Tag Archives: economics

The week in Georgism

I still haven’t got my post-election blogging groove back. In the meantime, here are this week’s news referencing Henry George out there in the internets.

First, “The Silent Consensus” has a piece on the Daily Kos. He begins by quoting Thomas Paine:

“Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds.”

See also FDR’s Second Bill of Rights and the Progressive Mission and Resurrecting Henry George: The Case for National Housing Assistance. George also gets a brief namecheck on the Huffington Post this week.

Old Henry also appears to have been the inspiration for a sculpture garden in Fairhope, Alabama.

Over in New Hampshire meanwhile, Professor Richard England is making the case for a land value tax.

I’ve noticed a slight increase in talk about LVT stateside recently. Is it the start of a post-crash trend? Time will tell.

Nine wishes for 2009 #4: An end to “money for nothing”

I’ve spent days resisting blogging this wish because, quite frankly, I don’t think it will happen. But it certainly is a dearest wish, so it makes the cut.

What I mean by “money for nothing” is the tendency of the late 20th and early 21st century to look at everything as if it were capital to be exploited, and yet at the same time to think that capital doesn’t behave like capital any more. When the classical economists wrote about capital, they were, in the main talking about widgets – things you build. They can make you a lot of money but they always break, rust or wear out in the end, and then you have to buy new widgets. Stocks and shares were part ownership of big widgets, and ultimately behaved by the same laws.

(As an aside, my reading of Locke’s definition of “property” is that it informed and is essentially the same as the classical economist notion of “capital” – it is one of the reasons I despair about this modern vogue for rightwing libertarianism in which people invoke Locke only to insist that when he talked about “property” he was referring to everything you might happen to “own” even though it contradicts his whole argument about rights to “property” coming about due to self ownership.)

We’ve been moving away from that model for 200 years, but in the last two decades it accelerated. Everything, from homes to public services to loans, became capitalised. Intellectual property, at the same time, has become less like capital as the limitations of copyright get extended and patents become renewable (I ended 2007 by declaring the 21st century to be dominated by IP Wars – we ended 2008 with the government capitulating and agreeing to extend recording copyright). Speculation, speculation on speculation and even speculation on speculation on speculation has become a central part of our finance system. All talk about “value” – financial value never mind ethical or social value – has become lost.

I’m not convinced that much will happen to change. The Lib Dems’ Green New Deal is very welcome indeed, but we don’t appear to be saying very much to ensure that the economy changes course – we aren’t arguing for much more than a greener, kinder version of the status quo. Brown just seems to be firing off in entirely random directions and even though I’m not convinced that piling up the national debt is the big problem the Tories keep claiming it is, my mind does boggle how he can keep coming up with more and more spending commitments with no idea how he intends to pay for it all. As for the Tories themselves, well, they appear to have looked at Japan in the nineties and said to themselves “we’ll have some of that!” Having got us into this mess, dragging the rest of the political class in the mire with them, their new approach seems to simply be to wallow.

Like I say, I don’t expect this wish to be fulfilled. Yet strangely, almost every day I seem to hear a new person expressing it. Are we looking at a longer term shift in attitudes? Either way, we won’t know for sure by the end of 2009.

Cutting tax is not a zero sum game

I’m cautiously optimistic about the rumoured plan of a 2.5% drop in VAT. It sounds like a good move to me, for several reasons.

One thing a VAT cut won’t do is lead automatically to a reduction in prices. Most food isn’t VAT-rated and it is hard to believe that a CD priced £9.99 this week will be priced £9.78 next week. However, taken together those 11ps start to add up. At the top end of the scale, being able to shave a bit more off the asking price for that plasma screen might just make the difference between whether it sells or not. If spending on the high street is down a couple of percentage points, dropping VAT by about the same amount could save real jobs. That means more people paying NI and income tax (and VAT) and fewer people claiming JSA. Looking it in that way, we have to ask ourselves the question: would it cost the Treasury more or less to keep VAT at 17.5%?

Gideon Osborne is not this blog’s favourite Shadow Chancellor, but I will give him credit for one thing: he has managed to get the media to completley buy into his claim that tax cuts now – any tax cuts – will automatically lead to paying a greater price in the longer term. The truth is much more complicated than that. VAT is a deadweight cost – a tax on commerce which is generally seen as a good thing. In my personal utopia, we wouldn’t have it in the first place. Dropping it at the start of a downturn has a real chance of softening the landing. It isn’t a magic feather, and there is certainly a point where the cost of dropping it outweighs the benefit, but it is a practical measure.

