High oil and gas prices - probably just a short term thing.

Sure, gas prices are stupid high at the moment; oil is high but coming down (and the government should do some short-term patching up for those on lowest incomes to help them through), but I have faith that 'capitalism' and 'free markets' will sort this out within a year and we'll wonder what the fuss was all about.

For a start, the Yanks could stop being so prissy about Venezuela and Iran, for some long-held grudges that date back decades and have no real substance (see also: Cuba). Or the rest of the world could tell the Yanks to go stuff themselves and recommence buying oil from Venezuela and Iran (who are no worse than the Saudis, I'm not picking sides here).

There was, until a few months ago, global demand/consumption for oil and gas of X and a global supply/production of X, give or take, with clearing price $Y. We could live with that. Both supply and demand are inelastic, the slightest change in supply or demand leads to large short term fluctuations in price, but it always reverts to some sort of equilibrium (extraction cost for higher cost producers + profit margin).

In the short term, Russia will be selling less to European countries and more to other countries; but in turn those other countries will be buying less oil and gas from 'wherever they used to buy it'; so European countries can start buying from 'wherever those other countries used to buy it'* and we'll get back to $Y, plus or minus a bit.

Of course, there are short term practicalities to sort out with pipelines and shipping, and on average, supply routes will be longer (hence more expensive) than before, but that's small change in the grander scheme of things.

As far as electricity goes, the UK can - short term - start using coal and oil again (in the power stations that haven't been completely wrecked yet), and longer term, continue/press ahead with nuclear power stations (these options not available to the Germans, who are the idiots who got us into this mess). There seem to be plenty of new wind farms sprouting up, maybe they'll work out something clever with wave or tidal power... The more diverse your sources are, the better.

One swallow doth not make a summer, but it's still nice to see a swallow once in a while. Or, on a similar note, here.

* India is currently buying more from Russia and correspongly less from the Saudis, Russian oil being cheaper for them.

Socialism / Not Socialism

We (or maybe just me?) got ourselves into a long discussion on an earlier post that rather lost its way.  So I thought I'd try to make a bit clearer the point I was trying to make.  First of all I would expect that all of you know about the Nolan Chart? (I accept that it is a simplification).

 

 

Top = Liberty and Personal Responsibility

 

 

Bottom = Slavery and Personal Irresponsibility 

 

Now, the key point today is that I maintain the left v right is passé.  It's old hat.  What we really need to be talking about is top v bottom.  I do not consider myself either left or right.  All the evidence tells me that the left - aka socialism - does not work.  In fact cannot work.  And similarly the Right 'conservative' does not work. And in fact cannot work.

 

If you look at the history of conservatism in the UK it is exemplified by its ability to gain power by accepting the changes made by the Left.  It has 'conserved' things that were not previously thought of as Right wing or conservative.  And it tends to be authoritarian. Witness the way Osborne handed Draconian and arbitrary power to HMRC or the constant attempts to 'control' the internet. Finally by definition Toryism grew out of land ownership - i.e. rent seeking.

 

On the left the constant failures of economic rationing by bureaucrats, and because of the skewed incentives of those bureaucrats, will tend to lead to more and more regulationism and less and less economic freedom. The left defined itself by mis-defining 'capitalism'. It looked horizontally across the Nolan Chart.  It should have been looking upwards. It decided that on the evidence of that horizontal view markets were not good enough and that central planning by wise bureaucrats was much better. Keynes did not look up either.

 

In short both left and right will tend to trend downwards over time to the bottom. They will both end up as totalitarian regimes. (Witness Corbyn's threat to requisition houses).

 

The chart implies something else.  Without both economic and personal liberty there can be no Liberty.  Property rights (including sound money which is a form of property right) are fundamental to liberty. And this is why the Left can never embrace liberty.

 

But given that the Nation State is a Good Idea what is the least worst way of paying for it that does not erode liberty and economic freedom and uses the least possible coercion?  Enter Georgism.

 

To my mind Georgism achieves two things.  One, It raises tax income in an equitable and efficient way and two, if done properly increases liberty by removing the ability of the few rent seekers to suck the wealth away from the productive in 'economic rent'.  I see no contradiction between Georgism and Liberty. But then I am not an anarcho libertarian.

 

There is a lot more than can be said about this, but I wanted to be as brief as possible and to promote discussion.

 

So what do you think?

Free markets or subsidy junkies?

From Business Insider:

European markets rocketed upwards today on some sudden and positive hints of a Greek bailout deal at today's emergency European summit.

The Greek government is trying to negotiate a billions of euros in bailout money, and for the first time in weeks there are genuine signs of positive developments today. Athens stocks led the way — the index recorded a dramatic rise of 9% on Monday...

And so on and so forth.

So basically, share prices depend to a large extent on the continuation of the massive subsidies which somehow trickle their way from ordinary taxpayers and ordinary bank customers, via the Greek government and ultimately back to various large European banks (for whose benefit this whole show is being organised).

So while the stock exchange as such is a free market (anybody can buy or sell), a large part of what is being bought and sold is corporatist welfare.

