"Jeremy Warner nearly gets it"

Emailed in independently by Lola and Mombers (who suggested the post title), more wailing about Business Rates in The Telegraph:

This is obviously very welcome news, but it is small thanks to a Government which seems to be doing its level best to make the costs and complexity of doing business in Britain ever more burdensome.

The latest example of such wrong-headedness is in changes to the business rates system, due to come into effect next April. For some businesses, they mean an immediate increase in the tax on their properties of 42 per cent, with still worse to come in future years. Particularly badly hit will be smaller traders in London and the South East. Many face an eventual doubling or worse in their rates bill.

A significant number will be broken by the increases, and in despair close up shop (1). Others will find ways of passing the extra costs on to their customers (2), or alternatively demand rent reductions from landlords (3). Still more will simply take the hit to profits and invest less (4).

The first outcome is pure speculation, the shop is there and somebody will always want to use it.

The second is nonsense, we know for a fact that the total rent and rates bill does not affect output prices, because retail prices are the same whether you shop in a high rent/rates area or a low rent/rates area.

As it happens, UK retail sales are in the order of £400 billion a year and the total increase in UK retailers business rates bills is going to be about £500 million a year, i.e. one-eigth of a percent of  turnover, with many retailers outside London and the South East enjoying rates reductions.

The third is the most likely outcome for commercial tenants, although there will be a nasty transition period between the rates increase and the next rent review, which is one of the flaws of making the tenant not the owner legally liable for the business rates.

The last suggested outcome is nonsense, whatever the rent plus rates bill, a good investment is a good investment, and if there are good investment opportunities available, people will avail themselves. You could even argue that a higher rates bill for owner-occupier businesses will give them the kick up the arse they need to increase profits.

All this is in stark contrast to what he wrote a few years ago:

As it happens, there are some quite strong economic arguments for taxing land and housing more than they are already. Again, many thanks to The Mirrlees Review for drawing my attention to what Winston Churchill, who was from a big land owning family himself, had to say on the matter as early as 1909…

Taxing land value, in other words, is the equivalent of taxing an economic rent – it does not discourage any socially desirable form of wealth creation. Moreover, in a world where both income and capital are increasingly mobile, there are obvious advantages in taxing the physical; it is less easily avoided.
So in an ideal world, you might indeed want to tax land more, while reducing income and other forms of capital taxes to compensate.

Causation Is Not Creation

One of the most pernicious arguments against Land Value Tax is  “Landowners create land values” aka the Disney World KLN.

Imagine I build a whole city, including all the infrastructure as well as all the buildings. Because I build it so well and  many people want to move there,  I have made a worthless location, desirable. My work, effort and enterprise has created value, from which my ability to charge rent/higher selling price  is a just reward.

Which all sounds very plausible, and so not hard to see how most people believe an LVT is a damaging tax on “positive externalities”, “spillovers”, “wealth creation” etc, etc.  

Indeed, many pro-LVTers make the same mistake by saying the tax merely reclaims values created by State spending, community effort etc.

However, all that is really going on is that by creating one factor ie buildings/infrastructure, it has caused demand to be shifted for another. It just so happens that with immovable property, the owners of land and capital are usually one and the same. Hence the confusion.

If we separate the two, the confusion disappears. For example, once crude oil was a pollutant which if it appeared on the surface made land worthless. The invention of the internal combustion engine changed this, shifting demand to oil products, making it a valuable commodity and its owners very rich. 

Did the manufacturers of engines also need to own the oil for them to be incentivised to make engines? Clearly not.

And as the provision of every good and service shifts demand, subtly or otherwise, for other goods and services causing their value to change, then property rights cannot be claimed on this basis. 

So imagine I still built the above city, only this time I rent the land from a big landowner instead of buying it outright.

If I get an income from renting out the capital, while the landowner gets that from his land, then why should my incentives to produce capital be different from anyone else's? 

Indeed, if the prospect of having to pay the landowner rent meant I didn’t build the city at all, then by definition it was an inefficient allocation of my resources, that would be better invested elsewhere.

That is to say, that if freeholders do not pay rent, as tax, for their right to exclude others from scarce resources, supplied for free by nature/god, then that is an implicit State subsidy. Which not only causes misallocation and over consumption of immovable property, but is then capitalised into incomes and selling prices. The cause of excessive inequality. (It’s odd that economists are against rent controls because as an implicit subsidy to tenants they distort markets, yet they fail to apply the same logic to freeholders).

As per my post below, the only way a property right can be claimed is the creation of a good or service and its provenance. While demand for natural resources can be shifted, causing their value to rise, these values are not the sole property of titleholder to Land because they are not “created”. 

