Empires come and go, like tides. And like tides, or indeed bathwater, they leave a line of scum and flotsam and jetsam at the high water mark.
Another delightfully misleading headline from the BBC. I can see another way of interpreting the chart that they helpfully provide:
How about "Arctic Ice coverage on the increase"?
Look chaps, history repeats itself:
House prices go up; a bubble forms; the bubble bursts; prices stabilise at a low affordable level; and then they start going up again...
Empires come and go. AFAIAC, the Irish rejection of the CON-stitution is more-or-less the high water mark of the EUmpire.
Global temperatures have stayed more or less the same for ages. Pointing out that temperatures are now higher than in the Little Ice Age is about as unhelpful as pointing out that temperatures are lower than they were in the Mediæval Warm Period. I'm guessing that the most recent high was about five years ago (note that the Wiki charts end at 2004!) and we're now on a cooling trend again.
See also: A chilling tale from North
From theparliament.com:
UK Conservative MEP Kay Swinburne has welcomed new rules on EU financial supervision which have been adopted by the European parliament in Strasbourg... "It provides the markets with a common rule book and greater certainty over the key questions of who will regulate what and where. Instead of handing over the keys to the City of London, this deal places it in a kind of European neighbourhood watch programme.
Peer oversight will provide us all with loudhailer warnings when there are macro systemic or particular risks. This package must be seen as the high-water mark of European financial supervision and not the first step towards handing over these powers to Brussels. With this new certainty the financial markets can begin to look to the future."
That's a novel use of the word 'must'. I assume that the sentence really means 'We would like to palm this package off on the voters as...'?
When I did my first round up of this in April 2008, I guesstimated the losses from reckless UK residential lending at between £28 billion and £50 billion.
HBOS has written off about £6 billion of residential mortgages so far (£3 billion last year, £3 billion this year) and house prices will fall at least another twenty per cent, so let's double that to £12 billion. HBOS also has around one-fifth of the UK mortgage market, but was at the more reckless end, so £50 billion looks 'about right'. At the time I made my guesstimate, nobody realised that there would be a government bail out. I'll give myself a bonus point because the amount they stuck in of £37 billion is pretty much in the middle of my range.
Just for fun, I reworked the table from my earlier post, if you divide their market capitalisation (as at April 2008) by their gross assets (as at December 2007), and then sort the rows in descending order of the result in column C, this ties in pretty well with how much their share price has fallen over the last twelve months (Standard Chartered is a blip). The 'Tier 1' capital ratios as at April 2008 (see earlier post) of these banks all looked pretty much the same, so in future we can dispense with 'Tier 1' ratios as being a complete fiction, somehow or other, the stock market knew perfectly well a year ago which banks were most likely to survive.
Anyways... the point of all this is that there are people who say that "banks are too big to fail"*.
Take it from me, they are not, the losses might well be a lot more than £50 billion, because then there's corporate lending, in which HBOS seemed to have excelled - at picking lousy risks - and also an unknown amount that UK banks invested in sub-prime crap from the USA and so on. So maybe the total losses will be £100 billion (around 7% of UK GDP, £1,500 billion). As at present, the balance sheet total of UK banks is around £6,000 billion, a ridiculously large figure because there is so much double counting involved. If you net off all the inter-bank stuff and assets/liabilities that are matched economically but not legally**, then their balance sheet total is more in the order of £1,500 billion.
So, without going into legal niceties, shareholders will be wiped out and up to 7% of their creditors (i.e. longer-term bondholders) will have to be paid in shares instead of cash, or will have to wait a bit longer for their money than they expected, or might not get much of it back. Such is capitalism, risk and reward and all that.
That's that fixed, next.
* Interestingly, people trot this out, whether they support the bail out or not, merely because they can't see an alternative. I wouldn't be surprised if the banks exaggerate their own balance sheet totals to make themselves seem more powerful and important than they really are. This is a bit like EUphiles and EUsceptics being broadly agreed that the EU is getting more and more powerful. It's not - it passed it's high water mark with the Irish 'No' and now they are flailing around trying to make it look like they are all-powerful, but they aren't. Of course we still need to keep kicking the EU until it's been snuffed out, but there's no panic any more, a more pressing issue right now is kicking the banks while they are down.