Ed Balls, Syriza vaguely talk sense: shock

From City AM:

To those who say that Labour is anti-markets, Balls replies: “We have shown a huge understanding of how the markets work. Markets are really powerful in driving incentives but you need to write the rules of the game. Without them you get a lack of investment, collusion and a lack of competition.”

His first sentence is an outright lie, the middle sentence is correct and that last sentence sounds borderline Georgist, if only he realised landowners' role in the economy.

“Markets alone won’t deliver long-term infrastructure, or stability for the energy industry or vocational learning. Markets can not fund a basic science base. But a proper plan must understand the dynamism of a market economy and ensure that government plays its proper role in assisting that.”

Good list! That's what good government is all about, no more, no less.

(Yes, we know that he was quite senior in the last Labour government which got it wrong on both sides: two much intervention where it was not needed; not enough intervention where it was needed; and f- all 'investment' in roads, electricty generation or proper education. And we also know that, John Major aside, each UK government has been worse than its predecessor, so whether Labour or the Tories get in this year, they will be worse than the current Tory-Lib Dem coalition, but hey…)
-----------------------
From the BBC:

It is not just the poor who voted for Syriza but the middle classes as well. [Home] owners in Athens's leafy, northern suburbs were enticed with the promised abolition of a hated annual levy on [homes].

Known as "Enfia", the tax was introduced in 2011 as an emergency measure but made permanent under the previous government. Instead, there will be a tax on luxury homes and large second [homes].

Fair play, their Enfia was a lot less than our Council Tax but it was more like a Poll Tax. If they make it more proportional to land values, then that must be a good thing. We'll see.

Public v private

There is an insane belief fostered e.g. by the Tory Party that the private sector always does everything better than the public sector. The Labour Party says the exact opposite.

Please note, in this post I'm using the word 'government' in a vague sort of sense, you could also say 'the state' or 'the taxpayer' or 'collectively', it's all the same principle.

As per usual, they are both wrong what we end up with is the worst of all worlds:

- The government doing stuff it should not be doing and/or not doing stuff it should be doing,

- Even worse, the government sub-contracts stuff to the private sector at a higher cost than it could have done it itself,

You can mix and match these failings and double up the problems:

- the government flogs off borderline state-owned assets (viable in public or private sector) like the post office or social housing at a massive discount,

- the government decides that something unnecessary must be done… and then outsourcing it at an even bigger expense,

- the government fails to provide a public good allowing a lucky corporation to collect the 'rent', see.g. payday lenders.

- We can safely assume, that if there is real private demand for something, somebody will do it, so there is no need to delineate or define what the private sector should be doing. You can have some rules saying how they are allowed to do things, that's a separate issue.

One area where most countries have got it right, and which serves as a good illustration is road traffic.

The government decides where the major roads are going to go, pays for them to be built and maintains them. The government then covers the cost many times over by collecting part of the use value in taxes on motoring (mainly fuel duty and VAT).

The private sector then builds the vehicles and everybody uses the roads for whatever they see fit: haulage, passenger transport, business, commuting or leisure.

That's it. Just think about it.

We've tried nationalising the car industry and it was an epic fail. That's easy.

And if anybody seriously thinks that without government intervention we'd have any sort of road network worth speaking of is clearly living in la-la land:

- Without compulsory purchase orders, not a single road of note would ever have been built. (The same applies to the railway network, even if a lot of it was initially privately financed). As a result, there'd be less incentive to buy a car or vehicle if there's nowhere to drive to.

- "Ah yes," cry the Faux Libertarians, "But what about the M6 toll road? That's private!" For sure it is, but that is a little 27 mile snippet that is plugged into the whole national road system. If the government shut off road access to it at one end, it's value to the motorist would be precisely zero.

This is how they do it in the US.

Following on from the debate surrounding encouraging local people to allow fracking, the US is held up as a paragon of free market virtue.

Here's what Lynn had to say in The Telegraph.

"To create the kind of vibrant, fast-growing industry that has slashed the cost of energy in the US, and will soon make it self-sufficient again.

It is not just the industry itself that is valuable. In the US, shale has dramatically reduced energy costs, and that has led to a revival of the manufacturing industry.

One reason the industry has developed so fast in the US is that under American law the oil and gas is owned by the people under whose land it is discovered. If a developer finds it under your property, you make a fortune.

If the shale industry gets going, it won’t be the exploration licences that bring in the big money, it will be the tax on the energy produced, on the people working the rigs, and on the far larger number of jobs created by having significantly lower energy costs than our main industrial competitors. That is far more valuable in the medium-term than the revenues generated from exploration licences.

What Lynn conveniently neglects to mention, is the US has, with a few exceptions, an export ban on unrefined oil and gas. See here.

This causes a drop in the price, and by doing so, acts as a defacto land tax/citizen's dividend via lower profits/lower prices.

You can see why this approach is attractive in the US. Firstly, it side steps the whole thorny issue of property rights, and there is no visible  taxation. Good Commie free stuff. It also means there is a shortage of refined product abroad, which they can export, presumably at a mark up. Which can be taxed.

Sneaky, but hardly free market.

