Sunday, 4 December 2016

Killer Arguments Against LVT, Not (407)

I saw this one on Richard Murphy's blog a couple of months ago but forgot to save the link.

It goes something like this:

1. If you look at the total assets of the poorer half of the population (or possibly the bottom three-quarters), as like as not it is nearly all land. If people possibly can, they prefer to own that rent (it being cheaper in the long run and just nicer all round) and will devote most of their spare income to paying off the mortgage.

2. If you look at the total assets of the richer half of the population (or possible the top quarter), while they own a lot of land by value, they own a disproportionate share of other forms of wealth, primarily pensions, shares and cash (there isn't much else).

It would appear that these two facts are broadly correct. Maybe the bottom three-quarters own half of all land/housing by value, but only a quarter of all pensions, shares and cash.

3. His conclusion was therefore, if you impose LVT it will 'hurt' poorer households more than wealthier ones in relative terms. Therefore it is better to have a general wealth tax which catches pensions, shares and cash as well as land/housing.

The fundamental mistake here is confusing cause and effect. Wealthy people don't own lots of land because they are wealthy; they are (in most cases) wealthy because they own land, whether they had the good fortune to buy more than 15 years ago when housing was still sensibly priced, or inherited it or whatever. The picture is even clearer if you deduct mortgage debts; there are lots of higher earners who 'own' an expensive house but their net equity is relatively low.

To give a simple example: a landowner collects rent from all his tenants and lives in a magnificent castle full of paintings and golden artefacts, his tenants own no land whatsoever and precious little else. He owns the castle etc because he owned land to start with. If we were to redistribute his paintings and golden artefacts (via a wealth tax and citizen's dividend), he would simply bump up the rent to what his tenants can now afford to pay and the status quo ante is quickly re-established.

Conversely, if we predistribute the land (via a land value tax and a citizen's dividend), this leads to much greater equality and economic efficiency much more quickly. The landowner no longer has the surplus to spend on maintaining his castle and acquiring more paintings and golden artefacts. If he bumps up the rent to try and claw back the citizen's dividend then by definition, the rental value and hence his LVT bill increases and cancels it out.

Similarly, it is unfair to simply look at how much a household has in pensions, shares and cash, you have to look at how they acquired them. The largest chunk of these are accumulated out of the surplus income of higher earners, and a lot of higher earners have earned their money fair and square. There are also a lot of higher earners who have rigged the system (senior bureaucrats, quangocrats, executives at quoted companies and various rent seekers), but the problem here is allowing them to gouge that extra income in the first place, not what they do with it afterwards. So sort out the gouging first and if you are still worried about income disparity after that (which I am not) regardless of whether it is earned fair and square or gouged, you can fix that through income tax.

Finally, I ought to point out that land/housing/commercial premises - total about £7.5 trillion - dwarfs the value of other assets such as the entire market capitalisation of the FTSE100 and FTSE250; the total value of UK government bonds; or cash in UK banks, each of which is about £1.5 trillion.

Tuesday, 29 November 2016

What does the "capital" mean in "capitalism"?

Just thinking out loud, at its core, doesn't "capital" really mean "man-made labour saving devices which are of overall benefit to humanity"?

That enables more people to produce more stuff and thus enjoy their lives more to the overall benefit of everybody.

The notion that capitalism means that each individual must build up "capital" and whoever ends up with the most is the winner is nonsense; capitalism would benefit everybody and should not necessarily lead to inequality - apart from the fact that people have different talents and some are luckier than others.

The concepts of saving up during the good times and drawing on the savings in the bad times pre-dates capitalism and is always a good idea on an individual level. As a society, there is no point trying to build up capital faster than new labour saving devices can be developed.

And similarly, anything that is not actually a man-made labour saving device owned by the person who made it, or paid fair value for it, is not capital. Land, patents, monopolies etc are not capital. They are either natural resources or government made; and if the landowner or monopoly holder does not pay the government fair value for the land or the monopoly, that makes them even less like capital as they are of overall detriment to society.
As an illustration:

Consider a farming community who dig the earth with sticks. That's an agrarian society, but they will still save up grain after the harvest, store it and eke it out over the rest of the year.

Some enterprising people work out how to make iron digging implements. So now a couple of people in the village are blacksmiths and the rest are still farmers, but more productive farmers. Each farmer has his own spades and hoes (capital) and the blacksmith has a kiln and tools (capital) for making the spades and hoes.