** For example, the bank has sold foreign currency forward to Company A and hedged its bets by buying the same currency forward from Banks B, C and D. Really, these two net off - unless Banks B, C and D welch on the deal and the spot rate has gone against them, the net asset or liability on these two position will always be a small profit. And accountants are very fussy about not netting stuff off, it went out of fashion a decade ago.
From Wiki:
A gas compressor is a mechanical device that increases the pressure of a gas by reducing its volume. Compression of a gas naturally increases its temperature.
A lot of people seem to be stuck on that and blankly refuse to accept what is almost a truism. For a gas, pressure and temperature are almost the same thing. Increase/decrease either and you increase/decrease the other (until it levels out at the temperature of its surroundings, obis).
Dinero refuses to grasp this point:
"The main point is - There is no physical law that equates constant high pressure to constant high temperature. If you think there is then state it. As I said in an earlier comment Scuba diving tanks that are full with compressed air are actually not warm to the touch."
The metal skin of scuba tanks is a good heat conductor/poor heat insulator, so the overall temperature of the tank and the compressed gas (liquid?) inside it is the same as the surrounding air. Duh. But what happens when you reduce the pressure on that gas by releasing the valve? It cools down. You notice this when you are refilling a cigarette lighter with compressed gas, there will be ice round the opening where the moisture in the air has frozen. This is the basic "how a fridge works" model, see below.
So allow me to present related matters illustrating this single phenomenon, which is quite independent of sunshine or insulating effects of clouds and other minor greenhouse gases, can we please focus on the topic in hand...
1. From here:
In Lectures of physics, vol 1 by Feynman, it is written:
"Suppose that the piston moves inward, so that the atoms are slowly compressed into a smaller space. What happens when an atom hits the moving piston? Evidently it picks up speed from the collision. [...] So the atoms are "hotter" when they come away from the piston than they were before they struck it. Therefore all the atoms which are in the vessel will have picked up speed. This means that when we compress a gas slowly, the temperature of the gas increases."
Obviously, if the gas under pressure is not in a perfectly heat-insulated container, it will cool down again/warm its surroundings. Which is why Boyle had to wait for his compressed gases to cool down again before observing that pressure is proportional to volume; the immediate reading showed a higher pressure/temperature. Taking the atmosphere as a whole, it is in fact a self-contained heat-insulated container which contains itself. Gravity does the 'work' holding it in and the vacuum outside is to all intents and purposes a perfect heat insulator*.
The reverse is also true, if the volume of a sealed container with gas in it is increased, the gas will cool (until it is warmed up again by the non-insulating container).
2. See for example how fridges work:
A vapor compression cycle is used in most household refrigerators, refrigerator–freezers and freezers.
In this cycle, a circulating refrigerant such as R134a enters a compressor as low-pressure vapor at or slightly below the temperature of the refrigerator interior. The vapor is compressed and exits the compressor as high-pressure superheated vapor.
The superheated vapor travels under pressure through coils or tubes that make up the condenser; the coils or tubes are passively cooled by exposure to air in the room. The condenser cools the vapor, which liquefies. As the refrigerant leaves the condenser, it is still under pressure but is now only slightly above room temperature.
This liquid refrigerant is forced through a metering or throttling device, also known as an expansion valve (essentially a pin-hole sized constriction in the tubing) to an area of much lower pressure. The sudden decrease in pressure results in explosive-like flash evaporation of a portion (typically about half) of the liquid. The latent heat absorbed by this flash evaporation is drawn mostly from adjacent still-liquid refrigerant, a phenomenon known as auto-refrigeration.
Clearly, there is an added kicker here, the latent heat absorbed when the compressed gas (liquid) boils/evaporates again, but the principle stands. Heat coming out of the back of the fridge is equal and opposite to the fall in temperature inside the fridge (ignoring the extra bit of heat generated by friction).