There is movement to loosen up these rules. In which case prices in the US will rise, landowners won't just be making an unearned fortune, but a bloody great unearned fortune.

Lynn then contradicts himself in the space of the same sentence. If the big money is the upstream taxes, prices would have to rise. Yet he then says prices will fall. Doh!

The truth is, unless we ban exports and produce a significant % of our LPG needs, we will be paying Global prices. Which are still set to rise.  Do we want to do it like they do in the US?

I'd say we are best of with a free market approach. And the monopolization of natural resources through exclusive property rights are incompatible (even if they can be somewhat mitigated by tax) with that ideal.

Picking Winners (Music Style)

From the BBC

Rock band Drenge are among 14 acts to receive a government grant to help promote British music abroad.

The Derbyshire brothers hit the headlines when they were endorsed by MP Tom Watson in a resignation letter to Labour leader Ed Miliband last year.

Other acts chosen include London grime MC Afrikan Boy, Scottish band Holy Mountain and composer George Benjamin.

The grants will be given to the acts' independent record labels to help market themselves overseas.

If there's one area of the free market that you don't want government to go anywhere near, it's the pop music market. There are thousands of acts that make it and lots that don't.

Even if you're talking about established artists, there's no guarantee that they'll make it in the USA. Robbie Williams tried and didn't break America. The biggest of the Britpop bands in America? Not Oasis or Blur, but Elastica. Whitesnake were bigger in the USA than here. Which might suggest that something that's less "rock" does badly, but then Radiohead did pretty well, as did Coldplay. And boy bands have a history of not exporting at all, but then along comes One Direction.

So, trying to work out who is going to sell abroad is almost impossible, even with acts that have sold well here. And really, if they've sold well here, haven't they made the money to invest their own money?

"Fifty years on from the Beatles arriving in America, the Music Export Growth Scheme will give more talented young British artists the chance to be successful on the international stage."

Up to £2.5 million in grants will be made available over a two-and-a-half year period. More successful applicants will be announced later this year.

And what grants did the Beatles get? Or Duran Duran? None. They, their record companies and management just did the work and got the pay when it worked.

Killer Arguments Against LVT, Not (229)

Spotted by MBK at stuff.co.nz:

Councillor Maher said he had "gone on about [LVT] for years" but the Government was in charge of the legislation and did not have the will to change it.

"It's an archaic tax based on land values that has no basis on people's abilities to pay. Just because people own a lot of property doesn't mean they have an ability to pay."

i. That's an equation with two variables isn't it? Like all true Home-Owner-Ists, he assumes that "the amount of land you own" and "your ability to pay, i.e. your income" are both completely fixed and a given, and that the economy has to be based on compensating such people by transferring "income" to them from other people who own "no or not much land and have higher incomes".

ii. In free markets (an anathema for Home-Owner-Ists), very little is fixed or a given and governments do not go round making cash transfers to favoured groups, it's just a question of allowing things to find their own equilibrium. In the instant case, one does wonder why or how people with low incomes managed to amass all this land.

iii. When taxes on earned income are replaced with taxes on land values, such worthy people (i.e. Poor Widows In Mansions and/or people who put farmland to inefficient use) will either reduce the amount of land they wish to occupy or try to increase their incomes, which are exactly the same market forces facing all tenants and first time buyers: if you want to live somewhere nice, either cut back on your other expenditure or try and earn more money (or some combination of the two).

iv. Once the dust has settled, we will magically find that for most people, the amount/value of land they occupy (and hence their tax bills after deducting personal allowances or Citizen's Income) will have been adjusted to what they can realistically afford, i.e. some proportion of their income, and henceforth "ability to pay" will not be a big issue.

v. Yes, of course there will be a few hardship cases - death, dole, disability, divorce etc, and under full-on LVT there would have to be a system of discounts/deferments for older people and/or a much higher Citizen's Pension. Details, details.

vi. How long would it take for everybody to downsize, upsize or rightsize? Five or ten years, tops.

The Falklands: free market fun

From today's CityAM Forum:

... the governments of the United Kingdom and Argentina would agree that those Falklanders who were qualified to vote would be allowed to do so in a referendum. The referendum would allow the settlers – who are English-speaking and English by custom, institutions and loyalties – to vote on whether they prefer the status quo, or whether they would agree ("yes") to an Argentine takeover...

The referendum would be designed so that Argentina could offer a cash incentive. Before the referendum, Argentina would deposit an amount (let’s say $500,000) in escrow in Swiss bank accounts for every man, woman and child who had proven their Falklands residence prior to the referendum.

If the referendum went in Argentina’s favour... then the funds in escrow would be transferred and Argentina’s unambiguous sovereignty over the Falklands would be established. Argentina’s cost, in this hypothetical, would be about $1.6bn.

Also relevant is that the UK spends on average about £100 million a year maintaining a military presence on the Falkland Islands.

Unfortunately, we don't know whether or how much oil is down there or what it's worth, this is important as well. If it is worth a huge amount like £20 billion, then the UK government would offer a larger counter-bribe to persuade the islanders to vote "no".

