Sunday, 22 October 2017

Cognitive dissonance in action

If you want to see cognitive dissonance in action, watch the Conservative party try to develop popular housing policies without contravening its loyalty to developers, landlords or free market fundamentalism. says Matt Wilde in the Guardian.

However, he goes on, in true Guardian fashion, to produce an example of a housing benefit claimant paying an exorbitant rent for a grotty flat as evidence that the rental market has failed and that rent controls are the only answer before trotting out the following (unsupported) untruth.

But (the smallness of the pre-Thatcher rental market) was largely because most people could either afford to buy or had access to council housing, so there simply wasn’t a great demand for private rented properties. That demand had to be artificially created – largely to the benefit of wealthy investors, certainly not in favour of the state or the tenants.

If you want to see cognitive dissonance in action, read The Guardian on anything to do with housing. They are quite capable, as above, of completely ignoring how the housing market actually works, while producing their pet theories as to how it can be made to work better. They completely ignore that the bottom end of the rental market, which is dominated by social housing and housing benefit, works differently to the rest of the market. At the bottom end, as Mr Wilde points out, social housing rents kept private rents low: why pay a lot for a privately rented flat if you can get a council flat for less, but also, as he fails to mention, the positive feedback of housing benefit inflates rents in the private sector ( 1. the level of HB is set by the the average rent demanded -> 2. the average rent demanded is set by what the tenants can afford to pay -> 3. what tenants can afford to pay is set by the level of housing benefit they receive -> back to 1.) If HB was capped at the sort of rents that Generation Rent are suggesting,

The campaign group Generation Rent argues that a living rent should be no higher than 30% of the average income, and propose that controls could be set according to council tax bands. By capping rents at 50% per month of the home’s annual band, they would be brought more in line with people’s earnings.


then landlords would be forced to lower their rents to that level or have empty properties.

That, and more social housing, would sort out the bottom end of the market. As to the rest of it, why should the government intervene to help out relatively wealthy middle class tenants?

Saturday, 21 October 2017

Welease Bwian!

From The Daily Mail:

Steel barricades are being erected on the coast today ahead of Storm Brian sweeping into Britain tonight, bringing 70mph winds and more than two inches of rain as the half-term holidays begin.

The wild conditions, caused by a 'weather bomb' over the Atlantic Ocean, are expected to cause widespread travel chaos with the worst weather forecast across southern and western England and West Wales tomorrow.

Defensive barriers have been put up in the Cornish town of Fowey - where Dawn French owns a £5million clifftop mansion - by the Environment Agency on roads most likely to be swamped as Storm Brian arrives.

Thursday, 19 October 2017

The explanation is probably the same as last time.

From The Independent:

Real wages across the UK declined for a sixth consecutive month in August. Growth in pay packets continued to lag behind a jump in inflation triggered by a dramatic fall in the pound since the UK voted for to leave the EU.

Official data on Wednesday showed that basic wage growth was 2.1 per cent during the three months to the end of August when excluding bonuses, unchanged from the previous three-month period and marginally higher than the 2 per cent pencilled in by analysts, but well below inflation.

Figures earlier this week showed that inflation had hit a five-year high of 3 per cent in September, piling fresh pressure on the Bank of England to raise interest rates next month...

“Pay packets are taking a hammering,” said TUC general secretary Frances O’Grady. “This is the sixth month in a row that prices have risen faster than wages. Britain desperately needs a pay rise. Working people are earning less today in real-terms than a decade ago...”

Wednesday’s data also showed that job creation across the UK is continuing, albeit at a slightly slower pace. The number of people in work rose by 94,000 during the period, about half the increase in the three months to July but still a relatively strong rate of growth.


Last time we had headlines like this, somebody delved a bit deeper and worked out that wages for existing jobs were increasing as normal, in line with inflation but that all the extra jobs tend to be lower wage jobs, which drags the overall average down.

Which sort of makes sense; if a local manufacturer pays good wages, then people have extra money to spend on coffee, dragging average wages down You wouldn't expect loads of coffee shops to open up first paying low wages and then magically a manufacturer to set up business there, dragging average wages up

This effect also explains why UK productivity/productivity growth is so low. The reverse applies in France, which has much higher unemployment, but average productivity of those actually in work is much higher than in the UK.

