Sunday 31 January 2016

The Holy Trinity of blogging….

… a sinkhole, cow news and a car crashing into a house.

H/t, Dinero, from the BBC:

A dual carriageway is to remain shut after a huge sinkhole opened up as a result of a burst water main.

The northbound carriageway of the A249 between Key Street and Bobbing roundabouts, near Sittingbourne in Kent, has been closed for a week.

More than 1,000 homes and three schools on the Isle of Sheppey were affected by the burst main, with some without water for two days.

H/t James Higham, from The Des Moines Register:

Check out this video of a cow in Montana rolling a hay bale.

The National Agricultural Institute shared this video on their Facebook page last week and it has so far gained more than 10,000 likes.

From The Daily Mail:

It's a parking bay window! Vauxhall Corsa skids on ice and ends up embedded in someone's front room

Saturday 30 January 2016

Ex-Chancellor wants to block a tax loophole by creating another one.

From the BBC:

Former Conservative Chancellor Lord Lawson told the Telegraph: "It is profoundly unsatisfactory that corporation tax has to be collected from large multinational corporations by a series of ad hoc compromise deals, as we have once again seen with the Google affair.

"It is also grossly unfair on smaller businesses, who are unable to shift profits between tax jurisdictions and have to pay the full amount due under UK law."

Google's tax agreement came after years of criticism of it and other multinational firms over their tax arrangements in the UK and across Europe. The payment by Google, praised by Chancellor George Osborne as a "victory" for the government, covered money owed since 2005 and followed a six-year inquiry by HMRC.

Lord Lawson said the arrangement showed corporation tax should be replaced with "a much lesser tax, bolstered by a tax on corporate sales".


Google are already actually minimising two separate taxes - VAT (a tax on sales) and corporation tax (a tax on net profits) - by booking the sales and the profits in low- or no-tax countries.

If the UK replaced corporation tax with a tax on corporate sales, they would discover that most of Google's sale to UK customers are from Ireland and have been for years, and that Google would pay even less tax than now.

So either Lawson is far stupider than I gave him credit for; he is working for Google et al; or he is just one of these Homeys/Faux Libs who would like to reduce corporation tax and increase VAT (the worst tax of all) accordingly because that benefits banks and landowners at the expense of the productive economy.

Friday 29 January 2016

Clever scientist understands and explains agglomeration...

… but fails to draw the obvious conclusion.

From the NY Times, h/t Pablo:

In essence, they arrive at the sensible conclusion that cities are valuable because they facilitate human interactions, as people crammed into a few square miles exchange ideas and start collaborations.

“If you ask people why they move to the city, they always give the same reasons,” West says. “They’ve come to get a job or follow their friends or to be at the center of a scene. That’s why we pay the high rent. Cities are all about the people, not the infrastructure.”

Having established what creates rental value, why not ask whom it belongs to? To say it belongs to landowners is like saying that fireplaces give off heat. They don't. It's the burning fuel that gives off heat.

As an aside, this further undermines the view that particularly high rents and prices in London are caused by shortage of supply. They are not. They are caused by the presence of large numbers of people and businesses (and the appropriate infrastructure to support it).

If you build more buildings, will you get more people and businesses or fewer..? Continuing the fireplace analogy, you can't cool down a fire by throwing more dry twigs on it.

Thursday 28 January 2016

Tories apply common sense to a funding issue...

… but only for the little people in 'the regions':

HOMEOWNERS* living in flood-hit areas could be forced to pay higher council tax adding insult to injury to thousands of homes devastated this winter by rising waters…

Environment Secretary Liz Truss said Somerset, where local authorities have been able to increase taxes 1.25 per cent to bolster defences, is a "very good" model" in evidence to MPs.

In total, six authorities are allowed to bump up council tax by 1.25 per cent above the cap of two per cent in 2016-17. But now it looks as though the scheme could be rolled out further.

When asked by MPs, Ms Truss said: "I think if you look at the structure for the Somerset Rivers Authority that now has the shadow precept so they are raising that funding locally and I think there's also a role for that as well. I think the Somerset Rivers Authority is a very good model."

… But Labour peer Lord Clark of Windermere said: "Flood defences are primarily a national responsibility and the Government shouldn't just pass the buck on to local authorities and in turn to local taxpayers."

Obviously, if it were a question of flood defences for London and the Home Counties, the Tories would probably see it as a "national responsibility", but there you go.

* Tenants pay Council Tax too, you know?

Wednesday 27 January 2016


Via @thomasforth, from Centre for Cities:

When it comes to productivity, size isn’t everything – at least not in the UK. Unlike the US and Germany, there is no clear relationship between city size (as measured by the number of residents) and productivity (as measured by the wage premium of each city once workforce characteristics are taken into account).

The three charts in the article plot relative productivity against major cities ranked by population in the UK, USA and Germany. The difference is huge in the USA (the trend line is steep), quite big in Germany and smaller in the UK (the trend line is nearly flat), if you ignore London which is well above the line.

Well duh. We could have guessed that...

1. The population of a city is just one indicator or factor. Just as important are links to other cities or indeed the rest of the world. The more other places you can get to, and the quicker/cheaper you can get there, then better. So the smaller the country and the quicker/cheaper the journeys, the lower the differential between smaller and larger cities. Or consider two similar sized cities, but one has an airport with flights to other business centres - the one with the airport will be more productive.

2. How do you define a city? Are Birmingham and Coventry separate cities for these purposes? No of course not. Bracknell and Wokingham, smallish towns in themselves, are well above the line (i.e. very productive). But they are just part of the M4 corridor, which is everything from Reading to Slough to Heathrow. Once you are on the M4, all these towns and the airport are within easy reach, in economic terms, they are one city.

3. Similarly, London and the M4 corridor and large chunks of the south east reinforce each other; good transport links, close together and three major airports etc. London is shown as having a population of 12.5 million on that chart, which is probably accurate if you include the whole hinterland and commuter belt.

4. This is why Berlin is so far below the line. It's the largest city in Germany with 3.4 million people, but it's stuck in the middle of nowhere (surrounded by ex-DDR). A couple of my cousins live and work there and they confirm that it is no great shakes, there are just lots of small businesses with negligible agglomeration effects.

5. The charts do not show absolute productivity, they show relative productivity between small and large cities. So the charts do not necessarily indicate that large UK cities fail to tap in to agglomeration benefits; they could just as easily be taken to indicate that small cities in the USA (or Germany) do particularly badly (especially if they are miles from anywhere).

6. If you look closely, they have messed with the horizontal axis. The horizontal axis on the UK chart is from 50,000 to 12.8 million. The one for Germany is from 50,000 to 3.2 million. This means that the trend line for the UK is actually even flatter than it appears, and if you removed London, probably would be completely horizontal.

And so on and so forth.

I've been Predicting this for a few years

From The BBC:

Apple has reported the slowest growth in iPhone sales since the product's 2007 launch and warned sales will fall for the first time later this year.

The US tech giant sold 74.8 million iPhones in its fiscal first quarter, compared with 74.5 million a year ago.

Apple said revenue for the next quarter would be between $50bn (£34bn; €46bn) and $53bn, below the $58bn it reported for the same period a year ago.

This would mark Apple's first fall in revenues since it launched the iPhone.

The smartphone is pretty much done. I've got a HTC One that is nearly 2 years old, and there's nothing compelling about any upgrades to it. So, the phones are pretty much a mature tech, like PCs and cars and bicycles. Yes, they'll be minor improvements, but the big changes are done. It's like how cars are a bit more efficient over where they were in the 80s, but that's nothing like the leap from the 1950s.

It also means that there's a ton of cheap, capable phones now. The Moto X is a great phone for £200. OK, not as good as an iPhone 6, but for most people they'd see what it does and declare it good enough. Can Apple keep on selling £500 phones if the £200 ones are good enough?

Monday 25 January 2016

They own land! Give them money!

Excellent number crunching by Joe Sarling:

If a new Starter Home has a discounted value of £450,000 or less and [is bought by an] FTB is under the age of 40, all three policies (20% Starter Home discount; £3,000 government ISA bonus; 40% government loan) could be used in conjunction (Figure 1).

When this happens, the Government effectively funds 53% of the home.