3. Or let us take a jaunt into space and see what scientists say about the atmosphere of Saturn, which is so far out that the warming effect of the Sun is negligible:
Saturn's temperature and pressure increase from the exterior of the planet toward its center, changing the makeup of the clouds. The upper layers of clouds are made up of ammonia ice. Traveling toward the core, clouds of water ice form, with bands of ammonium hydrosulfide ice intermixed. The lower layers of Saturn see higher temperatures and pressures. Water droplets are found here, mixed with ammonia.
Or how about Jupiter:
The center of Jupiter is more than 11 times deeper than Earth's center and the pressure may be 50 million to 100 million times that on Earth's surface! The tremendous pressure at the center of planets causes the temperatures there to be surprisingly high. At their cores, Jupiter and Saturn are much hotter than the surface of the Sun!
Strange things happen to matter under these extraordinary temperatures and pressures. Hydrogen, along with helium, is the main ingredient of Jupiter's and Saturn's atmospheres. Deep in their atmospheres, the hydrogen turns into a liquid. Deeper still, the liquid hydrogen turns into a metal!
We can pretty much rule out the Sun as a source of this heat, and their atmospheres are mainly H and He with practically no traditional greenhouse gases. Leaving us with one surviving explanation of the three as to why they are so hot in the middle.
What you have to remember is that we think of as the 'surface' of the earth is in fact the bottom of our (relatively thin) atmosphere (where the pressure induced warming is strongest), and the 'surface' of gas giants is the top of their (very thick) atmospheres.
PaulC156 keeps digging in the comments:
"So gravity exerts a force on matter which thus transfers energy of motion / kinetic energy which in turn can be measured by increases in pressure, density and temperature. Nothing controversial until you go from the general and ideal situation of a collection of molecules in space to the specific Earth bound circumstance of an atmosphere over a heated surface."
Jolly good, some agreement, so what is heating the centres of gas giants? Are they not just collections of molecules in space?
"That latter phenomenon [from inbound ultra violet from the sun transforming to out bound infra red] is given a token nod in the form of ‘it may have a small impact of a couple of degrees’. This is just hand waving."
No it is not given a token nod, the whole phenomenon of clouds reflecting the Sun's rays back up or back down when it's cloudy, and CO2 and CH4 turning long wave into short wave radiation and reflecting some of it back down is incontrovertibly true - but it is a completely separate phenomenon. The same as the Sun heating things up in the first place. They are not three alternative explanations for the same thing and we ought not waste time arguing over which is 'correct', they are three quite independent factors which are all have an effect.
It is like accelerating in a car when you are going downhill, there is no point having an argument over whether it is accelerating purely because of gravity or purely because you've pressed the accelerator, as both are having the same effect to some degree, the interesting bit is splitting up the total acceleration into the part due to gravity and the part due to pressing the accelerator.
So I might as well point out that PaulC156 (not his real name!) is only giving the basic Gas Laws a token nod.
Bayard also refuses to accept that the extreme case of what happens in the middle of gas giants is repeated on a small scale in the Earth's atmosphere:
"Mark you still haven't made the necessary distinction between movement (of mass) and static states. To all intents and purposed the Earth's atmosphere is static…"
To all intents and purposes, the H and He which make up 99% of the volume of Jovian Planets (a fancy name for gas giants) are static. It floats up, it sinks down etc.
4. Or even further afield and ask how stars form:
Gravity pulls the dust and gas together.
As the gas falls together, it gets hot. A star forms when it is hot enough for nuclear reactions to start. This releases energy, and keeps the star hot.
Where does heat come from? From gravity compressing the hydrogen atoms/molecules. Luckily, the earth does not get anywhere hot enough to trigger nuclear reactions!
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* Mombers adds:
Big hole in your analysis I think:
'the vacuum outside is to all intents and purposes a perfect heat insulator'
The vacuum provides no insulation for the radiant heat, which is why nights are colder than days.
Greenhouse gases on the other hand do provide insulation for radiant heat...