Vince Cable has broadly welcomed it, while emphasising the Lib Dem’s own policy for a tax switch (both policies are compatible). Cameron and Osborne have rubbished it. That should surprise no-one because VAT is the tax of choice for the Conservatives. It was Mrs T’s favourite tax. Raising it still further was one of Norman Lamont’s first acts as Chancellor. Ken Clarke, keen not to be outdone, expanded it to gas and electricity (Clarke has now come out as a VAT-cutter, suggesting his common sense now outweighs his dogma). Tory ginger group Direct Democracy – the closest the Conservatives get to genuine localists – envisage a world where council tax will be replaced by, you guessed it, a sales tax.

Once you remember that the Conservatives are not a pro-business party but a pro-entitlement party, it is easy to see why: piling the VAT on the proles means that you don’t have to pay for things by taxing unearned wealth. So for future Baronet Gideon Osborne to recoil at the merest suggestion is no surprise. The only tax cuts he will consider are on things like inheritence tax for millionaires.

The Tories have decided they are back in 1992, and have relaunched their “tax bombshell” posters. Labour should follow suit. Anyone remember VATman?

What do the Scottish Greens and Guido have in common?

Both today are calling for Land Value Taxation, or at least they seem to be.

The Scottish Greens certainly are. Municipal tax reform in Scotland remains in deadlock and dependent on at least one other party agreeing with the principle of local income tax. That seems unlikely at the moment, even if the Lib Dems capitulate over the SNP’s insistence of greater centralisation (which does not look likely; what would they gain except appalling policy?).

Meanwhile, Guido is raving about the reprinting of Fred Harrison’s Boom Bust: House Prices, Banking and the Depression of 2010 (Guido also pats himself on the back at his prescience for predicting the housing crash in September 2007; modesty prevents me from mentioning that my first blog post on the subject was July 2006 and frankly I could have told you what was going to happen a long time before then).

Fred Harrison? You might remember me linking to this video earlier in the year. Harrison, aka the renegade economist, is a keen exponent of land value taxation and regards it as a crucial tool in the armoury against boom and bust cycles (actually, as the video indicates, he goes a lot further than that).

So yes Guido, Gordon Brown was very very wrong. But somehow I doubt your mate Gideon Osborne is going to be interested in Harrison’s prescription. The son of a baronet and Shadow Chancellor for the Conservative Party, it is his job to protect vested interests, not challenge them.

In defence of Sarah Palin (sorta)

Bloggers have been lining up to expose the “hypocrisy” and “stupidity” of Sarah Palin calling Barack Obama an evil socialist for calling for redistribution, while supporting it herself:

“And Alaska – we’re set up, unlike other states in the union, where it’s collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs.”

Hat tips all round to Stephen Glenn, Jennie Rigg and Andrew Ducker, but they all got it from Keith Olbermann on MSNBC, and his delivery is quite entertaining so why not enjoy it for a few minutes?

But I feel the need to defend Palin here because it is just possible she is making a distinction between redistributing income and redistributing wealth. Alaska’s system works by redistributing the revenue raised from Alaska’s natural resources, specifically oil and other minerals, while Obama’s proposals are to switch taxes from people on low and middle incomes to taxes on high incomes.

Obama’s plan sounds very moderate and reasonable to these European ears, but it has to be said that it is very different to the Alaskan system that Palin is referring to. What’s more, it would almost certainly be a good thing if the Alaskan system were used more widely.

Of course, McCain isn’t campaigning on such a promise, and Palin and her Republican colleagues have repeatedly attacked the very concept of “redistribution” as leftwing and “totalitarian,” so we can safely say they themselves fail to understand the difference. But there is a fine distinction and we should give Alaska credit for having a sensible policy.

Will Tim Leunig be burnt at the stake in Liverpool city centre tomorrow?

For those of you who missed it this morning, here is a quote from today’s Thought for the Day by The Rt Rev. James Jones:

Tomorrow Daniel enters the Lion’s Den up here in Liverpool. The author of the report that recommends ‘ the rolling up’ of the regeneration strategies of the Northern cities is coming to the Anglican Cathedral to face the music! The Dean’s arranged for him to debate with the city’s leaders and academics. Dr Tim Leunig of the Policy Exchange is an economic historian with radical views. As well as questioning the value of regeneration schemes he proposes a shift of the population ‘encouraging significant numbers of people to move , to London and the South East’

Did I hear a groan from those grid locked in traffic within the M25 doughnut? Well, there’s some serious stuff in this paper, even though some of the conclusions will raise hackles in the south and the north. Reading the report in the light of the last two weeks certainly widens the eyes not least its appeal to market forces as a panacea for our urban problems. Whatever else is going on at the moment it’s surely about the limits of the market to guarantee the common good. And although communities need markets, they also need other interventions that secure the peace and safety of the realm. That’s what these urban initiatives are all about.