For "government" read "taxpayer" of course, I find that helps to clarify things.

Sunday 24 January 2016

She's Certainly elegant and stylish...

....but why did her parents name her after a carburettor?

Saturday 23 January 2016

Great Film (and free, sortof)

If you've got BBC iPlayer, there's a terrific film on there at the moment, a Norwegian film called Headhunters. It's about a recruitment headhunter who is also an art thief in his spare time. It's based on a Jo Nesbo novel, which makes me think I should read more of his stuff.

It's a brilliantly written thriller. Absolutely chuffing brilliant. I don't want to say too much - it's a thriller and wouldn't want to give away anything about it, but I will say that it's probably an 18 rating, so not for the little kids. And yes, it's got subtitles, but please don't let that put you off. I can get fed up with subtitles, but I wasn't bored for a second with this.

Is it my favourite Scandanavian movie? It'd definitely a close run thing with Let the Right One In.

Ice Cream Shrinkage

From the BBC

Unilever, the multinational firm behind brands including Magnum and Cornetto, is to make all its ice creams aimed at adults smaller.
Ben & Jerry's tubs and Feast ice creams are among those whose portion size will shrink, according to a report in trade journal The Grocer.
Unilever said the move was to help consumers "make healthier choices."

Hahaha. I hope whoever thought that up gets a promotion. You won't hear a peep out of the government or MSM about them ripping people off.

Friday 22 January 2016

Please sir, may we have some more?

From City AM:

Finally some good news: the FTSE 100 got off to a flying start this morning, gaining up to 1.8 per cent in early trading as dovish remarks from Mario Draghi sent investors' spirits soaring.

Global bourses surged, with Japanese stocks roaring out of bear market territory to make their second-biggest one-day gain in five years.

I can see why governments want unemployment to be low and the economy to be growing, and fair play if they interfere to try and achieve those, but why on earth do they want to prop up share prices? It's just as mad as propping up land prices (although considerably less damaging to the economy). Share prices are not fundamental or important in themselves; what is important is total output, total employment and of course the underlying profitability of businesses.

Which is one more argument for having deposit funded corporations instead of companies with quoted shares - DFC's don't have a share price to worry about. To the extent that the government interferes in the economy, at least it would be focusing on what matters - output, employment and profits. And seeing as output = wages plus profits, really all it needs to worry about is 'output', so an obvious first step is reducing taxes on outputs (i.e. VAT).


Typical, you wait for ages...

… and ages and ages, and along comes another prime number.

The largest known prime number is now almost five million digits longer than the previous record-holder.

In a computer laboratory at a satellite campus of the University of Central Missouri, an otherwise nondescript desktop computer, machine No. 5 in Room 143, multiplied 74,207,281 twos together and subtracted 1. It then checked that this number was not divisible by any positive integer except 1 and itself — the definition of a prime number.

This immense number can only be practically written down in mathematical notation using exponents: 2^74,207,281 – 1. The previous largest was 2^57,885,161 – 1, which has a mere 17 million or so digits.

So, just to sum up the last few discovered primes:

Jan 2016: 22 million digits
Feb 2013: 17 million digits
Sept 2008: 13 million digits
Jan 2006: 9 million digits
Dec 2003: 6 million digits
Dec 2001: 4 million digits

For some reason, they are usually discovered in December or January. A coincidence? I think not.

What is almost certainly not a coincidence is that you get a surprisingly straight line when you plot the number of digits against the year it was discovered:

Thursday 21 January 2016

A sensible plan for fixing the banking system.

From City AM Forum:

Deposit insurance has been the most sacrosanct component of the regulatory regime for banks since it was widely introduced during the 1970s following the collapse of the Bretton Woods regime. However, while it seeks to protect consumers against the undercapitalisation of banks and their tendency to collapse in times of stress, it has also encouraged such undercapitalisation.

Since the early 1970s, the number of countries with government insurance of customer deposits has increased tenfold while the number of banking crises worldwide has risen by a factor of almost 500 compared with the preceding 25 years. Deposit insurance subsidises an already cheap form of debt whose supply is almost unlimited for banks. Banks have therefore been able to operate at very high levels of leverage with very limited constraints on growth.

All very true. So what's the solution:

First, the abolition of deposit insurance after two years together with an amendment of the Financial Services Act 2013 to make all deposits preferential liabilities in an insolvency.

Second, legislation banning compensation paid to depositors as a result of losses they may suffer in the event of a bank insolvency.

Third, an announcement that National Savings and Investments (NS&I), the state-owned bank, would henceforth offer savings and current accounts to everyone; and

Fourth, a requirement that all deposit-taking banks publish prominently their capital/leverage ratios.

To really nail this down, we would of course have to add...

Fifth, public collection of all or a large part of the rental value of land to prevent credit- and land-price bubbles with purchase mortgages for land only available from the NS&I (private loans would not be recognised by HM Land Registry);

Finally, a strict ban on central bank lending to private banks and abolition of the 'lender of last resort' concept

Even if that were not full-on LVT, it would be the government collecting the interest on land purchases, i.e. quasi-LVT in a politically sellable form.

Wednesday 20 January 2016

It takes one to know one...

From the KPMG website:

Fraud in the UK reached more than £732m in 2015, according to new analysis by KPMG.

* Fraudsters target victims in financial distress
* Fraudsters falsify finances to entice investment, leading to losses of £176m
* Men over the age of 45 perpetrated nearly three quarters of total frauds by value in 2015

From IB Times:

Patrick McCoy, one of the top financial advisers in the UK, is among 10 people allegedly charged with tax evasion. Days after being accused, McCoy, the head of investment advice and fiduciary management at KPMG, stepped down from his role.

KPMG, which has been an adviser to the UK Treasury and some of UK's largest businesses, confirmed that one of its former partners had quit the company following an investigation by HM Revenue & Customs (HMRC) into his "personal tax affairs".

Is the UK going to stay in the EU?

Yes. Regardless of whether there is a Yes or a No vote (or Cameron bottles it and claims enough of a victory with his renegotiation).

Okay so, admittedly Douglas Carswell has a great sci fi vision vision of a beefed up Singapore and at least he's honest on migration:

“Our grandparents’ generation had to get to grips with the idea of importing strawberries from Spain and mangetout from Kenya. Today we live in a world where labour mobility is inevitable, and unless you want to become like North Korea you need to accept it. You can no more ban labour mobility than food imports.”

And diet Trump (Nigel Farage, obvs) has a slightly more scary vision of a little England (and to a Scot it sounds very England centric, odd that to a Scot he seems to want his own mini EU) that restricts migration and withdraws from the common market to regain control of "sovereignty". I get that there are people left behind by globalisation. I just don't have a lot of sympathy. Across my facebook these seem to be mostly the idiots who dicked around and thought that leaving School in the 90s at 16 and going to work in the box folding factory was a job for life. Under the UKIP migration plan the UK population would shrink by hundreds of thousands of people a year. And a falling population would mean a downsized economy. Which will probably bite all the UKIP voting pensioners who didn't save for their retirement (and sure as buggery didn't pay tax for things like free bus passes and TV tax exemption but somehow this is fairer than not forcing kids into brain mortgages). 

And of course Corbyn was quite anti EU until recently. I would imagine a Leftxit would involve a lot of doomed industrial activism and rapid nationalisations and probably some sort of nightmarish. beardy, geography teacher looking revolutionary guard. 

And while all that sounds great, if you are pitching something to Netflix to take on Amzon's the Man in the High Castle, it's probably not what is actually going to happen. Or at least not what is actually contingency planned to happen. 

The most likely outcomes are; 
1. Can we be Switzerland?
2. No? Okay we'll be Turkey then. 

Switzerland first. Switzerland is a Schengen signatory and accepts free movement (though they have some restrictions on new entrants). Switzerland signs up to almost all EU law, and pays almost as much into the EU as the UK does. Being outside the EU it can choose not to apply EU regulations but in practical terms, i.e. because it would lose access to the EU market in those areas, it has have never actually done this. The big disadvantages here are no voice in EU decision-making and no access to the EU's international trade deals.