1. Yes, fair point, heat radiates from the earth equal and opposite to what comes in from the Sun. The net effect is zero. But let us rule the Sun out of this equation. There was no Sun shining on the earliest clouds of hydrogen, but nonetheless, they heated up (see also Saturn, Jupiter, above), the heat did not radiate out into space or else they would never have ignited. Deny that if you will. I am talking about a specific phenomenon that is independent of heat from the Sun.
2. The vacuum provides the same (lack of) insulation in daytime and night time. As far as I am aware, the reason it is colder at night is because the Sun is not shining on that part of the earth. The relative difference between temperature "where the Sun is shining" and "where it isn't shining" is a separate topic (and easily explained) to "why is it warmer at ground level than at higher altitudes (for a given surface temperature)".
3. Of course greenhouse gases i.e. clouds of H2O vapour reflect radiant heat. Everybody can notice that when it is cloudy at night it is surprisingly warm. That is quite a separate topic to "why is it warmer at ground level than at higher altitudes (for a given surface temperature)". Clouds at low elevation (fog) are warmer than clouds higher up.
Somebody set up a blogger account this month in the name of Paul with the sole purpose of leaving a KLN over at the KLN blog (ironically enough):
So Mark... Tell me how LVT and a flat rate of income tax are going to help reduce income or wealth inequality. What exactly is it that drives your moral crusade for LVT? By the way, leverage is used routinely by businesses to expand and drive economic growth so I don't see why private individuals shouldn't be encouraged to use the leverage that mortgages provide to grow wealth too. It works.
and then following some goading by me
Have you considered whether or not LVT might just increase income inequality and not reduce wealth inequality either? High earners would use their increased income to buy non-housing assets instead and thereby increase wealth inequality in a different way. You should also consider that home owners on modest incomes use the increased equity value of their homes as a way to share in the general prosperity generated by the high earners of society.
In a flat income tax and LTV world the poor could never escape being poor because they would always be low earners and could never benefit from any unearned wealth (capital gains). The tax breaks of home ownership give modest earners the chance to build the equity they need to become wealthy asset owners over time. Home ownership thereby encourages social mobility. Margaret Thatcher turned some of the working class into property owning middle class when she encouraged people to own rather than rent.
That is all Homey one-sided bullshit, of course*, but I wonder about the mental state of these people.
Clearly he doesn't even believe a word he is saying himself, and he must know that I know that and won't be swayed by his arguments because I have already dealt with them somewhere on the KLN blog.
His arguments are like a stone skipping across water. Everybody knows that it will bounce a few times, but sooner or later friction and gravity will take over and the stone will sink. The thrower knows that, the observer knows that.
The simple answer is, the stone will sink. There's no point somebody pointing out if you throw the stone the right way, it will bounce. We know it can and will. It might even bounce several times, but each bounce gets smaller and in the end it sinks.
He knows that, we know that. Why do they bother? Who are they trying to convince?
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* Turning to his substantive argument, that is easily demolished.
Back in the days of 'Georgism-without-LVT' which the UK had until the 1980s, i.e. rent controls, high taxes on rental income, caps on mortgage-to-income ratios etc, there was a rapid increase in owner-occupation rates and hence much greater 'wealth equality'.
This also showed up as greater equality in disposable incomes after housing costs. Very few people had to pay rent and didn't pay much when they did, and rental income collected privately net of income tax was 0.1% of GDP rather than 3%.
Case closed.
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Who cares about 'wealth inequality' anyway, it's disposable income after housing costs that matters. If some bloke has countless Ferraris and original Picassos in his basement, so what? That doesn't suck wealth out of the working man's pocket every month, does it?
And what is this disdain for 'the working class'? Why is it only the magic of land ownership that can elevate them into 'the middle class'? If you ask me, there are too many middle class people in this country and not enough working class people. Surely, it would be far better to have fewer people doing non-jobs and better pay for people doing proper jobs.
For example, what about these junior doctors working all hours God sends (albeit for a tasty salary) but who are probably all still renting? Are they 'working class' or 'middle class'?