Arbitrage

The Daily Mail gives us a good example of arbitrage in action:

A criminal swindle of the nation's $64.7 billion food stamp program is playing out at small neighborhood stores around the country, where thousands of retailers are suspected of trading deals with customers, exchanging lesser amounts of cash for their stamps. Authorities say the stamps are then redeemed as usual by the unscrupulous merchants at face value, netting them huge profits and diverting as much as $330 million in taxpayer funds a year.

But the transactions are electronically recorded and federal investigators, wise to the practice, are closely monitoring thousands of convenience stories and mom-and-pop groceries in a push to halt the fraud, the Associated Press reports...

Illustrating yet again that the most efficient form of welfare is straight cash payments. If you ear mark a part of it for food, then those who want to spend money on something else will sell the food stamps at a discount.

Or shops will mark up all their prices and then offer discounts for cash payment, in the same way as Housing Benefit (welfare payments earmarked for rent) allows landlords to charge an HB claimant a higher rent than a non-claimant would be willing to pay to live at the same address.

Killer Arguments Against LVT, Not (175)

Bayard, who is not totally anti-LVT, came up with this one:

"... what I see as a genuine problem with LVT [is] the other side of the "free rider" effect so often highlighted on this blog (e.g. railway company spends millions of pounds opening a new station and everyone in the vicinity benefits from the increased land value without having to do a thing).

This happened in a town near me, where a run-down market town was transformed over a few years into a thriving, happening place by the efforts of a group of shopkeepers and other traders. They invested their time and money and suffered reduced profits to build the place up and, for a while, reaped the reward. Then, of course, rents in the town started to rise and so business rates went up, and much or all of the increased profit disappeared in the higher rates.

Or, to take a more extreme example, on many landed estates in the C18th and C19th, it was not worth the tenants doing anything to improve their farms, as the resulting increase in revenue would be entirely clawed back by the landlord in increased rent. "

To understand why this isn't a 'genuine problem', you have to:

a) be able to distinguish truly earned income (from running in or working in a business) from land rental income. It is then a case of matching the costs of running a business with the costs of owning land, and

b) be aware of market forces and the effect of competition.

1. The C18th and C19th landed estates issue is easily dealt with, of course there was little or no incentive for tenant farmers to improve their farms, but that is because they were expected to bear the costs of improving the land out of their earned income, while the extra income from the improvements was collected by land owners. In a free market, it would be the land owners who pay for the improvements and recoup the cost by charging higher rents, in the same way as most landlords are happy to pay for decoration and repairs to the housing they own as long as the extra rent they can collect it more than covers the cost.

2. If all the shopkeepers in Bayard's example were tenants, then the same logic applies. It is quite probable that the extra rents and Business Rates soaked up most of (call it two-thirds of) the extra profits they could earn, but for an owner-occupier shopkeeper, the extra Business Rates is only about a third of that two-thirds, so they were still massively ahead of the game; part of their extra profits were truly earned and part were simply because they happened to own land in an area where 'everybody else' is paying for improvements.

3. Then we have to remember the impact of free-market competition:

i. Let's assume that there are ten hairdressers in the area, all open 9-5 six days a week and there is demand for a hundred thousand hair cuts a year, so that's 4.0 hair cuts per shop per hour during normal opening times or 10,000 hair cuts per shop (2,500 hours x 4). And let's call it £10 per hair cut.

ii. Now, maybe one hairdresser is keen to earn a bit extra and opens an hour earlier and stays open an hour later to snaffle the early morning and late evening trade and his gamble pays off. The average number of hair cuts per hour now falls to 3.9, our entrepreneur does an extra 2,000 hair cuts a year (3,100 x 3.9 minus 2,500 x 4.0) and earns an extra £20,000 and all the other hair dressers notice that they are now only doing 9,750 hair cuts a year (2,500 x 3.9), suffering a loss of income of £2,200 each (figures rounded).

iii. If the other hair dressers are just as keen, then they will all extend their opening hours accordingly, until they recapture that lost income, and they will keep extending their opening hours as long as the extra income is sufficient to pay their earned income or wages for being in the shop (whether actually cutting hair or just waiting for customers). If they all open an hour earlier and stay open an hour later, then on average they end up doing 3.22 hair cuts an hour and they all end up doing 10,000 hair cuts a year (3,100 x 3.22) and earning the same amount of money. Who gains from all this competition - the customer, of course.

iv. Clearly, there is an upper limit; there is no point opening at five o'clock in the morning or staying open until midnight, because very few people want to have their hair cut at such an inconvenient time. But the fact that competition only helps the individual hairdresser in the short run and benefits the customer in the long run - when gains are competed away - is the whole argument in favour of free competition.

4. The same applies to collective efforts done to improve the whole area, whether this is paid for by the shopkeepers or the local council doesn't matter. If one high street becomes relatively more attractive, then sure, the people on that street will earn extra income, part of which is earned (supplying goods and services) and part of which is unearned (the fact that their premises are now in a more favourable location).

5. For sure, a full-on LVT would soak up the bulk of the unearned element, and the earned element would be entirely untaxed (under full-on LVT there is no income tax or VAT), but does this discourage groups of shopkeepers from getting together to improve their area? No, of course not - because the extra LVT is still a lot less than the overall extra income!