Turkey next. Turkey has a customs union with the EU. It neither benefits from nor offers free movement to the EU, and doesn’t need to apply all EU law. However, it doesn’t get access to the single market or EU global trade but is still forced to open its market to everyone the EU strikes a deal with. 

The idea that the UK is going to become some isolationist bastion in the Atlantic and somehow ignore the huge trading block 20 miles as the celeb swims off the south east coast is just delusional madness. 

So Turkey or Switzerland (Switzerland is proxying for the whole EFTA). For me, Switzerland is the most likely outcome of a no vote but it is also the version that will feel identical to a Yes. 

Stamp Duty Land Tax - intended or unintended consequences?

From City AM:

A new report has suggested billionaires may simply rent prime properties, rather than buying them - and potentially save millions of pounds.

The figures, by Tunstall Property, suggest that for most buyers of ultra-expensive homes, following reforms to the stamp duty by the chancellor last year, it would take about three years' rental payments just to may off the stamp duty.

The shift to renting is only backed up by anecdotal evidence, but it seems perfectly plausible to me. Even in the normal world, SDLT discourages people from buying and selling, so when owner-occupiers decide to move, high SDLT makes it more likely that will retain their old home and rent it out instead of selling it.

On the other hand, Osborne came up with some half-baked plan to make people who were buying to let pay higher SDLT.

That might tip the balance back towards owner-occupation ever so slightly, but, as we see from the first example, if you want to encourage owner-occupation, it is just as important to reduce SDLT for owner-occupiers (from current levels) rather than increase it for landlords. Or indeed you could go on the safe side and do both.

Tuesday 19 January 2016

Feeble arguments for staying in the EU.

From yesterday's Evening Standard:

Millions of pounds could be cut from flagship London projects if Britain leaves the EU, campaigners claim. They published a leaflet, to be distributed to households across the capital, rejecting six “myths”, including that “the EU has done nothing for London”.

It states: “The EU has invested millions in important projects in London, including cultural programmes at the British Museum, £20 million funding for the cable car from the O2 to the Docklands, vital HIV and cancer research projects at London universities, and £1 billion of finance to help build Crossrail.” The European Investment Bank loaned Transport for London £1 billion towards the financing of the new rail line.

Culutural programmes - probably a waste of money.
Cable car - great fun but a waste of money.
Vital HIV and cancer research - good stuff, but isn't this being done anyway?
Crossrail - that was a low interest loan, the value of the interest saving is probably close to zero.

The article then makes the obvious point:

However, the document from Britain Stronger in Europe does not mention the billions the UK ploughs into the EU each year.


From the BBC

The failure of pollsters to forecast the outcome of the general election was largely due to "unrepresentative" poll samples, an inquiry has found.
The polling industry came under fire for predicting a virtual dead heat when the Conservatives ultimately went on to outpoll Labour by 36.9% to 30.4%.
A panel of experts has concluded this was due to Tory voters being under-represented in phone and online polls.
But it said it was impossible to say whether "late swing" was also a factor.

One of the problems I think with polling is how do you know when you have a cross-section of the population? You can probably write down some criteria, but are those right? And even within those criteria, what is the effect of the sort of people that do surveys vs the sort of people who don't? I don't do them for once simple reason: they don't pay me enough. I'm not going to talk to someone on the phone for 20 minutes for the chance of winning £250 of M&S vouchers where they won't tell me how many other people go into that draw. If it's 50 people, I'd be interested. But if it was an average £5 outcome, they'd just send me a voucher. So I think it's probably more like £1. Does it mean people who understand the psychology of competitions and probability don't do surveys, and what effect does that have?

As for "late swing", it's not "late swing". It's about stated vs received preference (virtue signalling) and people thinking harder about something when it has a cost. I've organised work trips to things and everyone's really enthusiastic until you ask for payment, then some people get a bit sheepish. The money forces them to go from "would this be awesome" to "and is it worth the money". The polling industry thought they had this nailed after 97, but I think it was more that the public didn't really see Blair as much of a socialist, much of a cost, so there wasn't much of a difference.

Monday 18 January 2016

… thus neatly proving his opponent's point.

Today's City AM Forum asked "Davos 2016: As the world’s elites ready themselves to attend, is the yearly meeting a complete waste of time?"

Philip Booth laid out his good case for "yes", the key sentence being this:

"Indeed, the whole set-up seems designed to promote the status of “rent seekers” – powerful people in business and NGOs who wish to obtain favours from government."

In putting the case for "no", his opponent neatly illustrated the sort of thing Philip Booth means by "rent seeking":

"Many of the biggest intellectual trends are launched to the mass market at Davos. A few years ago, attendees were issued with fitness trackers, now every ambitious middle manager has one. Then it was mindfulness.

Who knows what it will be this year? The World Economic Forum is the most important salesroom in the world. It is where consultants, management gurus and political advisers go to push their wares. An invite to Davos boosts your day rate.

It is the Paris fashion show for the corporate world. What was on the runway yesterday is on the high street tomorrow. It is also where journalists go to get a sense of what the biggest trends in the world’s boardrooms will be. What people are talking about at Davos this week will become the management fads of a few years’ time.

Fun Online Polls: Moving exams for Ramadan & Banning Donald Trump

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

Changing the exam timetable to accommodate Ramadan: what do you think?

It's an appalling idea - 90%
It's a great idea - 3%
Other, please specify - 6%

A good turnout with 126 votes, thank you to everybody who took part.

Bayard was in the minority and left a comment: "It's a fabrication of the press, designed to provoke just the sort of reaction below."
Next up, Donald Trump.

Whatever you think of him, his views are widely known and publicised, so it strikes me that it makes no difference whether he makes a speech in the UK or anywhere else. People will read about it or watch it on YouTube exactly the same. And he is certainly not a threat to UK state security or anything.

Nonetheless, there are plenty who would like to ban him from coming here. Our elected representatives are debating the topic as I type.

I think he is either a buffoon or a highly sophisticated Democrat fifth columnist, neither of which is a reason to prevent him from coming here, but let's put it to the vote.

Vote here or use the widget in the sidebar.

Sunday 17 January 2016

Why banning diesel makes no economic sense.

I don't claim to understand fully the various steps in this train of thought, and I doubt that there's anybody who understands all of them fully, but here goes…


Crude oil is a mixture of various different types of hydrocarbon molecules. The smallest/lightest are CH4 (methane gas), there is no precise chemical formula for petrol, which "constitutes the largest fraction of product obtained per barrel of crude oil. The hydrocarbons in gasoline have a chain length of between 4 and 12 carbons." Next is diesel, which "consists of hydrocarbons of a chain length between eight and 21 carbon atoms", and so on, all the way down to the heavy stuff used for heating oil

Heating oil "is one of the “left-over” products of crude refining. It is often less pure than other refined products, containing a broader range of hydrocarbons. Because of its contaminants, fuel oil has a high flash point and is more prone to autoignition. It also produces more pollutants when burned."


There are different methods of splitting up crude oil into its constituent parts, known as refining, which in turn means a combination of distilling, fractionating and cracking, different kinds of crude oil have different mixes of the various kinds of hydrocarbon atom and different methods of refining produce different results etc.

But by and large, for every three or four litres of petrol, you get one litre of diesel.

The environment

As a rule of thumb, the lighter the original molecules, the cleaner the stuff burns, so methane burns away to CO2 (carbon dioxide) and H20 (water) which are more or less harmless and the heavier stuff like heating oil churns out the most soot. Diesel molecules are heavier than petrol molecules, so generate more soot or 'particulates' in the modern jargon, which is unhealthy to breathe in as is widely documented.

The Kuznets Curve

Initially, new industrial processes tend to be very polluting. The polluters don't care and governments in developing countries are loath to tax pollution because economic progress always comes first. With the benefit of hindsight, the UK was a developing country for these purposes until fifty years ago; having got a fair bit of industrialisation behind it, PR China is now at the cusp where the population are starting to care more about air quality than just economic growth (the Kuznets Curve).

Taxes on pollution

We would therefore expect the tax on diesel to be higher than on petrol. As a result of a complete policy foul-up, diesel duty used to be lower than fuel duty in the UK, but once they realised that they had messed up the rates were aligned (it's a tax on road use rather than a tax on pollution). Interestingly, in Germany, apparently because of the haulage and farming lobby, diesel duty is lower and diesel is about twenty percent cheaper than petrol.