Four related topics which I will condense down to one post
1. The Invisible Hand
Adam Smith coined the phrase The Invisible Hand to explain that markets do not need government intervention and control, if you leave people to get on with things, then by and large, this will lead to an optimal allocation of efforts and resources.
(Clearly, this works well up to a certain point, but let's not worry about the various obvious exceptions to the rule).
a) But it doesn't work with land use once you have private land ownership.
At the "free market" end, where The Invisible Hand works well, let's imagine a public beach which people can use for free.
Some areas are better than others:
- if the tide is coming in, you want to be further up, if the tide is going out, you want to be further down;
- you want to be not too far from the beach shop, the car park, the public toilets and shower block, but not too near either;
- some areas nearer the cliff or the sea wall are better protected from the wind;
- people might prefer sunnier or shadier areas;
- people like having a bit of space round their little 'area' so they prefer the areas with fewest other people.
So the first to arrive will choose the best mix, and the next to arrive will choose the second best mix, and so on, all taking up much the same area for towels, windbreaks etc. If it's a nice enough day and the beach is long enough, people will start making a trade off between 'facilities' and 'space', so they might prefer being wedged in between some early arrivers at the shop/car park end to having more space several minutes walk away which will be under water in a couple of hours.
If you leave people to themselves, you'll end up with the optimal allocation; lots of people fairly close together in the best bits and very few people scattered far apart on the worst bits. As soon as one group leaves, others will spread out a bit to use the space.
At the end of the afternoon, everybody packs up and goes home, and the next time the weather is nice at the weekend, the process starts again.
b) Now, what happens if that public beach is parcelled up into equal sized squares of a few yards each, from the cliff right down to the low-tide mark and one is given or sold to each local household. Let's assume that occupation/trespassing is strictly enforced and that wardens go round checking that nobody is using somebody else's patch…?
Whatever happens, the allocation would be nowhere near as efficient as with the true 'free market' example a).
2. Car parks and retail
Turning to my favourite way of illustrating this in real life - car parks and retail.
a) When a developer acquires a very large area to build his retail park/shopping centre, he will devote about half the space to car parks. That's just the way things are. He knows that his tenants will be able to sell more stuff, employ more people and pay higher rents than if he has just shops and no parking spaces. And people like choice, so you'd rather go to a retail park/shopping centre with hundreds of shops than one with dozens of shops etc.
b) At the other end of the scale are proper 'high streets', where people go when they don't have to carry lots of stuff home. So 'high streets' are ideal for pubs and restaurants; doctors, dentists and estate agents; corner shops for a pint of milk or a packet of fags. Ideally you build up a few storeys and have shops/pubs at ground level, doctors and dentists on the first floor and flats above that.
But in popular belief, 'high streets' are where people are supposed to do all their shopping, including occasional stuff like furniture or a few fridge. It's nonsense, but let's run with it.
So let's a take somewhere in the middle, if there are dozens of small shops and very few parking spaces, they'll be struggling to sell much in the way of physical goods. But we know from our heroic developer in 2 a) that if we were starting from scratch, half the available land would be devoted to car parking spaces. So logic says, the best thing all the little shopkeeperes/landowners could do is knock down all their little shops and start again; even if they 'lose' half the space to the car park, they will still be able to sell more stuff overall from what's left.
Which doesn't happen. Because the incentives are hopelessly misaligned. Each individual shopkeeper/landowner wants to maximmise his sales so he leaves his shop standing. If all of them collectively wanted to maximise their sales they'd knock it all down and start again. Also known as first mover disdvantage. The Invisiable Hand (where there is always a first mover advantage) does not make an appearance, unless the Very Visible Hand of the local council - in cahoots with a well financed developer - does compulsory purchase orders and railroads it all through etc.
3. Town planning
Bearing all this in mind, it baffles me how we ever end up with existing town centres.
Our starting point is a collection of mud huts and wooden cottages thousands of years ago. New arrivals build round these in concentric circles, but the land is divided up into thousands of small plots, each jealously guarded by its owner.