Defining Property Rights.

Property rights are the foundation upon which we build a peaceful and prosperous society. They are thus human rights (perhaps the only ones).

Given their importance, it's somewhat surprising how little most people, especially economists, think about how they are defined and whether they are correct as they currently stand. After all, efficient resource allocation is entirely dependent upon incentives.

When I ask people how they can tell if something rightfully belongs to them, these are the answers they most often give.

1. I paid for it.
2. Legal title.
3. I discovered it.
4. I used it first.

None of the above confers moral ownership of something because, for example-

1. We can pay for stolen goods.
2. We can pay for stolen goods that society deems acceptable. Like slaves once were.
3. I can discover something of value on your property. Like a gold watch in your attic you never knew you had.
4. I can intercept something in the post you bought from Amazon and use it first.

Therefore none of 1-4 provides an ethical basis for assigning property rights. I believe the only way by which a property right can be claimed is the creation of a good or service and its provenance.

Which means the following are an infringement of property rights.

1. Taxation of factors produced by human effort.
2. Uncompensated exclusion from scarce natural resources.
3. Exclusion from the ability to use any idea.

I would therefore postulate that if property rights are fundamental, then the fact that every Country in the World is guilty of doing a,b and c, then this is the root cause of much, if not all, social and economic dysfunction.

That's what happens when you let animals drive cars...

Cheetahs heading towards extinction as population crashes

"Electoral fraud: Voters will have to show ID in pilot scheme"

From the BBC:

Voters will have to show proof of identity in a government pilot scheme to reduce electoral fraud.

Some councils in England, including Birmingham and Bradford, will trial the scheme at local elections in 2018. Constitution minister Chris Skidmore said the pilot would "ensure the integrity of our electoral system".

Fair enough, but actual fraudulent voting at the ballot box is negligible, it would require real nerves and you'd have to gamble on the person whose vote you are stealing not having already voted.

The real big frauds all relate to postal voting, they ought to tighten up on that and they've fixed 90% of fraudulent voting…

There will also be reforms to improve the security of the postal ballot system, such as requiring postal voters to re-apply every three years.

In other words, they are not taking this seriously at all. I suppose there are two kinds of postal voter, the disabled and people who happen to be going away at the time of the election. Seeing as ballot cards are sent out a couple of weeks before an election, couldn't we just ask those people to use their ballot cards in advance, the disabled can drop them off at their GP or something else convenient for them and those who are going to travel can vote early at the nearest town hall?

The magical protection has expired after thirty two years

I pointed out nine years ago that those eighties pop stars who appeared in the Do They Know It's Christmas video were all miraculously still alive.

Sadly, the magical protection it bestowed appears to have expired, bang on cue at Xmas 2016,with Rick Parfitt and George Michael dying over the past two days.

"Only three passengers on BA flight enjoy champagne and selfies"

From the BBC:

Three British Airways passengers had a once-in-a-lifetime flight after finding they were the only ones on board.

Lawrie-Lin Waller, 33, said she and her friends were upgraded to business class, treated to bottles of champagne, and posed for selfies with the captain. And on their trip from Gibraltar to Heathrow on 17 December, her friends Laura Stevens, 34, and Sarah Hunt, 35, enjoyed three-course meals.

Ms Waller said: "We're never going to experience anything like that again."

Something like that once happened to me, it was a small airplane London City to Tessino, Switzerland, it had a capacity of maybe fifty people but there were only five or six of us. So second and third helpings of snacks and booze for everybody.

The plane made a pit stop at a tiny airstrip in the west of Switzerland to let one passenger get off. The stewardess said they were making good time and if anybody wanted to get out for a smoke they were welcome. A couple of us duly decamped to the bar at the side of the tarmac, had another pint and a couple of fags until the stewardess came in and shepherded us back onto the plane.

Not quite as impressive as the BA story, but truly a memorable/once in a lifetime event (I don't fly that often so I can't say how often it happens).

I'm surprised it's still as high as twenty per cent.

From the BBC:

Home ownership among 25-year-olds has fallen by more than half in 20 years, according to council leaders.

A survey carried out for the Local Government Association (LGA) by estate agents Savills showed that just 20% of those aged 25 own their own property, compared with 46% two decades ago...

The Home-Owner-Ist target is zero percent - unless they are helped out by Bank of Mum & Dad taking out a second mortgage on their own home - so they've still some way to go.

The LGA said government needed to tackle the shortage of affordable homes to rent and buy. It says it found that, on average, private renters pay 34% of their household income on rent, while social and affordable renters pay 29%. Homeowners, however, spend an average of 18% of their household income on their mortgage.