6. Furthermore, by and large, one high street's gain is another high street's loss. Shopkeepers in the unimproved areas will see that their takings and profits fall, and so the rental value and hence LVT bills also fall, but because the fall in LVT is less than the fall in takings and profits, they end up worse off. So what is their best strategy? It is of course to try and improve their area to recapture some of that lost trade.

7. With the hairdressers in example 3, they all extend their opening hours and end up with the same income as if they'd formed a cartel and restricted opening hours and customers end up with a better deal, as they can pop in before work or after work etc. it would be the same with the shopkeepers in an unimproved area near the improved area; the only way to claw back that trade is to do the same improvements, which boosts their income at the expense of all other areas (including the already improved one).

8. Sooner or later (hopefully) most or all areas will become improved and the incomes and rents will settle down to the old level - but we'll end up with much nicer high streets, longer opening hours etc etc. Or perhaps, once most areas are improved, they will end up snaffling all the trade that was formerly spread over a wider area, so they are using land more efficiently and the last couple of areas become marginal for shops and so we can use these for housing or something else.

9. I suspect that shopkeepers seldom make co-ordinated collective efforts to improve their area (there would still be a free rider problem - the minority of shopkeepers or owners of vacant premises who do not contribute will still benefit), in which case the local council is in the same position as the C18th and C19th land owners from example 1 or a residential landlord. The landlord knows it's worth putting in new carpets for £500 every three years if he can get £200 a year extra rent. But he's no incentive to fit brand new Persian rugs every year at a cost of £1,000 because tenants won't pay that much extra. We end up with the optimum quality carpets in rented flats.

10. If the council can spend £x million on providing more free car parking spaces, sweeping the pavements, having more bobbies on the beat, putting up Xmas decorations, having more benches or wider pavements, getting more bus services etc, and knows that this pushes up rental values so that the extra LVT income is >£x million they will do it. But there is an upper limit to what is worth spending money on, an extra fifty parking spaces might be a no brainer, and an extra hundred might be better than fifty, but there is no point in buying up and knocking down buildings and then losing the LVT therefrom in order to provide a thousand free car parking spaces.

11. And there is also competition between councils in the same way as there is competition between hairdressers (from 3) or different groups of shopkeepers (from 8). And however you argue it, we are still far better off taxing land values rather than earned income - not least because taxes on earned income increase the cost of carrying out the improvements in the first place, i.e. those improvements are normal earned income from the point of view of the car park builders, street sweepers, policemen, Xmas decoration installers etc and if these people have to pay income tax, it pushes up the market clearing price for their services.

Killer Arguments Against LVT, not (78)

Sobers adopts the tactic of ignoring everything I explain about what the tax rates would be, abandoning logic and knowledge of how free markets work. He kicked off the debate with the reasonable question:

"... are you disregarding the land usage entirely? Does a supermarket, generating millions of pounds of sales, pay the same LVT as a small factory (but on a similar sized plot)generating a few hundred thousand in sales? Or are you taxing somehow taxing the planning permission value as well, which is not locational at all, but in the gift of the local authority?"

To which, for clarity, I replied:

If they are next door or near each other, in same postcode sector - which is highly unlikely - then yes. Have you never noticed that industrial estates are normally either far out of town (where rents are lower) or in less desirable areas (near railway lines, sewage works etc)? So factory owner might well up sticks and move a bit further out of town.

Sobers then ignored the fact that in the post I had explained that the rate per sq yard of developed land per year would be between £30 and £60 for developed land in most parts of the country (city centres and London is different kettle of fish), and that this would raise sufficient revenues to replace all other taxes* and countered with this:

This is where your version of LVT falls down then. Because there are plenty of examples of different types of planning consents, in otherwise identical buildings, right side by side. Take any small town High street. You'll have totally different classes of retail shops, and offices, which will all have different values depending on what you can do in them, as the profits will vary with usage. But as their square footage is pretty much the same they will all pay the same LVT. Ordinary retail will be less profitable than a pub or takeaway for example. A restaurant will have different profitability to an estate agent's office. But due to planning restrictions they cannot all be whatever the most profitable use is. Planners won't allow you to turn your shop into a pub if there's one next door**, or a takeaway if there's already several in the street.

If the only thing you can do with a shop is the most profitable (because you're paying the same per square foot whatever) the high street will become a race to the lowest common denominator very quickly. Businesses that cannot pay the LVT will go bust, and unless the property owner can convince the local authority to grant change of use, it will stay empty. The high street will lose even more of the independent businesses that we all say we want to encourage - the quirky little shops that sell weird stuff, the old fashioned butchers, bakers etc.

???

OK - fun with numbers. Let's assume an average rate of £45/sq yard/year and imagine an average shop in an average village or small town, how big is the plot on which the shop stands? Let's call it 400 sq yards (maybe there's a car park at the back or something), so the tax bill would be £18,000; and at least a third of that could be covered by renting out offices or flats or storage space on the first and second storeys.