Sooner of later, there is pressure to build a proper town centre, with a Town Hall, a train station, wider streets and a pedetrian precinct, a car park, a public park, big office clocks and a shopping centre. Even though there is a first mover disadvantage for each landowner. And somehow or other, many town centres end up like this, some more than others.
I'll leave it to you to try and piece together the historical process by which this happens, or why it happens in some places and not others. Your guess is as good as mine, to be honest. It might be cause and effect. Perhaps what we now see as 'the town centre' was originally built off-centre where larger areas of land could be acquired more easily/cheaply, and somebody took a leap of faith and built it, and then the town continued to expand round it (like an oyster developing a pearl round a grain of sand). And those towns where nobody had this vision simply stopped growing?
The same dillemma applies in spades to urban parks. No individual landowner would benefit from declaring his land to be a public park (although some Victorian philanthropists did so, bless them), unless he also owned a lot of the surrounding land and developed it for residential, knowing that he can demand a higher price for housing near the park. So in most cases the Very Visible Hand of the town council has to come along and declare something to be a public park, end of, and no back chat.
4. Urban sprawl
This is universally decried as A Bad Thing, but if you understand the issues above, it is clear that this is inherent with private landownership.
If there is one access point to a very large beach (car park, shop, toilet block etc) then people will gather round it, moving closer together in the good locations, beyond a certain distance, there won't be anybody. The 'sprawl' is self-limiting. I'm not making this up, a classic example of such a beach is Rhossili Bay on the Gower Peninsula. There's basically one access point, where the photo was taken. The far end of the beach is usually deserted, even if the first few hundred yards of it is 'full'.
So it's only because The Invisible Hand doesn't work that Urban Sprawl is an issue. If the first mile of Rossili Beach had been parcelled up as outlined in example 1 b) above, then people from elsewhere who want to visit would have to trudge a mile past the privately owned squares (many of which will be empty on any given day) to find one of the unclaimed spaces. So far fewer people would visit. Fail.
It's exactly the same with town planning, exacerbated by this flawed idea of the Hallowed Green Belt. I've done three examples with the same amount of developed i.e. useful land, I haven't drawn all the connections like roads, railways, water and sewage pipes, electrictiy and gas, but it must be clear that you want to minimise on this with A or B you need the least (surprisingly, A requires less than B, but that's a maths thing) but with C you need the most, which will devour as much land again as the actual developed areas.
A. We know that the ideal kind of town is spread out along branches (see here). Everybody gets benefit of being near the centre and near the countryside:
B. If you have a fairly strict green belt policy, you end up with a second best solution. People are nearer the centre but further from the countryside:
C. The worst of all worlds is the very strict green belt, so towns only grow to a certain size and then another New Town springs up on the other side of the green belt. We're all near the countryside but nobody is near the centre, as there isn't one. You waste all the extra money and land on trunk roads etc and you don't get the agglomeration benefits - the dark grey shaded bit in examples A and B:
5. So is there a 'solution' to all this?
There is no perfect single solution to all this, but you can ameliorate it by making it all more free-market again, which counter-intuitively can only be done by some sort of collective action:
a) Replacing other taxes with Land Value Tax, obviously. With LVT, there would be less need for Green Belt policies, sprawl would be self-limiting.
b) Having more land owned by the local council in the first place, who can take the larger view, or owned by large landowners who are paying full-whack LVT and are in it for the money and the larger view rather continuing doing what they are doing for sentimental reasons or sheer inertia.
c) Make smaller landowners (all the little retailers in dying town centres with no parking) pool all their land, so that instead of owning one shop out of a hundred, you are now a one-per cent shareholder in a company which owns a large area. Then slap the company with the higher LVT it can earn buy redeveloping as a coherent whole. The company decides by majority what it is to do, all it takes is one person to have the initiative and to offer to redevelop the whole lot, so you vacate your little unit and after a year or two you can now rent back from the company one unit to re-start your business, assuming it was a viable business to start with, and still collect your dividend of one per cent of the profits.
