and recently described by the International Monetary Fund as the most systemically dangerous bank in the world.

Rate cut 'foregone conclusion' as economy slows sharply

They'll paper over the cracks and reinflate the land price/credit bubble - by depressing interest rates if nothing else - then sit back and watch the money print itself until next massive credit crunch and associated land-owner and bank bailouts etc, currently pencilled in for 2025-26.

UPDATE: Lola submits this rather more technical article: The FOMC Butterfly that Will Ruin the World

Fun with numbers: Doctor Shortage in Rural America

I received an email doing publicity for an American "international medical school", it's mainly padding but here's the fun part:

Historically, graduates of international medical schools have been far more likely to practice in non-urban areas with primary-care shortages than their U.S.-trained counterparts.

Twenty percent of the U.S. population lives in rural settings; only 10 percent of doctors practice there.

Rural communities have 20 percent fewer doctors per person than their urban counterparts.

How do you get "20 percent fewer" out of that?

In very round figures, USA population = 400 million and 1 million doctors.

Urban = 320 million people; 900,000 doctors = 356 people per doctor
Rural = 80 million people; 100,000 doctors = 800 people per doctor.
That's about 50 per cent fewer doctors per person.

I hope for the sake of America's rural population that the school understands medicine better than they understand maths.