What's the current total tax + rent bill (whether publicly or privately collected) for that average shop (neither pub nor takeaway)? Turnover half a million, VAT = £75,000; profit and salaries £100,000, so income tax + PAYE about £40,000; actual or notional rent or mortgage interest £10,000; Business Rates £4,000, total = £129,000. There's a huge margin of error here, but it strikes me that whatever assumptions you make, the current tax + rent bill of £129,000 is an order of magnitude greater than a typical LVT bill of £12,000 (the overall balance of taxation would be shifted from 'businesses' to 'residential land', of course).

As a secondary issue, all these restrictions he explains are completely anti-free market; it's just barriers to entry to protect existing pubs and take-aways. Would it be so terrible if these were abandoned? What would happen? Would we find that all retail outlets across the whole country would close down, to be replaced by pubs and take-aways? In any event, why would the local council deliberately cut off its own source of tax revenue by preventing premises being put to their best use?

Even if the tax were 'too high' by some objective or subjective measure, all that happens is that the selling price of the building goes down correspondingly; if the landlord can't get any rent to cover the LVT and sells the building in a fit of pique, the discount that the purchaser gets will be enough to cover the future tax bill; the current landlord knows this perfectly well, so he might as well sell the building to himself (i.e. keep it). Having decided to keep it, and faced with an annual LVT bill of £x,000 and no prospect of future capital gains, wouldn't the rational landlord then make damn' sure he got a paying tenant in ASAP?

And as to Sobers' last bit (The high street will lose even more of the independent businesses that we all say we want to encourage - the quirky little shops that sell weird stuff, the old fashioned butchers, bakers etc), I am a free market liberal. Shoppers will vote with their feet. I would love it if the shops nearest to me sold computer supplies; guitar strings; and second hand books. And I wouldn't mind having an all night off licence and a VW repair workshop within a couple of minutes walking distance.

But clearly there is insufficient demand for that sort of shop where I live; it's all posh restaurants, cafés, ladies clothes shops, hair & beauty salons and a couple of take-aways. That's what people want, that's what they get. The fact that I would prefer something else is neither here nor.

* As a rough guide, the tax would need to raise about £300 billion/year. There are about three million acres of privately 'owned' developed land in the UK. £300 billion/year ÷ 3 million acres = £100,000/acre. £100,000 ÷ 4,840 = £21/sq yard/year, but people have twisted my arm into giving exemptions for pensioners, and no doubt there'll be special pleading for church yards, school playing fields and other such Righteous matters, and some of that land might be worth less than £21 anyway, so let's round it up a bit to be on the safe side.

** As well as a flat-rate LVT, there is the concept of 'discriminatory pricing'. I happen to know that you can increase the selling value of commercial premises by £100,000s if you obtain consent to use them as a pub or a betting shop. If the local council, in its infinite paternalist wisdom, decides that there 'should' be no more than two pubs and two betting shops on the High Street, then it can hold an open auction for two pub permits and two betting shop permits, which would bring in another 4 x £30,000 a year (or whatever). Surely it is far better for the council to collect that money and spend it on five-a-day advisors Meals-on-Wheels than for some absentee landlords to collect it?

Free Market Fun

There was a programme about food on Channel 4 yesterday called FOOD. Their roving reporter visited a Kenyan bean farmer, who seemed to be doing OK, and told us solemnly that out of the £1.99 we pay for a packet of Kenyan green beans in the supermarket, the farmer - after being ruthlessly exploited by the monopolistic UK supermakets, the evil airlines with their carbon footprints etc - gets about 16p, or about 8% of the purchase price.

We can look at that figure in two ways:

1. Out of £1 spent in the supermarket on UK farm produce, how much does the farmer get? At Sainsbury's, a kilo of potatoes costs about £1.50, and the UK average ex-farm price of 1,000 kilos of potatoes is £161, so the UK farmer receives about 9% of the supermarket price.

2. If you donate £1 to 'charity', how much does your intended recipient get? The charity knock off half for fund raising and admin; another half goes on bribes to officials and ends up in Swiss bank accounts; half of what's left is wasted on overpaying for projects; and those projects are often white elephants, so let's knock off another half again and assume that the intended recipient gets a tangible benefit worth 6.25% of the sum you gave.

So I'll continue buying the Kenyan green beans, thank you very much. I get the tasty out-of-season beans and the farmer and his workers get more money than if I'd given the £1.99 to a 'charity'.

A Triumph Of Free Markets

From a surprisingly detailed article in this morning's Metro:

Mephedrone replaced by NRG-1, Sparkle and MDAI after reclassification

A host of new legal highs are already competing to replace mephedrone as the next big party drug – with some being sold for a pittance. At least three new options are being rushed to market by online pushers who have little awareness of their dangers.

It follows the classification of mephed­rone, also called meow meow, as a Class B drug at the weekend after being linked to 26 deaths. Since it was made illegal, mephedrone has gone from £15 to £35 a gramme.

Drug MDAI costs £25 a gramme and is thought to be the most likely replacement. It was developed as an anti-dep­ressant in the 1990s and replicates many of the effects of MDMA, or ecstasy...

Well worth reading in full.