False comparison. The average amount paid in mortgage repayments is irrelevant, the question is, what percentage of your income would you have to buy a home today? Probably about the same as if you stayed renting.

But the average size of a deposit to get a mortgage is 62% of annual incomes, or 131% in London.

'Nuff said.

Responding to the LGA survey, a Department for Communities and Local Government spokesman said: "We've halted the decline in homeownership, with the number of first-time buyers up nearly 60%, and over 335,000 households helped into homeownership through government-backed schemes since 2010. Our upcoming Housing White Paper will clearly set out how we plan to build the homes this country needs."

That's the sickening bit. The owner-occupation rate is steadily drifting downwards as planned, and to maintain a 75% owner-occupation rate there have to be around 300,000 first time buyer households every year, not 335,000 over six an a half years. And they chuck in the 'lack of supply' myth just to emphasise how little they really care.

Wednesday morning Xmas gear change

Rod Stewart, "Red suited superman"", up a semi-tone at 1 min 55 for absolutely no reason whatsoever:

Rent controls vs financial crises

In a slightly different context, BenJamin' emailed me this 1995 article about rent controls.

As we see, Georgism Lite was prevalent in most Western countries in the decades after WW2:

Rent controls were imposed in the United States shortly after the country's entry into World War II. Putting the country on a war footing required massive relocation of labor, with consequent pressure on many local housing markets. Controls were imposed to ensure affordable housing and to prevent profiteering. The appropriateness of imposing controls in wartime seems to be virtually undisputed.2 The form of controls was a freeze on nominal rents.

The rent freeze continued after the end of the war in the belief that the return of soldiers would otherwise cause a rapid and disruptive rise in rents, at least in certain markets. However, there was a housing boom in the late 1940s and early 1950s, which lowered market-clearing rents and permitted almost painless decontrol. The only jurisdiction to retain wartime controls was New York City, and these were applied only to pre-1947 housing.

European countries imposed wartime rent freezes, too. In fact, controls in several countries had lingered on from the First World War. The postwar experience of the European countries was less fortunate. Housing reconstruction took much longer because of their war-ravaged economies and extensive destruction of their housing stocks. As a result, many European jurisdictions retained a rent freeze on at least prewar housing long after World War II. While the nominal rent freezes were typically not absolute—intermittent adjustments were made—controlled rents fell significantly in real terms, to only a fraction of the rents in the uncontrolled housing that was constructed after the war.

It is the experience of these jurisdictions, together with that of New York City, which forms the basis for the common opposition to rent control among economists. The type of controls imposed in this period has come to be termed "hard" or "first-generation" rent control. Since the early 1950s, the pattern of rent regulation has been significantly different in Europe than in North America.

In much of Europe, the legacy of first-generation controls is still keenly felt. In some jurisdictions, controls gave rise to housing problems that prompted increasingly intrusive government intervention. In others, the uncontrolled rental housing sector grew healthily, while the older, controlled housing in the downtown areas deteriorated, but remained keenly sought after due to the wide disparity in (quality-adjusted) rents between the controlled and uncontrolled sectors. Over the last 15 years, largely as a result of the perceived failure of socialism and renewed faith in the market, European governments have been eliminating or relaxing controls.

Rent controls were just part of the overall package of course, they went hand in hand with mortgage caps; more social housing; higher taxes on rental income; and higher taxes on residential 'property'. Different countries had different packages, Singapore still has its own peculiar model of Georgism Lite with the inevitable resounding success.

Whatever the narrow impact of Georgism Lite was on the housing market per se, there were much wider ramifications which economists usually ignore:

1. The 18-year land price/credit boom bust cycle was kept largely in abeyance between 1925 and 1973.

2. The post war years up to the 1970s are seen as the golden age of Western capitalism, there was almost continuous economic growth and almost full employment. This was because of the absence of major financial crises and people putting their earnings into the real economy not land price speculation.

3. There was also inevitably more equality and the benefits of economic growth were felt more evenly.

4. This has all gone nicely into reverse since the 1970s, with Home-Owner-Ism at its most rampant e in the UK and Australia, although there has been a slight backlash in some German states which are now re-imposing rent controls.

Georgism Lite was just diluted Georgism without a full-on LVT. Both are ways of ensuring more stable economic growth as well as a more equitable sharing of the benefits of economic growth*. Full-on Georgism with much higher LVT is just a much better way of doing it**, because you get all the well established benefits of Georgism Lite plus the benefits of having much lower taxes on output and employment.

* Economic growth goes into higher rents; rent controls are a way of sharing that growth between landlord and tenant.

** The growth is shared by the whole economy with the landlord getting what's left over after LVT.