The Germans have a different mentality and score well on both counts, of course, but then again, they have ghastly anti-capitalist measures like explicit and implicit rent controls, which is why they are all so desperately poor.

Wednesday, 18 October 2017

Reader's Letter Of The Day

The Evening Standard published three scathing letters on the subject of the proposed reduction in Stamp Duty Land Tax "to help hard-pressed first time buyers get on the property ladder", including mine:

There is no doubt about it, a stamp duty cut will feed directly into higher prices, as a seller can increase the price by the amount of the stamp duty reduction, leaving the first time buyer no better off. Exactly the same has happened with Help to Buy, which the large builders have admitted is the main reason for their recent profitability.

Rather than pumping ever more money into the private land market, we would be better served if Help to Buy was scrapped and stamp duty and regressive Council Tax were replaced with a flat Land Value Tax, which is both progressive and efficient.

Mark Wadsworth, Young People's Party

Some Tories ne-e-early get it.

Tim Montgomerie in The Sun:

A YOUNG person from a town or city that has seen its main industry close has two choices – if you can call them choices.

Choice one is they move to London or another prosperous part of South East England. They’ll get a job but half their earnings will be spent on commuting and on renting, in all likelihood, a small room in a shared, cramped flat. Given the house prices in Europe’s financial hub — pushed through the roof by Russian, Chinese and Middle Eastern money ­— the chances of our young person ever owning their own home is about as high as a female getting paid the same as a man at the BBC.

The alternative youngster is staying in the post-shipbuilding, post-coalmining, post-steelmaking, post-post office community of their upbringing. As post offices, libraries and other amenities close, high streets become low streets ­— filled with bookmakers, payday loan outlets and second hand clothes shops.

That ugly choice wasn’t spelt out by Labour’s Jeremy Corbyn but by Ruth Davidson, the Scottish Conservative leader. By winning seats in June’s election, she can claim to have kept Theresa May in Downing Street — albeit only just.

Davidson has earned the right to be heard by her party — and in an essay published on Saturday she called for a “bold”, “ctrl-alt-delete” reboot of capitalism and an end to the hardships many vulnerable Britons can see no end to.

She is not an opponent of the economic system that has produced so much prosperity across the planet over recent decades. She correctly declares that “the world is a richer, healthier, better educated and more equal place than at any time in my lifetime” because of free markets and free trade.

But if life is better for Chinese shipbuilders, it’s not better for British shipbuilders. If life is better for inventors of robots, it is not better for the workers replaced by them.

When only 19 per cent of British adults think the next generation will be better off and half think their children could be worse off, it is not surprising that a politician such as Mr Corbyn, who promises a change of direction, is more popular than a Prime Minister who promises to be “strong and stable”...


[Ruth Davidson] targets CEOs who get high pay awards but run unsuccessful companies. Also in this kickboxer’s sights are companies such as Amazon for not paying fair taxes or wages. Then there are the new monopolies who use market dominance to crush competition and cheat consumers.

Some right-wingers will complain that Davidson sounds like a Lefty, but that would make Adam Smith a Lefty, too. Smith, like Davidson, was a Scot and his writings of 250 years ago are seen as the first and best guide to the benefits of free enterprise.

But as Davidson argues, much of what he wrote is forgotten by those capitalist fundamentalists who claim to be his heirs. Smith, after all, attached words such as “mean and malignant”, “sneaking”, “vile” and “falsehood” to the behaviour of some business people of his time.

And the British people, such as Smith, Davidson and Michael Gove — who has encouraged a distinction between the “deserving and undeserving rich” — are not against all business people.

They see some wealth as merited, some not. Eight in ten, for example, happily accept that inventors of products and services deserve their money. Only 17 per cent, however, say the same of top bankers. Only three in ten see property investors and chief executives as deserving of their wealth.

And the people are largely right. Banking, property and corporate pay markets are distorted by central bank policies such as quantitative easing and by government policy such as planning controls and banking bailouts.

Ruth Davidson recognises that if Mrs May does not cut back the favours that give capitalism a bad name, voters may turn to a politician like Corbyn. If he wins power, it won’t just be the undeserving wealthy who are closed down. His taxes and regulations will produce the biggest closing-down of modern times.


The bit that neither they, nor Corbyn, nor most of the great British public understand (or do understand, but only mention en passant) is the distinction between "rent" and "monopolies" (bad) and proper free market liberalism (good). They try and tip toe round the topic, because following that line of thought would lead to the realisation that "Neo-liberalism" is just the tip of the Home-Owner-Ist iceberg; and that while taxes on output and earnings are bad, some taxes are actually good (or at least a lot less bad).