Capitalism and waste

Initially, factories and oil extractors don't care about recycling or minimising waste. As the economy grows, raw materials become more scarce and labour and power become more expensive. As technology develops, people find ways of reducing waste or putting by-products to some sort of productive use.

A few examples: the average miles per gallon of cars on the road has doubled over the past fifty years and the life expectancy of cars has doubled too. Bauxite is plentiful, but it takes huge amounts of electricity to turn it into aluminium, so recycling rates for aluminium are approaching 100% in developed countries (melting down cans for re-use uses one-tenth as much electricity as refining bauxite). Even two-thirds of steel is recycled. When trees were plentiful, sawdust was just discarded or burned; nowadays, a lot of it is used to make chipboard or mdf, which is a higher value use than just burning it for heat, and so on.

Efficient use of by-products

So what would happen if everybody got a 'conscience' and deciding to switch from diesel to petrol, assuming they don't want to run their cars on vegetable oil (there isn't enough to that to go round anyway)?

That would push up the price of petrol and mean that a larger amount of crude oil has to be refined, but they would still be left over with one part diesel for every three or four parts petrol.

Having gone to all that bother extracting and refining, it makes no sense to throw the diesel away. So the price of diesel would fall relative to petrol and some people would then ignore their 'conscience' and stay with diesel anyway, thus restoring the three- or four-to-one ratio between petrol and diesel use.

The economy is dynamic

There are no wild swings in the relative price and quantity of diesel vs petrol, because it is a dynamic process where the two opposing effects constantly cancel each other out.

Taxes on pollution (2)

To a large extent, it is futile taxing diesel more heavily than petrol even though the usual suspects are crying out for it. The tax is borne by the end consumer and assuming the end consumer is prepared to pay roughly the same for either, if petrol duty is cut and diesel duty increased, all that means is that the pre-tax price of petrol will increase relative to the pre-tax price of diesel by an equal and opposite amount to the tax differential.

The German example mentioned above runs slightly counter to this. The article explains that the pump price saving is largely cancelled out by the fact that diesel cars are more expensive to buy and the annual road tax is higher, maybe chuck in the fact that most people prefer petrol engines.

Saturday 16 January 2016

Daily Mail pulling no punches

Murder probe launched after business woman found 'knifed to death' inside her £450,000 rented home in exclusive village

Mourning Our Greats

This week we lost a couple of great creative people: Alan Rickman and David Bowie. Both huge figures in their field. Bowie, the theatrical, highly creative musician. Rickman, a great actor.

Personally, Bowie didn't hit me too hard. I have no doubt that he was a genius. But part of it, I think, is that his music never quite touched me like other music. It's well-crafted, it's interesting, he had a huge influence on other musicians, but I think maybe I like things that are a bit more soulful, or a bit more sexy.

I also think there's a thing about "our stuff" in there. I didn't grow up with Bowie at his peak. I started getting into music in a big way around 1981-2 and listening to the likes of Duran Duran, Siouxsie and the Banshees, The Associates, U2 and New Order. Bowie was the music for people 5-10 years older than me. And I quite liked 1984's Let's Dance, but it wasn't exactly pushing my buttons. It wasn't really anything revolutionary if you'd heard Madonna and Michael Jackson.

On the other hand, despite only really recommending 3, maybe 4 of his films, I was moved by the death of Alan Rickman. Few actors are that great on screen, at having that ability to create a character and make them completely believable, where you just don't see the acting. I cracked open the Blu-Ray of Die Hard that I'd only recently bought and watched it and at no point do you think "actor playing Hans Gruber", you just see Hans Gruber. You also buy Bruce Willis as John McClane, but when has Bruce Willis played anything much outside of that?

But I think it's also that Rickman was in "my stuff". I saw Die Hard on VHS soon after it came out when I was about 21 or 22. I saw Robin Hood: Prince of Thieves at the cinema. We're much more connected to the art that we grow up, the stuff from around 13 to 35 than what's before or comes later.

Friday 15 January 2016

I'm doing my bit for man-made global warming...

"Zac Goldsmith giving up luxuries for January"

From The Evening Standard:

Zac Goldsmith has joined the army of people who have given up a luxury to raise money for Great Ormond Street Hospital. The Conservative mayoral candidate will go without champagne, caviar or quails' eggs for the rest of January in solidarity with the sick children at GOSH.

Mr Goldsmith said: “Great Ormond Street Hospital is one of our most extraordinary, most valued institutions. It gives hope to so many families, it saves young lives. It has become a byword for ground-breaking research, life-changing treatment, complete devotion to very sick children.

“So when the brilliant campaign — Give It Up For GOSH — asked me to give something up as a gesture of solidarity with the children at Great Ormond Street, I agreed. But I did so very much aware that nothing I could give up would match or even come close to what is asked of so many of the children who depend on the hospital.

“I am in the midst of a frantic election campaign and there’s little time for proper lunch or dinner. So I depend on quick snacks of caviar with a couple of quail's eggs washed down with a glass of champers. Giving them up is a tiny act of solidarity with some extremely brave children. Great Ormond Street is a wonderful cause, and it deserves our support.

"I've even persuaded my chauffeur to join in - so this month he's going without crisps and chocolate."

Ricardo's Law of Rent/Wages, part the manieth.

Via City AM, from Landbay's Rental Index, December 2015:

Key findings

* Average UK rents climb 3.8%, twice as fast as wages...

Table 4: Top Ten 2015 Rental Fallers
1. Aberdeen City - annual rental change minus 12.8%
2. Aberdeenshire - annual rental change minus 10.2%

In other words, a year ago, about half of tenants' wages went on tax and essentials excl. rent and the other half all went on rent. Their wages went up by 1.9% tax and the cost of essentials remained approximately the same (price inflation +/- zero) so the balance, which all goes into rent, went up twice as fast.

Aberdeen wages are inflated by high wages paid in oil and gas industries, employment and wages in North Sea oil and gas have taken one hell of a knock over the past year, so rents have fallen disproportionately.

Simples. Basic maths and logic.

Funny how the Homeys happily trot out the statistics to back up the law of rent/wages; while simultaneously denying that the law of rent/wages exists.

Great diagonal comparison.

Via HPC Surivors, from MSN:

In April, the UK government will enforce a new fee on all home insurance customers that will require them to subsidise the insurance bills of people who continue to live in flood-risk areas.

Perhaps the most frustrating part of the new levy — which functions like a tax on home insurance sales — is that poorer people, or those who choose to live in more modest houses on drier land, will subsidise the insurance for the largest mansions in the riskiest areas near lakes and rivers.

That's typical Homey fare. On the one hand, they want subsidies for homes in flood-risk areas, but on the other hand, they want "somebody else" to pay for it. And they back up their arguments with a diagonal comparison.

You are only supposed to change one variable! For example, a fair or relevant comparison would be: "those who choose to live in modest houses on drier land will subsidise the insurance for the modest homes in the riskiest areas near lakes and rivers"

But MSN then redeems itself:

On its face [sic], this sounds completely bonkers. People should be incentivised to move out of flood zones, not given insurance protection to stay there.


Thursday 14 January 2016

I'm not Really Buying This

From the Daily Telegraph

Patrick is a junior doctor, but he’s not some pimple-faced new medical school graduate. At 33, he is a neurosurgery registrar at a leading hospital with eight and a half years’ experience and more than 1,200 brain operations under his belt.

For his expertise and his many years of medical training, he is paid the whopping great sum of… £39,000 a year. That is his basic wage, but on top of that he can earn another £13,000 or so for working unsociable hours at night and at weekends. Not that this is a choice, mind; it is required under his contract.

The medical world loves to use fancy words where a simpler one would suffice. I suspect to create some mystique and this is no different. "Registrar" is a fancy word for "trainee". When he gets through being a trainee, he'll be on something closer to £100K a year salary. That's for life, guaranteed job, nice pension. In some parts of the country, that makes you super rich.

So, on the first weekend of this year, while the rest of the country was sleeping off its New Year’s Eve hangover, Patrick started work at 8am on the Saturday and he finished his shift at midday on the Monday, 52 hours later.