Now, I have my criticisms of Tim’s presentational style and fear that the heat generated from the introduction of his Policy Exchange pamphlet obscured the light to be found in the content. But I would baulk at misrepresenting his proposals in this way.

Fundamentally, the idea was to take all the money being spent on regeneration currently and hand it over to local authorities to spend as they see fit. This isn’t even mentioned in Jones’ caricature, for all his stoking the fire with talk about entering the lion’s den. Instead Tim is being held up as an advocate of prescribing “market forces as a panacea for our urban problems” – which is utter bilge. In what way is proposing to spend billions of pounds of regeneration budgets differently count as leaving things to market forces?

Is it too much to ask the Bishop of Liverpool to have read a pamphlet which he then denounces on the radio? Worse, not only is it insinuated that Tim has incurred the wrath of God, but he apparently is flying in the face of St Tracey of Emin (no, I didn’t realise she’d been canonised either).

In other news, a new campaign has been launched to secure the official pardons of the thousands of people who were burnt at the stake for witchcraft by populist religious bigots in the 18th century. Not that there is a connection at all, oh no.

Why class still matters

There have been a series of articles in the Guardian over the past week that have made it clear that class is still a very real issue and demands a Liberal Democrat response.

First, John Harris wrote about the impact of right to buy on Tuesday. Then, Felicity Lawrence wrote about the politics behind Jamie Oliver’s new Ministry of Food. Finally, today Jon Henley wrote about smoking, and how people on low incomes remain resistant to attempts to persuade people to kick the habit. It strikes me all these issues are linked.

Taking John Harris first, I don’t share this romantic vision of sprawling 1960s era housing estates draining the coffers of local government (“when I were a lad, this were all sprawling council estate”), but I well recognise the problems of landlordism (*ahem*). What is interesting about Harris’ article is his description of how the positive side of right to buy that was very clear in the mid-90s – where, as he said, you could tell which houses where privately owned and which were council run simply by looking at which ones had the hanging baskets or had been painted relatively recently – has given way to a culture of buy to rent. The nice homes have been sold, their occupants have moved either abroad or to the country, and their homes are being filled with economic migrants. Local people aren’t getting a look in and with no new council houses being built they have extremely limited options. As we have seen in Dagenham, this is fertile ground on which the BNP can build their lies and half-truths.

In student areas, such as Headingley in Leeds where I used to work and Fallowfield in Manchester where I lived as a student, the result has not been ethnic ghettos (although there are plenty of those in Leeds and Manchester) but student ghettos. What these areas have in common is that the toxic mix of right-to-buy and buy-to-let has atomised – or more accurately stratified – local communities. Our cities have curdled like milk, with the rich clumping together in gated communities. Council housing won’t solve that problem by itself (indeed it pre-existed council housing, albeit not to this extreme), because the problem with that is rooted in our exaggerated land values which we allow people to speculate on not because of who owns the property.

Buying back properties owned solely for investment purposes and building on land with inflated values is a very expensive way of levelling the playing field, but with no senior politician prepared to look seriously at taxing land values (nice to see Polly Toynbee on board with that particular issue), it may be the only thing we can do. Meanwhile the cost of housing will continue to price our own workforce out of a job and favour economic migrants willing to spend a couple of years sleeping on floors in the UK in order to better their families’ lot. You can’t blame them, but there is little to be gained from expanding our own underclass.

Jamie Oliver’s programme dealt with fundamentally the same problem but from a different angle. Instead of housing, his concern is – not surprisingly – food. Oliver has an agenda to get Britain eating more healthily. In 2005 he set out to transform school dinners successfully (although it should be pointed out that Lib-Lab controlled Scotland was way ahead of him), although this in turn lead to a backlash. That backlash lead him to ringleader Julie Critchlow and the town she lives in – Rotherham.

In order to get Rotherham eating more healthily, Oliver’s plan is simple – teach eight “can’t cook, won’t cook” local residents the basics of cooking but on the strict understanding that they will undertake to pass the recipes they learn on to two of their friends, who are then to pass the recipes on to another two and so on, until the whole of Rotherham is cooking. If that sounds like a nice idea in theory that doesn’t have a cat in hell’s chance of succeeding, on the basis of the first programme you are correct. By the end of the first episode (I’m blogging instead of watching part two), even the most enthusiastic of his eight trainees are flagging.