Debt-for-equity-swap Of The Week

A lot of people don't like the idea of banks being expected to sort themselves out via debt-for-equity swaps because they think that somehow debtholders are being 'forced' to lose money. Nonsense. The only serious alternative is government bail-outs, whereby the taxpayer is forced to give the banks money.

The good news is, if you just leave it to market forces, then debt-for-equity swaps are what will happen anyway, even though these swaps come in an infinite number of guises. From BusinessWeek:

RBS and its National Westminster Bank Plc unit offered to buy back some dollar-denominated preference shares with a face value of $14.3 billion, paying as little as 52 cents on the dollar, the Edinburgh-based lender said in a statement...

D'you see that? Those preference shares (halfway between shares and bonds - so the same principles apply) are trading at 52p in the £1. The pref holders have already lost 48% of their initial investment - provided they are offered a choice of 52p in cash; or ordinary shares or new bonds with a market value of 52p, then they shouldn't be too bothered.

The gimmick is that the old pref's had a nominal value of £1 but the cash paid out, or new shares or debts issued have a nominal value of 52p, so the bank can book the difference of 48p as a gain. It's not really a gain, it's just losses which have been crystallised in the hands of the bondholders, which have to be removed from the bank's accounts to prevent double-counting.

RBS, which is 84 percent owned by the government after it arranged a 45.5 billion-pound bailout of the lender, also said it converted $935 million of its 9.118 percent preference shares into ordinary stock. Investors in $548 million of the shares opted to receive a cash payout rather than common stock...

Again, d'you see the key word there - 'opted'?

RBS said it decided not to follow Lloyds TSB Group Plc in issuing contingent capital notes because it saw “limited benefits from doing so at this time...”

Which is a pity - those CoCo's are like rolling debt-for-equity swaps, something that Denis Cooper and I once dreamed up during an email exchange (not having realised that they already existed).

Weekend Corporatist Fun

From Yahoo:

...it emerged that BBC was going to announce the closure of the digital radio stations 6 Music and Asian Network next month in an attempt to appease a potential Conservative government by showing it that the Corporation understands the effect the deep advertising recession has had on commercial rivals...

The proposal to shut Radio 6 Music also met with the fierce opposition and protest from the music industry, which claims that it is a key component in breaking new bands. Over 60,000 people have joined online campaigns to save the station. The BPI, which represents the record industry, said that 6 Music was pivotal in kicking off the careers of bands including the Killers and the Ting Tings.

"This shows a fundamental misunderstanding about the way their music services work. 6 Music is not going to be replicated by the commercial sector," The Times quoted BPI Chairman Tony Wadsworth, as saying.

There was interest, however, from the BBC's commercial rivals. Clive Dickens, the head of Absolute Radio, said that the station would bid to buy 6 Music from the BBC. Absolute has double the listeners of 6 Music, but less than half the budget. "We would buy 6 Music from the BBC, both the brand and the network, and we'd run it more efficiently than they've been doing," Dickens said. (ANI)

Glorious.

Who's against closing 6 Music? Mainly the trade unions and the record industry (remembering that while BBC 6 Music is technically not 'commercial' broadcasting, it is in fact a series of advertisements for whatever songs they broadcast). I have a lot of sympathy for the UK music industry (whether pop music or West End musicals), but surely it's more efficient to reduce the tax burden on them (by scrapping VAT on CDs or theatre tickets) than it is to collect all those taxes and then to subsidise them, whether directly via The Arts Council or indirectly (by getting the licence fee payer to pay for a radio station to advertise their output).

But, despite what my namesake from the BPI says, along comes the private sector in the form of Absolute Radio, who can do the job for half the cost and is offering to pay for the privilege of doing it.

What's not to like?

Fun Online Polls: England & Estate Agents

Due to very good turnout in this week's Fun Online Poll, I shall call the result after three days:

Which do you consider to be your 'nationality'?

English - 53%
Scottish - 7%
Welsh - 4%
Irish (Northern or Southern) - 1%
British - 28%
Some other country - 2%
None of the above - 5%

To cut a long story short, over two-thirds of people who could have chosen 'British' actually see themselves as English, Scottish, Welsh or Irish (i.e. 88 out of 127). So as Wonkontsane suggested, politicians who try to push the idea of 'Britishness' are probably missing the point.

UPDATE: As James D points out (in the comments) out of 127 who were eligible to choose 'British', 9 chose 'Scottish' and 6 chose 'Welsh', i.e. 7% and 5% of eligibles, which is very close to their share of the population of the UK 8% and 5%, so by subtraction, English people are most likely to have chosen 'British'.
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There's a fine article on the BBC about people calling for 'better regulation of estate agents to protect consumers'.

"The Office of Fair Trading (OFT) has given a clean bill of health to estate agents in a year-long report into standards in the industry. The OFT said sellers should shop around to save money on fees. But an estate agents' body said the report had failed to propose "robust" protection for buyers and sellers..."

As far as I am concerned, this is just a smokescreen (and a pretty thin one at that) for existing estate agents to raise barriers to entry and hence boost their own profits. Remember always, that less competition = higher prices; fewer estate agents = incumbents get a larger slice of a larger pie; and that estate agents have high fixed costs (basically rent on their high street premises), so a ten per cent increase in income leads to a twenty per cent increase in profits (or whatever the numbers are).