During that time he was able to grab a luxuriously indulgent four hours of broken sleep but otherwise survived on copious amount of coffee.

OK, I'm calling bullshit on this. When I was younger than this guy, I used to pull the occasional all-nighter. A critical system failure had occurred and it was all hands to the pump. So, I went from 9am right through to the next 9am and beyond. I even tried to do a full day the next day. At about 3pm, I fell asleep at my desk. And yes, I was well caffeinated, but that just stops working after a while. You can only hit a certain level of caffeine before your body starts reacting to it, plus, you're pissing it out during the day. You can even try seriously loading up on caffeine, like drinking triple espressos, but then you start shaking and feeling ill (tried it).

I learnt that you pull the all-nighter, you get it fixed and then you get a cab to drop you home.

I can believe that someone had a couple of short nights... 4 or 5 hours sleep a night, but 2 nights of 2 hours a night? You'd be dysfunctional after the second one.

“We feel like we are being treated as the problem,” he says. “The assumption from Jeremy Hunt is that we don’t already work those hours, when we do. I already work regular weekends and nights; I worked over Christmas and over New Year. All Jeremy Hunt is offering is more unsociable hours for less pay.”

Well, yes. He is.

Patrick, like many doctors, is also sceptical of the Government’s claims that it is a lack of medical staff on duty on Saturdays and Sundays which is behind the higher death rate for patients admitted to hospital at weekends than on weekdays.

“We admit all the sickest people at the weekends – that’s why the mortality rate is so much higher,” he explains. “No one goes into hospital at the weekend who isn’t already very ill.”

That's a report that was co-authored by a far more experienced surgeon than him, Sir Bruce Keogh, so he might want to look into that.

Patrick says he personally could never consider leaving medicine – “I couldn’t imagine doing anything more worthwhile with my day” – but not everyone feels the same. Indeed, the NHS is haemorrhaging highly trained professionals every day.

Many of Patrick’s medical student friends and colleagues have either left Britain to work abroad or joined pharmaceutical companies on double the pay for family-friendly nine-to-five hours. Their skills and expertise, funded at great cost by British taxpayers, are now lost to the NHS forever.

Bullshit. First of all, almost no-one is leaving the country. The Daily Mail's scare story about this quoted figures of 3000 a year, up 1/5th on figures from 2008. So, 600 doctors, compared to 2008. Out of 174,000. Not exactly "haemorrhaging ". As for "pharmaceutical companies", that's probably a good thing. It's much cheaper to treat patients with drugs than surgery and so moving doctors from one to the other is good. I don't really care if they're "lost to the NHS". All that matters is if their training isn't being used for us.

The problem in this story, to me, is that it's basically an upper middle class strike, and this is just a rallying cry by another member of the upper middle class. I suspect that Jeremy Hunt knows what he's doing. Medicine is massively oversubscribed, gets nothing less than people with 4 As at A level (and I really doubt we need the elite students for the mundane shit that most GPs do). So he figures maybe they're overpaid and can cut pay, especially at the junior level.

Wednesday 13 January 2016

Often Problematic

From the Daily Mail,

Gary Lineker and his wife Danielle have split after six years of marriage amid claims that they disagreed over starting a family together.
The pair confirmed their divorce today, just over six years after the former footballer and actress were married in Italy in 2009, but they insist they remain on good terms.
It is believed that Danielle, 36, wanted to start a family but former footballer Lineker, 55, who already has four children, feels he is too old to father another.
The problem is here that older men like sex with young women, but often don't want kids, especially if they've already got some. But young women want kids, especially if like his wife, she's only got 1.

I'm surprised it's taken 6 years.

Economic Myths: Small developers need finance to buy public land.

There was a nice advertorial in today's City AM:

Hearing that the Prime Minister plans to open up public sector land for small-scale developments was a great way to start the year. Gaining access to land is a major hurdle that keeps too many small property development companies out of the market. All initiatives to correct that should be welcomed.

Yet lack of land isn’t the only barrier facing small developers. Accessing finance to purchase that land and put it to work is an even greater challenge; one that’s pushed as many as three in four small-scale property developers out of business in recent years...

No, we've done this before, small developers do not need a single penny of 'finance' to acquire publicly owned land.

Assuming public bodies were rational, they would sell their land for whatever they can get, and cut out the finance middleman by deferring payment of the purchase price until the units and finished and sold.

In the interim, the public body can charge the developer interest, which to all intents and purposes is the same as Land Value Tax. Either the developer pays the LVT interest on the outstanding amount as he goes along, or defers payment of that as well. From the point of view of the public body, whether they get their money today or in a couple of years' time is neither here nor.

Sorted. And there's no reason why the same principle can't apply to subsequent purchasers. Instead of borrowing money to buy the land and buildings, they just need to borrow money to pay for the value of the buildings and they can take over the existing notional loan on the land element and pay 'interest' to the public body on that.

Tuesday 12 January 2016

Fun Online Polls: Dry January & Moving exams for Ramadan

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

How will you respond to the new drinking guidelines? (choose all that apply)

I will reduce my consumption to 3 units a day - 3 votes
I will go without alcohol for 2 days a week - 1 vote
I will go without alcohol for the whole of 'Dry January' - 2 votes
I will ignore the new guidelines completely, they are a load of nonsense - 182 votes

Good. I was with the majority on this. And an excellent turnout, thank you to everybody who took part.
Moving from one bit of creeping Islamification of this once great nation to another…

Pupils taking GCSEs and A-levels face timetable shake-up to accommodate fasting Muslims

Personally, I am absolutely appalled by this on so many levels. I'm an atheist, I'm a default Christian, I'm a Westerner and a democrat etc.

I believe in education and what underpins it, i.e. routine. Ramadan moves forward by eleven days, so if they bring it forward each year for two years, in the third year the whole academic timetable will have to be pushed back by a month so that exams fall after Ramadan etc. FFS, if people want to do this stuff, then there are plenty of other countries where they can go and do it, there is no need for the UK government to muck up the lives of our own children.

And as a more rational Muslim (to the extent there is such a thing) wrote in yesterday's Evening Standard letters:

When we fast, we give up our natural right to eat [in order] to worship God and ingrain a sense of sacrifice. This is well understood in many Muslim countries, such as my grandparents' native Pakistan, where exams continue as normal during Ramadan.

The spirit of Ramadan is to tolerate our normal routine while sacrificing our right to eat. yet here, instead of sacrifice, we find Muslims being afforded extra rights to make their lives easier.

While the intention of the exam boards is admirable, in this case I don't think it's necessary - especially as Muslim children shouldn't be fasting until they are older anyway.

Syed Ahmed

So that's this week's (slightly belated) Fun Online Poll.

Changing the exam timetable to accommodate Ramadan: what do you think?

Vote here or use the widget in the sidebar.

Economic Myths: "North Sea Oil faces wipeout as prices keep on plunging"

From The Sunday Times:

The primary culprit for this collective collapse is the oil price. Brent crude has plunged from $115 in the summer of 2014 to $33 (£23) a barrel last week...

And so on.

Extraction costs in the North Sea are about $40 (£28) a barrel, so that looks like a loss making position, does it not (until and unless the oil price rises again, as well it might)?

Actually, it all depends on how stupid the UK government is.

The pump price of a litre of petrol is currently about £1. Ten pence of that is refining, transport and retail costs; the cost/value of the petrol/diesel is about 19p*. The other 81p is fuel duty/VAT collected by the UK government.

For North Sea producers to remain viable, they have to be paid at least £28 a barrel, call it £30 to give them a bit of leeway. If the fuel duty/VAT on petrol/diesel from the UK part of the North Sea were reduced by 16p from 81p to 65p, then the petrol/diesel could still be sold for £1/litre** and would thus be competitive with slightly cheaper foreign-sourced fuel.

This 16p a litre notional shortfall is halved once you take other tax receipts from oil companies and their employees into account (about one-third of the 25p a litre they receive = 8p?). Whether this 8p shortfall is worth taking on the chin depends on...
- how important the oil industry is generally.
- the general health of the Aberdeen economy in particular.
- savings in welfare payments.
- whether you want to reduce UK trade deficit (each barrel not imported reduces out trade deficit by 19p).
- the importance of retaining oil-sector skills for invisible exports.