Oliver’s mistake is hardly unique. It is the problem common to anyone who is convinced that policy makers need only concern themselves with equality of opportunity and “meritocracy” as opposed to outcomes. The theory goes that if you give people the right training and opportunities, they will run with it – unless they are lazy and feckless and not worth bothering with. At several points in the programme, you can see Oliver wrestle with that idea. To his credit, he is prepared to try to understand, but watching him listen to explain why, at the end of a long day at work, they lack the energy to leap in the kitchen and rustle up a meal, you can see it really grates against his whole outlook on life. Thatcher has a lot to answer for.

As is the nature of such “reality” television programmes, they have cherry-picked some pretty extreme examples of individuals who can’t cook, including an unemployed mother of two who feeds her kids kebabs on the floor every evening and has never so much as boiled an egg in her life despite having a fitted kitchen. What is clear though is that the problem is more than simply educational; as Oliver acknowledges but perhaps does not internalise, the problem is actually cultural and deeply ingrained. That won’t be solved by a few cooking lessons.

It isn’t to say his initiative is a wasted exercise (although if he really does want to get millions of people cooking he should probably consider producing a 99p version of his £25 book), just that it can only scratch the surface.

This is reinforced by Jon Henley’s article. Independently, I drew remarkably similar conclusions to Darrell G on Moments of Clarity. We appear to have come up with an anti-smoking policy that has proven to be remarkably effective at stopping you smoking – so long has you happen to be well educated, well housed and on a good income. If you are from a lower socio-economic background all it appears to be doing is eating up a bigger slice of your income and leaving you even more addicted. I was particularly struck by this paragraph:

“One of the things that means, says Jarvis, “is that if you’re a poor smoker you’re going to want to maximise the ‘hit’ you get from each cigarette, because it represents a larger chunk of your income. The amount of nicotine you can get from each cigarette is very elastic; it depends how hard you puff, how deeply you inhale, how much of the cigarette you smoke.” Across all age groups, and even if they smoke the same number of cigarettes, poorer smokers take in markedly more nicotine that wealthier ones. “Smokers in lower socio-economic groups,” says Jarvis, “are addicted to a higher hit. Their nicotine addiction is stronger.

I have to admit, that gave me a “what the fuck are we doing?” moment. Sheesh – maybe John Reid was right. Unlike Jon Henley, I’m less than sanguine about the progress we’ve made in reducing smoking because it seems to have increased inequality. This is skirting dangerously close to Morlock / Eloi territory.

But it is also silly to say that we should never have made smoking a public health issue and settled for a less healthy but more “equal” society. And the theory advanced by some libertarians that any political party that became pro-smoking would instantly become massively popular is pie in the sky as well and not backed up by any evidence. It isn’t that poor people want to smoke; its that they live tough lives that make them prone to dependency. It is the same underlying problem that Jamie Oliver identifies. It’s about quality of life, but fundamentally it is about economics.

Most studies I’ve seen suggest that social mobility is now going in reverse after a half-century of progress. If that is the case, and our society is becoming rigidly stratified once again, then despite the “classless society” platitudes of the 1990s, it is time we started talking about class. In this respect, I pay credit to Nick Clegg for forcing the agenda on the pupil premium. We need more of that sort of approach.

Just call me Mr Rigsby

It’s been an eventful week for me. Last Sunday I was still officially a lucky escaper of the credit crunch. The lucky co-owner of an unwanted, brand spanking new flat (notice how I have reverted to “flat” – as opposed to apartment – as the credit crunch has set in), we were all set to sell the thing to some bloke. We weren’t likely to make any money (oh how naive I was back in April), but we weren’t likely to lose anything (well, very much) either and wanted to sell up as quickly as possible so we could afford a mortgage on a property more fitting with our needs. I was itching for the day I could use this title for a blog post: “and with one leap he was free.”

Except the bloke we were at the closing stages of selling to clearly got a better offer because he turned around to our estate agent on Monday and demanded we knock ten grand off the asking price. Since that would have rendered the whole exercise pointless (we only bought the thing because we had a fifteen grand deposit on it), we pulled out and went back to Plan B – specifically rent the thing out and sell up when the market (hopefully) recovers in a couple of years. One eager beaver letting agent later and our new tenant is to move in next Monday – hence the scrabbling around this weekend sorting out furniture, white goods and curtains so the place is at least liveable in.