Will this benefit 'the consumer'? Nope, IMHO, they'll end up marginally worse off.

So that's the topic of this week's Fun Online Poll - who will benefit more from the regulation of estate agents? Established estate agents or their customers? Vote here or use the widget in the sidebar.

Biting Sarcasm Of The Week

Prof. Alison Smith gives a potted summary of her own report in The Times:

... public sector pay scales are almost entirely uniform across England. Conditions of service are also negotiated and set at national level. This creates a fine lifestyle for professionals in areas where house prices are a fraction of those in London or the southeast. It makes it easy for schools in the affluent Wirral to hire teachers; more generally, hospitals in the north can find good permanent nursing staff, while trusts in the southeast scramble from agency cover to agency cover. But the positive side stops there...

However, the main thrust of her argument - and this is a good explanation for why certain parts of the UK are far more dependent on public sector jobs than others - is as follows:

Private employers who want a good quality workforce have to match or exceed what people can get in the public sector. (It is not just wages: it is also pensions and job security.) Poor regions and poor cities typically have bad road or rail connections as well as old industries that have died; one of their few, but genuine, competitive advantages should be lower wage costs.

By importing national pay scales for large parts of the workforce, we force local employers to match these. In other words, the way we set public sector pay directly increases private employers’ costs in our poorer regions and reduces their ability to create jobs for local people.

Anyways, the first thing I consciously heard on Radio 4 this morning was Prof Wolf calmly and patiently explaining all this. To give a 'balanced view', they had also invited Sarah Veale (who appears to be the TUC's head of equality and human rights) who had a shrieky whiney voice and constantly interrupted, repeating over and over again some mantra that "National pay scales protect jobs and ensure fair pay" or words to that effect, without stopping to consider that this policy contributes to high unemployment in large areas of the country. And there was me thinking that trade unions were supposed to be against unemployment! D'oh!

"Britain is a crowded island"

As we know, the key elements of the Home-Owner-Ist Manifesto is to oppose a) property taxes and b) liberalising planning laws. One of their favourite mantras is that Britain is a crowded island, which they miraculously use to support both a) and b).

Let's assume, for sake of argument, that Britain really were a crowded island (and let's assume zero net immigration to simplify matters). It's not of course, it's just that urban and sub-urban areas, where most of us live, appear to be crowded because we have restricted the amount of land we can develop down to one-tenth of the surface area of the UK (for purely political reasons without any economic justification), but hey.

Seeing as taxes have to be raised to pay for public expenditure (however high or low, separate topic), wouldn't the use of the "crowded island" mantra to justify restrictive planning laws actually support the argument in favour of more property taxes (and less taxes on income etc).
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To use an analogy: five students have clubbed together and signed up to rent a house with five bedrooms for £200 a week all-in. When they inspect the property, they realise that two of the bedrooms are big and light and three are small and poky.

Which is the best way for them to decide who gets which room and how to divvy up the rent?

a) They could agree (via some sort of auction process) that the two big rooms are worth £55 a week each, and the three small ones are worth £30. Everybody then gets what they pay for, problem solved.

b) First come first served. As soon as the front door is opened, they all burst in and each occupies the best room he or she can find, but they still split the rent equally five ways.

c) As the students parents are too wealthy for them to qualify for grants but not wealthy enough to pay for their upkeep, all the students do part-time jobs at evenings, weekends and holidays. They could allocate the rooms on a first-come-first-served basis and agree that the £200 will be shared proportionally to the amount that each of them earns each week.

If we take the way the rent is shared as a form of taxation, it strikes me that:

a) is the free-market solution and is akin to Land Value Tax;

b) is more like Home-Owner-Ism ("I was here first and it's moi laarnd" funded by a Poll Tax; and

c) is even worse than b) because it's like income tax, which would reduce everybody's net hourly wages by about half, meaning that there is actually little point in working and/or a huge incentive to lie about how much you've earned.
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So, in the analogy, as in real life, there is common expenditure that has to be shared somehow and a limited amount of living space (with some locations being far more attractive than others). If there was an unlimited amount of space, it would have little or no market value, of course, but that house is like our "crowded island".

I fail to see why the tax system of a country, whereby we share common expenditure according to some formula - should be designed any differently.

Just sayin', is all.

Free markets in everything ...

From the BBC:

Israel is to become the first country to give donor card carriers a legal right to priority treatment if they should require an organ transplant. The law has been changed to try to boost donation rates, as there is a shortage for organs for donation.

Seems fair enough to me.

Critics say patients should be treated on the basis of clinical need.

Well, they would say that, wouldn't they?

There was a similar moral dilemma posed on my law degree: should racist organ donors be allowed to stipulate that their organs may only be given to somebody of the same race? It struck me, yes of course they should. If you're a white guy at number ten on the list and a black donor insists that only other blacks may have his or her organs, then as long as they give it to a black person above you on the list, that still moves you up the list, doesn't it? And if the organs go to somebody below you on the list, well, what have you lost? Nothing, AFAICS, and the black person below you has gained enormously.

What's not to like?