Whether it is or not I do not know (but I strongly suspect it is).

If the government decides it doesn't want a shortfall at all, assuming that about half of UK fuel is from the North Sea, they could up the above fuel duty/VAT rates by 4p each and we're all sorted.

* One barrel = 159 litres costs £23. Three-quarters of that can be turned into petrol or diesel and the rest is other stuff. £23 divided by 120 litres = 19p.

* £30 divided by 120 litres = 25p, plus 10p refining, plus 65p fuel duty/VAT.

Ooh the irony...

Boris Johnson came up with another one of his self-aggrandising initiatives a while back, namely the 24-hour Tube service.

Predictably enough, the trade unions didn't like it and decided to stick with an 18- or 19-hour service and stage a 24-hour strike instead.

Shouldn't that be an 18- or 19-hour strike?

Monday 11 January 2016

Reader's Letter Of The Day, and...

DBC Reed alerts us to some pro-Citizen's Income letters in The Guardian, best of which was this:

… In order to pay for basic income, the most logical change to the taxation system would be the introduction of a land tax, the effect of which would be to reduce property prices and, in conjunction with basic income, stimulate the economy by putting more money into circulation. The net result would reduce inequality and have a negative effect on the income of rentier landlords who would undoubtedly see the measures as an attack on capitalism itself: yet another good reason to make it happen.

Bert Schouwenburg, International officer, GMB

The next letter provides a totally bizarre Killer Argument Against Citizen's Income, Not:

I think most Guardian readers would be instinctively drawn to the idea of the universal basic income as a signifier of a return to universal welfare, but we should be careful what we wish for. Charles Murray, arch champion of neo-liberal reform of the state, has been arguing for this for years as a means of eliminating forever the welfare state.

Karen West, Aston University

Dude WTF.

So the socialists say that people like Charles Murray wants to "eliminate forever the welfare state". A Citizen's Income is merely a radical simplification of the "welfare state", altho' it would get rid of most of the apparatus of the welfare state, i.e. most of the hundreds of thousands of civil servants working for the DWP and housing departments, plenty more at HMRC and so on. Perhaps that's what she means..?

(As an aside, I was at a Citizen's Income Trust shindig last year, and both Natalie Bennett and John McDonnell spoke in favour of it. Are they also "neo-liberal"? Sticking "neo-" in front of something to make it sound conspiratorial and evil is usually a sign that somebody has nothing to contribute.)

I've heard just as many authoritarians/right wingers complain that a Citizen's Income is some evil, neo-socialist stalking horse.

I have pointed out many a time that there are some overlaps between non-socialist left and libertarian right, and pretty much everything I support is exactly in that overlap. If done sensibly, a Citizen's Income would not be significantly more or less redistributive than the current welfare system and all the tax breaks it could replace, it's not really a political thing at all.

Can't these opponents on left and right agree between themselves whether it is a wicked far right idea or a wicked far left idea, and then we can then take on the winner?

UKIP must be laughing themselves silly over this...

From The Electoral Commission:

The Electoral Commission has today (8 January) removed the British National Party (BNP) from its register of political parties in Great Britain for failing to confirm their registration details with the Commission - a legal requirement that must be submitted annually...

The BNP’s statement of accounts were due on 7 July 2015. Their annual confirmation of registered details was therefore due on or before 7 January 2016. The Electoral Commission did not receive the notification by this date and is required by law to remove the BNP from its register of political parties in Great Britain.

Now that the party has been removed from the register, BNP candidates cannot, at present, use the party’s name, descriptions or emblems on the ballot paper at elections. The party can, however, submit an application to re-register at any time and their name, descriptions and emblems are protected under PPERA for two years to prevent other parties using them. Any application will be considered by the Commission in line with its usual processes for assessing new applications to register political parties.

"UK house price to crash as global asset prices unravel"

Via Home Buyers' Strike, from The Telegraph.

The article is full of statistics on credit volume, the oil price, share prices etc and other relevant background.

Surprisingly well-informed by Telegraph standards, but they let themselves down with this:

"The stock market collapse will also destroy wealth."

Share prices, like land prices, are not really wealth at all, and they are certainly not net wealth.

A share costs $100 - what does that mean? It means that somebody has paid somebody else $100 for it recently. The seller's net wealth is unchanged and the buyer still owns exactly the same thing, a smaller percentage of a company. Nine times out of ten, the fall in value of the shares is not because the company's prospects have got worse, it is to do with other factors. So no change in overall wealth.

In the one time out of ten where the share price has fallen because the company's prospects have worsened, then that fall will be included as part of overall GDP changes, and it is enough to measure that. If you add on the fall in imaginary wealth (like share prices) then you are double counting.

Sunday 10 January 2016

The London Green Party's "fair fares" idea.

This idea has some appeal:

Our three key measures are:
* the phased introduction of a flat fare structure, making zones a thing of the past, with the immediate abolition of zones 6 and 4,
* justice for part-time workers, with a daily cap that matches the rates paid by monthly season ticket holders
* a new 'ONE Ticket' allowing changes across all modes to close the gaps for people who currently pay twice when changing from bus or train to the Tube as well as ensuring that people changing buses pay only once for their journey.

"It's not fair that people in outer London pay so much more to get to work in the centre of the city - especially as it's also easier for people in the centre of town to use even cheaper or free alternatives such as hire bikes, cycling or walking," says Sian Berry, the Green candidate for Mayor of London.

Instinctively, it makes sense to make people pay more if they travel longer distances, but with local transport, people aren't paying for the distance as such, they are paying to get to work, mainly in Zone 1 or 2, or to get into Zone 1 for an evening out or to go shopping.

Currently, annual season tickets cost this much:

Zone 1 only - £1,296
Zones 1-2 £1,296
Zones 1-3 £1,520
Zones 1-4 £1,860
Zones 1-5 £2,208
Zones 1-6 £2,364

That's pretty flat already - a journey within Zone 1 is probably less than a mile, from the outer reaches of Zone 6 into Zone 1 is about fifteen miles, but it only costs twice as much.

But people don't pay to sit or stand on a train or a bus. It's a burden rather than a pleasure.

You could easily argue that Zone 1-2 prices should be higher than Zone 1-6 prices. If Journey A gets a commuter into town in five or ten minutes, then that's a much better service that Journey B which takes three-quarters of an hour to get you into town. That's exactly the same as rents being higher nearer the middle of town - people are paying their landlord for shorter commute times; why not have them pay the body actually providing the transport?

But it would be interesting to see what happens if there were a flat season ticket price of averaged out £1,860 or something. I strongly suspect that the behaviour of people in Zones 2 to 3 would not change that much, they would just pay the extra £300 or £600. Perhaps a few people in Zone 1 would walk to work instead? I also doubt that a £350 or £500 annual saving would encourage many more people to commute in from Zone 5 or 6. The only way to find out is to do it.

Another thing worth mentioning is that Transport for London's income is roughly half ticket sales and half subsidies. Rental values are a function of ticket prices, so a subsidy to travel is a subsidy to landlords. If the subsidies were abolished, an annual season ticket would cost around £3,500 a year (wild guess).

That would push down rental values by the same amount, i.e. instead of a working couple paying £18,000 a year rent and £3,500 for two annual season tickets, they would end up paying £14,500 rent and £7,000 for tickets. This effect would be stronger near the centre and less so on the outskirts, so abolishing the subsidies would be an indirect and slightly crude form of Land Value Tax on London landowners, as well as being a corresponding saving for taxpayers everywhere else in the country. So win-win, I think.


From the Standard:

Speaking to the Financial Times, Oli Khan, vice-president of the Bangladeshi Caterers’ Association said thousands of curry houses could shut because of pressures facing the industry.

He said a shift in home-cooking, takeaways and interest in foods from around the world had combined to create a “curry crisis”.

Personally, what's changed things for me is how good supermarket curries have become. They didn't used to be that good, but they've been improving and got to the stage where I don't buy takeaways. The jalfrezi or rogan is really about as good as the local takeaway. I might if I was in Birmingham where curries are cheap and really good, but they aren't in Wiltshire. If I want a curry, I go to Sainsbury's or Waitrose. It takes no more time and saves a load of money. And why wouldn't they be as good? Curry isn't some fine cuisine of individual cooking. It's meat in gravy, basically. You can do it at an industrial level.