I cheerfully admit that simply pointing out that 'land is different' is not in itself a definitive argument in favour of taxing land values (and a few narrow classes of other government-protected monopoly rights) rather than anything else, because there are those who say that merely because something works in practice does not prove that it works in theory. But the reverse logic that 'land is an asset like anything else and therefore if you are going to tax land you have to tax everything' simply does not wash. For example:
Roger Helmer at ConHome: "Fifth, if we can tax mansions, what about other property? Cars? Racehorses? Pension funds? ISAs? Where do we stop?"
Or IanB in the comments here recently: "Look Mark, the whole economy is about allocation of scarce resources. Anything that isn't scarce ends up being free because supply is infinite. This whole "land is scarce but other products aren't so land is different" thing is inept reasoning, and if you are honest you have to use the same reasoning to conclude that anyone owning a scarce resource-which is just about everything from cheese to chalk- is a "monopolist" making unjust profits."
This notion that land is like any other asset or that rental income (cash or non-cash) is like any other source of income is quite clearly hokum. Let's start with 'cheese', but we can do the same exercise for cars, racehorses, pension funds or chalk if you really want:
1. As the economy grows, the price of basics/manufactured items tends to fall relative to wages (because we are more efficient or more productive) but land values rise relative to wages.
2. This is mathematically true and verifiable - when the Mini was first made, it was sold for £500 and a house cost £2,000. Nowadays you can buy a small car that's far better than a Mini was then for £7,000. You cannot buy a house for £28,000 today (or only in the most depressed parts of the UK).
3. If there were some horrible situation, like pestilence, or war, or all our young people emigrating abroad, then cheese prices (in the UK) would rise and house prices would fall.
4. There are no NIMBY restrictions on how much cheese can be produced; there are not even any practical or economic restrictions (or if there are, we are nowhere near those upper limits).
5. A piece of cheese has inherent value. A piece of land has no inherent value, it is just mud and stones. Its value depends entirely on where it is. Cheese with planning permission is not worth a hundred times as much as cheese without planning permission. The value of cheese or chalk does not change depending on where it is. A piece of cheese in Newcastle is worth the same as piece in Mayfair.
6. The only instance where cheese behaves a little bit like land is where the producer can exclude other suppliers from the market. The price of a cheese sandwich in the supermarket is £1.50, but on a train you are a captive audience, there are no competitors and they can charge you £3, take it or leave it (what I refer to as 'embedded rent').
7. If one man wants a piece of cheese he places no burden on others who also want one. If there were no demand for cheese, it would not be made in the first place. Not only is the amount of physical land fairly fixed, it does not need to be manufactured, it is just there. There is a natural tendency for people to want to live in urban areas (more jobs, more amenities); there are centripetal forces, which drive land values in urban areas ever higher.
8. Supply of cheese rises to meet demand. In demanding cheese, I am creating employment opportunities for cheese makers and retailers. If demand for cheese goes up, then that does not push up the price, it creates even more jobs.
9. Cheese producers and suppliers are fairly competitive and do not make super-profits. Demand for cheese is what it is, and as long as the price offered is more than the cost of producing and selling it, it will be produced and sold.
10. Land rents quite clearly reflect landowners’ monopoly power (or their share of the cartel’s monopoly power). A cheese factory in the middle of prime Surrey commuter-belt will be no more profitable than one outside Swansea (because they compete with each other), but land in Surrey commuter-belt will always command a much higher price than on the outskirts of Swansea. Two landowners in different parts of the country do no compete with each other, and two landowners of neighbouring plots do not compete either – they are members of the same mini-cartel.
11. Do cheese prices increase when interest rates fall and vice versa? Does the price of cheese depend largely on credit conditions?
12. Is there an eighteen-year credit-driven boom-bust cycle in the price of cheese, which always ends up with a financial crisis and a recession?
13. The supply of cheese rises to meet demand and prices stay stable (or might even fall because of economies of scale). If demand for land goes up, the full benefit of that increased demand accrues to land owners as supply of land in desirable locations is fixed.