Tuesday, 17 October 2017

Fun Online Polls: LVT vs Wealth Tax; the North South divide

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

3% of £80 is more than 0.5% of £100. So what would raise more revenue - Land Value Tax or a general Wealth Tax?

Land Value Tax - 94%
A general Wealth Tax - 6%


Thanks to all 33 who took part, a low turnout but an arcane topic.

I would have thought the maths was obvious, but I got some real grief from two acadamics/communists/Homeys (their stand point was not clear) on Twitter who demanded that I refer them to a 'study'. I asked them what they thought the figures were and they refused point blank to even give a hint as to what they thought the numbers might be. They just insisted I was wrong.

For sure, my numbers are rough and ready, but the principle stands.

1. Land and buildings are at least two-thirds of total household 'wealth'. The net cash is negligible (one man's mortgage is another man's deposit) and the rest is largely shares/pension funds.

2. We know from the French that there approx. 1% wealth tax rate was driving wealthy people abroad, which is why Macron wanted to exempt everything except land and buildings. By exempting non-land 'wealth', he reasonably expected to increase overall tax receipts (to howls of outrage from Homeys and Socialists alike).

3. Politically of course, you can only apply a wealth tax to the 'wealthy' so there is an arbitrary threshold of EUR 1 million or something, pushing potential receipts down much further. Imagine the outcry if they had abolished the threshold and made everybody pay on everything.

4. Applying a wealth tax to cash is madness anyway, there's already income tax on interest income from cash savings (ha!) and a stealth tax on cash savings called 'inflation'. Applying wealth tax to shares is also madness, as dividends are gains are usually taxed. The more cash and shares you have, the more tax (income tax, inflation tax and capital gains tax) you pay. That's quite enough tax.

5. Unlike the critics, I have at least prepared one wealth tax return, back in Germany in the 1990s. Their wealth tax was about 1% p.a. with a high threshold, at the last count it raised about EUR 5 billion a year whereas their very modest Domestic Rates (Grundsteuer) raises EUR 20 billion a year, which is a small fraction of one per cent of what houses are worth.

6. In the UK, the closest thing we have to Land Value Tax is Business Rates, which works out, coincidentally, to about 2% - 3% of what the land and buildings would sell for. Council Tax/the TV licence fee are a distant poor cousin of LVT (being very regressive) and those two between them raise £30 billion a year, less than 0.5% of what houses are worth.

7. The closest thing we have to 'wealth tax' is Inheritance Tax which raises a modest £4 billion a year, assuming a death/inheritance every 40 years that implies an annual rate of about 1% on the value of 'wealth' over a relatively low threshold (£325,000). Those above the threshold own a disportionate amount of 'wealth' (probably at least half of all of it) so an annual wealth tax of 1% on all 'wealth' would raise maybe £10 billion a year.

8. The real world also tells us that most countries have some sort of tax on land and buildings; very few have 'wealth taxes' in the narrow sense, which gives us more clues. Not that academics/communists/Homeys have ever put much thought into this.
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A recent article in The Daily Mail on the North-South divide said that it started when the Vikings invaded in the north east; they got as far as a line from London to Chester, with our greatest King ever (Alfred) holding the line to the south-west. The modern A5 road, which in turn runs along an old Roman road between their two major outposts (pushing the origin back even further) is the modern border. From south-east to north-west, in other words.

That's all news to me. As a born Northerner who's lived in London half his life, I always assumed that that the true north-south divide runs diagonally in the opposite direction, from Bristol to Norwich, from south-west to (slightly more) north-east.

(Watford Gap is pretty much where the two lines cross, giving it extra significance.)

In the south there are more Tory MPs, higher house prices, smug Home-Owner-Ists and rent seekers*, drier and sunnier weather, lovely country lanes for driving on, more arsehole drivers on the motorways, flat countryside with no lakes or mountains, containing London and a few little towns.

The north is the opposite; more Labour/SNP/Plaid Cymru MPs, cheaper houses*, more people with proper jobs, terrible weather, fewer good driving roads (A66 excepted), courteous drivers who stick to speed limits, dramatic valleys and mountains, rivers and lakes, dotted with medium sized towns.