Saturday 9 January 2016

Wrong Measurement

From the Independent

The Government is spending more money assessing whether people are fit to work than it is saving in reductions to the benefits bill, a damning official report has revealed

The study by the National Audit Office (NAO) found that the Department for Work and Pensions is handing over £1.6bn over the next three years to private contractors who carry out the controversial health and disability assessments. 

But at the same time, the Government’s own financial watchdog has warned that savings in benefits payments are likely to be less than a billion pounds by 2020 as a result of the new tests. 

Yes, and the police cost far more to run than the seizures of crime. That's not the point. The police, insurance fraud officers, the internal investigations departments of banks and benefits assessors are there to act as a deterrent to people taking the piss. That without them, you'll get more crime, fraud etc.

In 2011, the total cost of Incapacity Benefit to the UK was £13bn per year. 37% of people abandoned their claims during the process. That's not that assessors turned them down. They either saw the letter and knew the game was up, or during the process realised that their pisstaking wasn't going to work. That's about £5bn quid we used to spend that we didn't need to. And more than anything, that's why you spend ~£550m per year on assessors. Because if you don't, a lot of people will take the piss.

Note 1: I'm not saying the assessment system is perfect. I'm sure it mishandles some cases, and maybe it should err more towards paying people. But when 37% of claimants give up, you clearly need an assessment system as a deterrent

Note 2: Not blaming any colour of party here. Both used IB to massage unemployment figures.

Note 3: Yes, the assessors are probably expensive because government pay for it and have no idea how to do this stuff for a sensible cost, but they're still getting a good deal.

The Professor's New Clothes

There was some special pleading in City AM yesterday in an article titled Why financial markets matter for the real economy. His full paper his here.

He lays out the issue concisely enough:

Of course, real production requires funding. And so it’s clear that primary financial markets create value, by providing new capital to businesses. But the vast majority of activity occurs in secondary financial markets, where no new funds are being raised. Hedge funds, mutual funds, and other investors typically trade second-hand stocks and bonds, and do so among each other. Real companies are not involved, so surely they can’t benefit?

Although the answer is clearly 'no', he argues that the answer is 'yes'. It's worth reading the article in full just to see how threadbare his arguments are, but his logic boils down to this:

Many of the key drivers of a firm’s long-run value, such as its strategic positioning, are difficult to measure objectively. Like an efficient polling system, the stock price aggregates the information of millions of investors, each with their different viewpoints, and summarises them into a single number which can be used by anyone for free.

For example, a bank deciding whether to lend, a worker choosing which company to join, and a customer or supplier deciding whether to enter into a long-term relationship can use the stock price (in addition to other measures) to guide them.

It's clearly all nonsense (especially the bit about banks basing lending decisions on the share price!) and you will see why if you are prepared to consider the obvious alternative to having companies with quoted shares.

(Clearly, it's best if businesses are privately owned and that the profits accrue to the people prepared to invest in the business, we are agreed on that.)

That obvious alternative to plc's with quoted shares is a corporate ownership/financing model somewhere between a 'Limited Liability Partnership' and a 'building society'. Let's call it a 'deposit funded company' (DFC) for sake of argument.

A quoted plc raises money by issuing new shares for cash on the primary market. Investors get one vote for each share. Directors decide how much of the profits to allocate to general reserves and the rest is paid out as dividends. If the business makes losses, the shares go down in value.

If shareholders want to realise their investments, they can only sell their shares 'second hand' to subsequent investors on the 'secondary market'. This means that the directors of a quoted plc are largely insulated from their own bad decisions. They've got the shareholders' money with no obligation to return it. I know that theoretically a majority of shareholders could vote to sack them and replace them with new management, or vote for the company to be liquidated, but that hardly ever happens.

A DFC raises money in much the same way as a plc. Investors would deposit money into 'capital accounts' with them. Investors would get one vote for each £ average balance held in the period in question. Directors would allocate part of the profits to general reserves, and the balance would simply be credited to investor's accounts as interest or profit share, just like a building society or an LLP. If the business makes losses, this will be netted off with the general reserve and if the losses are huge, the difference will be deducted from 'capital accounts' like negative interest.

So far so good. The big differences are:

1. Investors in a DFC would realise their investment by withdrawing money from their accounts again - just like when you withdraw money from a building society account or when a partner leaves a partnership and is repaid his capital. That might be because they don't like the directors' decisions, because they want to spend the money or they want to invest elsewhere.

2. The amount an investor pays in to the business is broadly speaking equal to his share of the company's actual assets. If an investor buys shares second hand, what he is paying for is the value of future profits or dividends, which is usually (but not always) a much larger figure than actual assets but this figure is pure speculative guesswork, so fluctuates wildly and more or less at random.

3. Investor's total profit allocation in a year would be pretty much the same as the dividends they would have received, but expressed as a percentage of cash invested, it would be much higher than the dividend yield on shares.

4. The yield on a DFC account would be a very accurate reflection of how well or badly the actual business is doing. There is no smoke and mirrors, investors cash position would mirror the fortunes of the business very closely. Investors would look closely at the performance of the business and not be distracted by share price fluctuations. A DFC investor knows what return he is getting in near-cash, and he can compare that with previous years or with the return which other DFCs are paying. That is all be needs to know.

If you own plc shares, half of your total return is dividends, fair enough but these bear no relation to your pro rata share of the assets; it is more the case that the share price is a function of the dividends. And your share price gains or losses in a period bear little or no relation to your share of the assets, the business' actual performance or anything else 'real'.

5. If DFC investors are unhappy with directors' decisions, they will simply withdraw their deposits, so directors will get instant feedback on what 'the markets' want them to do. Or the whole thing will become much more democratic. Some directors might think it a good idea to branch out into new market or product XYZ but instead of just steaming ahead, they are more likely to ask investors to vote on whether they think it is a good idea.

If the business is in a real mess and too many investors want to withdraw at the same time, the directors will just have to put a stop on withdrawals for the time being. This is no different to trading in the shares in a company being suspended, or a quoted company becoming a private company again (private company shares are very illiquid).

6. With plc's, there is a primary market for companies to raise new capital, a secondary market for people to trade them later on and sporadic share buy backs.

With DFC's there is not even a need for a primary market, let alone a secondary one. The middlemen are completely cut out. Investors pay directly into and withdraw from 'the business'.

There would be no need for directors to stage gimmicky share buy backs when they run out of new things to invest in, because this would happen organically - if the DFC's business has run out of new things to invest in and is just accumulating surplus cash, then investors yields (expressed as a percentage of their account balances) will fall and they will withdraw funds to invest somewhere better, thus pushing up the percentage yield on the new lower account balances.

7. This will allocate real capital most efficiently. Ignoring risk premiums, investors will tend to withdraw and invest in such a way that each DFC is paying a very similar 'interest rate'.

8. It would also be a boost to employee share ownership. The value of plc shares depends on the company having the right workforce. So if an employee wants to buy shares in the plc he works for, he is paying for the value of his own future efforts - the harder he works, the higher the share price, which is a subtle form of debt slavery.

With a DFC, employees would rank the same as everybody else, if they invest in their employer, all they are paying for is a share of the actual assets used in the business, the same as a self-employed person having to pay for the assets he needs in his business, which is perfectly fair and reasonable.

9. There would be hardly any 'insider trading' or high frequency trading as there would be nothing to speculate on. This is entirely unproductive activity and their loss is proper investors' gain, improving returns to investors by a small margin. There would be little 'asset stripping', because it would be impossible to buy shares in a business at below net asset value. Investors would always be paying close to market value for the underlying assets.

What's not to like?

Friday 8 January 2016

Short List

Rivers called "Don".

Any advance on two: one in southern Russia and one in Aberdeenshire?

Via the comments: there's another one in South Yorkshire and another one in Ontario.

More feeble arguments for staying in the EU.

Nick Clegg in yesterday's Evening Standard:

... this is exactly what the anti-EU campaigners claim: that we can merrily leave the EU, stop paying our dues, refuse to play by the rules, but still get all the benefits of being part of the world’s largest marketplace and ask the other EU member states to shoulder all the onerous duties for us...