14. Does The Daily Mail celebrate when the price of cheese goes up?
15. Do countries fight wars over cheese? Did the Normans invade us or did we invade North America to secure cheese supplies or did they/we just announce that the land belonged to them/us?
For sure, countries fight wars over natural resources, such as water or oil, and in olden times may have fought over valuable agricultural land (needed to make cheese) but that is secondary.
16. A tax on cheese is shared between supplier and consumer, leads to a fall in cheese output/consumption, destroys businesses and jobs, makes us all poorer. The tax leads to evasion and smuggling and thus pushes up the tax rate on everything else to compensate.
17. A tax on land-location values does not affect the amount of desirable locations. It is paid by the occupant and born by the owner but cannot be passed on in higher prices, so it does not reduce output or increase prices one iota.
18. This is evidenced by the fact that the retail price of consumer goods is much the same all round the country, even though the Business Rates payable by shops in desirable city centres is a vast multiple of that paid shops in less desirable locations.
19. If all businessmen and workers decided that their income was taxed too heavily and went on strike to avoid earning money and thus having to pay tax, the country would grind to a halt. If all landowners decided that their rental income (non-cash rental income in the case of owner-occupiers) was taxed too heavily and decided to abandon their land and stop collecting rents, then the government would acquire the land by legal default and it could rent it all back to us and would have far more revenues than it could ever raise in income tax etc.
20. Ownership of land tends to become concentrated in fewer and fewer hands over time - look at the USA, they started off with everybody owning a smallholding and where are they now? Land ownership is almost as concentrated as it is in the UK. This is precisely because land ownership is so lightly taxed. Taxes on cheese are not particularly high, as it happens, so let’s look at taxes on motor vehicles. In the UK, they are very high indeed, about £50 billion year (mainly on road usage, i.e. fuel duty) on vehicles worth maybe £300 billion. As a result, people drive smaller cars or drive fewer miles than they otherwise would do, roads are used more efficiently and there is, unsurprisingly, a much wider spread of car-ownership than there is of home-ownership.
21. There is no 'community' input into the value of a piece of cheese - the cheese is made by a small group of individuals (farmer, factory, supermarket). There is a producer surplus (profit) and a consumer surplus.
22. To make money from cheese, you can't just make one piece – or buy one piece - and then sit back and collect rent for the rest of your life, you have to make and sell more cheese every day. A piece of cheese deteriorates and goes off, it does not slowly increase in value. It needs to be stored and looked after. Cows and machinery and lorries and fridges have to be regularly used and maintained at huge cost to remain profitable.
23. This is quite unlike bare land, which can increase in value enormously without the owner lifting a finger, all he needs is a register in HM Land Registry, a legal system prepared to evict squatters, an exemption from Business Rates or Council Tax and for the economy to grow or the amenities provided around his site to improve and he earns money in his sleep.
24. A tax on land values tends to depress buying and selling prices without affecting gross rents, thus dampens the boom-bust cycle without discouraging new development. See Business Rates, which is the closest thing we have to LVT, see also the fact that house prices were low and stable between 1950 (once the supply shortage caused by bombing in WW2 had been overcome) and the late 1960s, a period in which we had Domestic Rates and Schedule A tax (which between them amount to crude forms of Land Value Tax). High taxes on incomes, profits and output certainly do no dampen the boom-bust cycle, and if anything greatly worsen the impact of the bust/recession periods.
From the BBC
The Queen Elizabeth Olympic Park in east London has opened to vandals for the first time since the London 2012 Games.
Alongside unused sports and arts venues, London's newest park features interactive water fountains that will run until the council gets bored with the idea and an adventure playground ready for taggers to make their mark.
Visitors will be able to look at the 375ft-high (114.5m) ArcelorMittal Orbit tower as it goes into decline and then closes.
It is the biggest park to be opened in London for a century.
It is hoped the attraction will shut up all the people who complained that the Olympics were a waste of money for long enough for some post-Olympics quango to disappear off with a nice fat redundancy cheque.
Visiting the park is free, although you probably won't bother.