I’ve become the thing (other than middle-class wanker obsessed with the value of his property portfolio) I least wanted to be in life – an absentee landlord (it’s deeply ironic that, having spent years in LDYS campaigning for a tenancy protection scheme, I end up discovering we now have one in law by having to use it as a landlord myself). Our new tenant earns more than me for fuck’s sake. What’s worse, I’m not even likely to be making any money out of it (although Uncle Vince may help there). Aside from the significant money we’ve just spent equipping the place, we will essentially be a grand down a year. In essence, we are gambling on the value going up faster than that by the time we sell and we are more or less stuck where we are currently living until that happens. Suddenly the credit crunch feels very real. It looks like its going to end up being SO bad we might actually meet our Kyoto targets. Sheesh.

But still, joking aside, as members of the middle class we can cope. We have parents and support networks. Galling though it all is, it hardly ranks higher than inconvenient. We aren’t going to end up starving. For a lot more people it is going to be much more brutal. That debate last month about tax cuts now seems appallingly anachronistic.

Is groupthink really the correct response to financial meltdown?

David Cameron has announced his party will work with the government to tackle the continuing financial turbulence, whatever that means. Nick Clegg has apparently said much the same.

But is this really the correct response? There are certain instances – for example when the country is physically under threat at a time of war – when suspending party politics may be a good idea. But outside of such extreme cases, when has cross-party co-operation ever lead to good policy?

In the immediate aftermath of 7/7 and 9/11, opposition parties agreed to “work with the government” – the result has been a massive curtailment of civil liberties which continues unabated. Even though the opposition parties quickly regained their senses and resumed scrutiny of legislation relatively quickly, the agenda of detention without charge, identity cards and even internment was set. 2005’s “compromise” of setting detention without charge at 28 days was in many ways a tactical defeat on the part of civil libertarians.

Rolling further back, we have legislation such as the Dangerous Dogs Act – initiated due to a nation-wide panic. This is widely cited as a brilliant example of how badly Parliament can get things wrong, yet isn’t the ground being laid for similar poor groupthink?

It strikes me there is a massive ideological debate to be having at the moment. Outside of Parliament, the Keynsians are having a resurgence. But with all three parties signed up to a monetarist agenda and the drawbridge being self-consciously drawn up, will they even be heard? Regardless of the rights and wrongs of this or that economic society, surely at a time of FAIL we should be encouraging debate in an open society not battening down the hatches? It’s also pretty meaningless with Labour holding a majority in the Commons. Sure, the other parties have some influence in the Lords but it is distinctly limited.

So I’m afraid to say I’m quite, quite wary of this latest development. It is time for a massive ideological punch up in the Houses of Parliament not a group hug. The fact that this is the automatic reaction to every reaction suggests that our political system itself is broken in a way that isn’t the case even in the US.

Come on Nick, this is your big chance: don’t throw it away because of a desire to be establishment!

Was Monday the beginning of the end of the Cameron bubble?

By rights, it should have been. The Tories are in a total mess over the economy. I have to admit, I held my peace on Sunday over this idea about having the Bank of England step in when banks get in trouble. It sounded pretty much identical to what the government is doing now, only with even less oversight, but I felt that I must have been missing something obvious. 36 hours of listening to the empty soundbites emanating from the mouths of Cameron and Osborne and I can safely say it is every bit as vacuous a policy as I thought it was.

Ditto this idea for an Office for Budget Responsibility. We live in an era where the government ignores its own watchdog regarding compensating the people caught up in the Equitable Life scandal; why should they worry about another quango wagging its finger at it?

This issue also threatens to divide the party. Hardliners are unlikely to take this lying down. At a stroke, Osborne has directly contradicted two of the main principles behind Dan Hannan and Douglas Carswell’s much vaunted “plan” – specifically:

* Devolving power to the lowest practicable level
* Replacing the quango state with genuine democracy

Quangos are now the panacea for everything while localism has been completely abandoned. As Carswell and Hannan like to remind people, they speak for a growing number of Tories these days, Tories who thought all that stuff about Cameron representing a new kind of Conservativism actually meant something. All that has been trashed now.

I actually got it wrong yesterday. I assumed that the Tories would underwrite a council tax freeze if inflation was running at 4-5%. Inflation may well be at that point if the Tories seize power at the next election (I hope not, but a massive interest rate cut now looks likely), yet Osborne only committed himself to a 2.5% freeze and even that was contingent on local authorities making cuts in their own public spending. So he isn’t willing to commit to public spending cuts at a national level but he is willing to impose them on perhaps the most efficient arm of the state, local government. Clue, anyone?

But perhaps the greatest indictment of the Tories on Monday was the video below. Highly reminiscent of Spinal Tap (note the shots of people sleeping during the speech – approx 1 min into the video), Osborne and Cameron manage to come across as feckless amateurs who are treating the whole thing like a jolly lark:

Seriously. Does anyone watch that video and not think “novices”?

See also: Sara Bedford, Jackie Ashley.