Or, more foolishly still, they claim that Norway or Switzerland are paragons of unfettered freedom which we should emulate. The truth is that both countries have to abide by all the EU’s rules and pay into its coffers, surrender control over their borders — all without having any say within the EU itself. So much for unfettered freedom.

That is a wild exaggeration. 'All the rules'? Seriously? On this very blog, Kj has explained how things work in Norway and SumoKing has explained how things work in Switzerland . Those countries do follow a lot of EU rules (voluntarily or otherwise), that much is true, but they still have a lot of opt outs. Those countries do pay in, but they only pay 'market access' fees of hundreds of millions a year, not tens of billions. They have not 'surrendered control of their borders' anywhere near as much as EU member states in the Schengen area. It is true that they have little say in EU rules, but the UK doesn't either, and at least they can opt out of many of them.

Second — and this is a point for the pro-EU side — remember that people tend to vote with the heart, not the head. The referendum will not be won by statistics, but by emotion. I don’t just mean flighty emotion about the virtues of international solidarity and co-operation. Fear of the unknown is a powerful — and legitimate — emotion too.

Politicians love stoking up a climate of fear to get their own way and accrue more power. What's wrong with research, education and rational debate..?

Finally, safety in numbers is a precious thing. Our age is defined above all by a profound sense of insecurity. Terrorism, climate change, globalisation, mass immigration — all conspire to create an overwhelming feeling of insecurity among millions of our fellow citizens. Yet we cannot tackle a single one of these forces on our own.

Terrorism? Home-grown terrorism is our own problem, but we survived the IRA. Terrorists benefit hugely from porous borders, the Human Rights Act and our membership of the ECHR, which are all part and parcel of being an EU member state.

Climate change? To the extent that you belief in it - are Switzerland and Norway really more at risk? Aren't we always told that there have to be global agreements involving the US, China and India? Whether those three large countries are negotiating with the EU as is or with the EU excl. UK is surely neither here nor. More to the point, it is not climate change as such which is the worry, it is particular impacts like flooding, and as we now know, it is the EU which encourages us to subsidise upland deforestation and deters downstream dredging, that's why we have had these terrible floods over the last ten years.

Globalisation? We love buying cheap stuff from China and going far, far away on holiday. We like French wine and German cars. We are happy if UK businesses export a lot to other countries.

Mass immigration? What most people get upset about is foreign workers - skilled or unskilled - pushing down wages, and as we know, most of those workers are from other EU member states. I accept that this is a tad hypocritical - given we like buying cheap Chinese stuff - but so what?

And if we remain in, Ms Merkel will try and fob off a load of genuine undesirables on us, shipped via France. See above re Human Rights Act and ECHR.

His only halfway decent point is that France will cut up rough if we leave - which ignores the fact that they have always taken the piss in flagrant violation of EU rules. I like to look at this way round. If we had never joined the EU in the first place and had a referendum on joining, what arguments would Clegg be making then? You can take all his waffle and easily mould it into arguments for staying out, can't you?

Thursday 7 January 2016

Torygraph reports common sense on Business Rates

Torygraph: Landlords bear brunt of rates rises, hurting wider UK economy

Now if BR were converted to tax the land element only, the Northern Powerhouse would become a reality as building or improving nice shops and offices up north would attract little or no UBR. London would also benefit as enhanced development would not increase rates and the landlord could keep the increment that they have actually produced themselves...

The old ones are the best.

Newsthump did the Sonny and Cher/Sunni and Shia joke yesterday, which was quickly removed again from the main site but can still be viewed via Google Cache.

The last time I did this one was eight years ago.

Wednesday 6 January 2016

"Family of murdered EastEnders actress demand answers over delay in finding bodies"

From The Evening Standard:

The family of murdered EastEnders star Sian Blake today asked why it took so long to discover the bodies of the actress and her two young children.

Police officers from the BBC found the remains of Ms Blake, 43, her sons Zachary, eight, and Amon, four, buried in the back garden of their bungalow in Weatherfield, yesterday, three weeks after they were reported missing.

A spokesman explained that it took time to obtain permission from the ITV to carry out a search at the location of the long-running soap opera Coronation Street.

Ms Blake’s partner Arthur Simpson-Kent, 48, is the focus of an inter-channel manhunt. He is believed to have fled to Channel 4 after he was questioned by police who visited their home and is currently filming a new series believed to be set in Ghana.

Media lawyers say the extradition proceedings will be protracted and do not expect Channel 4 to return Mr Simpson-Kent to the BBC for several months.

"Live well for less about the same"

Ooh the delicious irony of it:

BBC 22 December 2000:

Supermarket chain Sainsbury's has sold its Homebase DIY chain in a two-fold deal worth £969m. The arrangement will see its chain of stores sold to venture capitalist Schroder Ventures for £750m.

A further 28 sites, which were intended to house new Homebase stores, are being sold to Kingfisher, owner of DIY rival B&Q, for £219m...

Guardian 5 January 2016:

Sainsbury’s has made a £1bn move to buy Home Retail Group, the owner of Argos and Homebase, as it seeks to strengthen its business against the rise of the discounters and Amazon.

The supermarket group said it had made an approach to Home Retail in November, but its proposal was rejected last month...

For more of this pointless hilarity, see BT trying (but failing) to buy back O2:

BT (BT.L) has entered exclusive talks with the owners of EE for a potential 12.5 billion-pound acquisition deal to give the former UK state telecoms firm the top position in mobile as well as fixed line broadband services.

BT had been in competing talks with both the Spanish group Telefonica's (TEF.MC) rival mobile firm O2 and EE's owners, Orange (ORAN.PA) and Deutsche Telekom (DTEGn.DE), putting the 168-year-old fixed line firm in a strong position in negotiating for a return to the consumer mobile market after 13 years away...

A deal with Telefonica would have returned O2 to its original owner, as it was demerged from a heavily indebted BT via a share flotation in 2001 and subsequently bought by Telefonica in early 2006.

Well done everybody who guessed the oil price would be $40/barrel in December 2015.

The price of a barrel of crude oil had fallen from well over $100 in June 2014 to £70 at the start of December 2014, so I ran a Fun Online Poll in December 2014 with results as follows:

How low will the price of a barrel of oil fall over the next year?

$70 - 16%
$60 - 31%
$50 - 23%
$40 - 22%
$30 - 4%
$20 - 4%

So well done the 22% of people who went for $40, which is what it was last month!

As it happens, I voted $40, I explained why when I started the poll when price was still $70. Let's not get too technical about the different benchmark prices for different types of oil.

This was of course luck as much as anything - I would have been equally unsurprised if the price were now $140 again. It just strikes me that the inflation-adjusted price of oil hovered around $20 (in 2010 prices) for ninety years (1880 - 1970), which is presumably the average bare minimum extraction cost, and that it is reasonable to expect the price to fall back that low every so often. Everything above that is speculation and manipulation. $30 is probably the averaged out actual extraction costs nowadays, so $40 seemed like a reasonably floor to go for.

* If it were $140, the 'experts' would be queuing up to tell us why: tensions in the Middle East; drop off in supply from Libya, Syria and Iraq; the embargo on Iran; Russia-Ukraine pipeline disputes; North Sea oil running out; extraction costs going up.

And they would clearly be wrong, just the same as anybody can explain why the oil price is so low now. It is easy to explain why the oil price will fall back to extraction costs every so often - I just did. But it is impossible to say why it has happened now.

Tuesday 5 January 2016

Reader's Letter Of The Day

From The Evening Standard:

THE Government abuse of the word "affordable" knows no bounds. Describing starter homes, which will cost up to £450,000 in London, as affordable is not just dishonest, it actually damages the city's housing market.

It's easy to claim you're building a record number of affordable homes when you pretend that homes costing almost half a million are such.

Tom Copley, Labour's London Assembly housing spokesperson

Not the most original thought, but one that must be repeated every time the government talk about "affordable" housing. I'd consider something like £150,000 for a house or £100,000 for a nice flat to be at the upper limit of affordable, i.e. three times earnings.

And it's not like things were better when Labour were in charge (London Mayor until 2008; national government until 2010).