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.

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.

Curries

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.

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?

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?

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...