* The BBC published some good stats on inflation-adjusted house prices since 2007 today, the line between 'winners' and 'losers' is pretty much Bristol to Norwich.

So that's this week's Fun Online Poll.

The UK's North-South divide runs from... Bristol to Norwich or London to Chester.

Vote here or use the widget in the sidebar.

If only we could get Jeremy Corbyn The Adam Smith Institute to understand about capital

From here, on the topic of Uber:

Because they've all been making great gaping losses as they start up, meaning that they've needed capital to exist. And that's the problem with cooperatives, the only capital, by definition, that is available to them is what the workers are bringing to the table themselves*. Uber has swallowed however many billions it is and still makes gargantuan losses.

My reply:

In principle you are correct and Corbyn is wrong anyway, but Uber is a very poor example.

Most of the money they raised was spent on advertising (the same goes for all these intermediary companies). Uber's actual app works fine but is just one of many dozen such apps which work just fine. Uber's main spend was on somehow securing a quasi monopoly position (footnote 1) by bombarding us with advertising, which is not capital at all, it is a monopoly position (or 'land' to use David Chester's classifications).

Footnote 1) Clearly, passengers want to use the app with most drivers and drivers want to use the app with most passengers, and it is far more efficient if everybody uses the same app, or marketplace. So being Number 1 gives you a huge advantage. but simply owning the marketplace and skimming off from buyers and sellers is not contributing to the overall functioning of the market, it is hindering it.


Inevitably, a Faux Libertarian wades in:

A 'quasi-monopoly' is not a monopoly at all. Its not even close to a monopoly.

All Uber's done is promote its brand - like every other business that's ever existed.

Sure, advertising is not capital - but the brand is.
1.Uber doesn't 'own the marketplace' for ride-sharing.
2.Uber developed the app - shouldn't they get a share of the wealth that people using it create?
3.Uber maintains the app - so shouldn't they get a share of the wealth that people using it create to support maintaining the app?


(1. Clearly, Uber does own the 'marketplace'. Uber IS the marketplace.
2 and 3, straw men arguments. Return on capital or payment for services provided is different to monopoly super-profits.)

To which I replied:

So you simply refuse to acknowledge the existence of 'agglomeration benefits'? Do you not grasp that Uber's actual capital (their clever software) is no probably better or worse than dozens of competing app's which have fallen by the wayside, simply because there is no point being number 2 or 3 in the market? It is what's called a natural monopoly. I suppose you could short circuit this and deny that any monopoly has ever existed anywhere, because they all required some modicum of business acumen or luck to get them started.

* On the facts, the original argument is weak anyway. Uber has spent $1 billion on advertising over the past few years and has signed up half a million drivers. That's a few $100 per driver per year, a trifling sum compared to what drivers spend on cars, depreciation and other running costs.

Had drivers had the nous or initiative to set up their own app and just all sign up to it, it would not have required any massive advertising campaign. The spend would not have been a few $100 per driver per year, it would have been a one-off cost share of less than $100 and running costs would not be 20% - 30% of fares, it would be 2% or 3%, like any normal payment handing charges.

By default, every passenger would use their app because there wouldn't be anything else. So less 'capital' (i.e. money) would have been spent. What Uber was really spending on was persuading drivers and passengers to sign up to something which they could have done themselves for virtually no cost (had they had the nous and initiative, which they didn't), hoping to harvest the agglomeration benefits for themselves in future.

Saturday, 14 October 2017

Yeah, but whose back garden?

From The Daily Mail:

* Kieran Evans was given keys to 'iKozie' home in Barbourne, Worcester after it was air-lifted into a back garden

*Thee 186sq ft (17.25sq m) space includes bedroom, kitchen, bathroom 'module' and an entertainment zone

* Project, believed to be first of its kind in world, is aimed at solving Britain's homelessness and housing crisis


The article doesn't say. At a guess, it's his parents' back garden and there's more to this than meets the eye.

Car hits house

Couple have lucky escape as reckless driver crashes through side of their house as they slept in their bed

Friday, 13 October 2017

Idiot argument of the day.

While many of his points are sound, Mark Littlewood jumps the shark with this:

...for example, try to imagine government food vouchers being redeemable at McDonald’s.

??? The government issues food vouchers all the time. They are coins and notes, or their electronics equivalent, redeemable in McD's and just about anywhere else.