So the blacksmith has more 'capital' but unless he keeps his technology secret or has his trade protected by guilds and government certification (rent seeking/monopoly behaviour), any excess income he makes would be competed away when his apprentices leave and set up their own business, so everybody in the village ends up with a similar but larger income than before.

If technology does not move on, there is no point everybody trying to build up capital. Why should the farmers buy more spades than they need or the blacksmith produce them? Pointless. There is only a point in building up more capital when somebody invents hose pipes or horse drawn ploughs or something.

If there is a self-appointed landowner who sees that output has increased and his villeins now are making a surplus, he can help himself to that surplus in higher rents. That's where it starts to go wrong, especially if you fall for the lie that land is capital (man made improvements to land, like walls, drainage, good composting etc clearly are "capital" for these purposes, that's quite distinct to what nature made).

In extremis, landowners drive people off the land and they have no choice but to work in factories. The factory as such is a vital part of capitalism, and with equal bargaining power, workers would get a decent wage and the factory owner would get a decent return on his capital. Hooray, everybody wins. But Victorian factory owners could pay ridiculously low wages and live in opulence because the landless peasants, faced with a choice of starving in the countryside or working for a pittance in the towns preferred to take the pittance.

And so on and so forth.

Fun with plain packaging.

I was a bit disappointed with the plain packaging, a misnomer if there ever was one. I was vaguely expecting something sleek and stylish, like Apple packaging but no, they have just made the warnings and pictures bigger and reduced the brand name to a single line of 6 point type.

I got two good ones this week (paraphrasing slightly).

1. Smokers' children are more likely to start smoking. (than what is not specified)

2. Smoking reduces your fertility.

So, assuming those even to be measurably true, doesn't the problem cancel out? Children of smokers have are more likely to smoke, but there are fewer of them etc.

In any event, reason 2 is nonsensical. Most people spend most of their lives trying not to get themselves or their partner pregnant. A couple of years 'trying for a baby' after you get married, have a couple of babies, job done, back on the tabs.

Anyway, free market capitalism being what it is, no doubt sooner or later somebody will start making natty pouches into which you can tuck your stupid packaging out of sight. The old tins were nice but too big, so your tobacco dried out unless you mucked about with slices of lemon etc.

A bench of Kents

From Kent Online:

A stunned van driver was slapped with a hefty £200 fine – for not displaying a No Smoking sticker in his vehicle.

Trevor Emery was fined four times more than if he had actually been caught puffing at the wheel when he was booked by a city council warden in Watling Street, Canterbury.

The washing machine repairer, who does not smoke, was left bewildered by the little known law, which makes it compulsory to display a No Smoking sticker in a work van...

Head of safer neighbourhoods Doug Rattray said:

"It is an offence to not display a No Smoking sign in a vehicle that is used for commercial purposes. This is the case regardless of whether someone is self-employed, the only person to use the vehicle or if nobody smokes in it. We enforce this but the level of fine is set nationally in law. Mr Emery received a fine, which he paid, for this offence. He was advised on the legislation and given the correct sign.”

Council spokesman Rob Davies confirmed that around 50 fines have been issued since the law came into force.

Does anybody know, does the 'work van' rule apply to salesmen's cars too? And if so, what about cars which people use for normal commuting?

Monday, 28 November 2016

Fun Online Polls: Picking winners & "You guys"

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

Picking winners: which of the following should taxpayers subsidise?

Robotics and AI - 0%
Industrial biotechnology - 0%
Medical technology - 3%
Satellites - 0%
Advanced materials manufacturing - 2%
Other areas where the UK has a proven scientific strength - 4%
None of the above. If there's money to spare, just cut taxes on all businesses - 91%

Good, I was with the (overwhelmingly large) majority on that one. And thank you to everybody who took part, a good turnout of 103.
This week's Fun Online Poll should be fairly self-explanatory.

"When somebody addresses you/your group as "You guys", he/she is…"

Vote here or use the widget in the sidebar.

Sunday, 27 November 2016

Mazda MX5 Mk2 footwell drainage holes

My driver's side carpet was awfully wet. After some prodding and poking I managed to find the emergency drainage hole.

They weren't mentioned in the Haynes manual and I found no reference to them online. So in case you are wondering, there is one on each side, you have to cut open the carpet to find them. It's just a round metal cover plate (about 2' in diameter) sitting on top of a hole straight through the floor panel (about 1 1/2" in diameter), about 9" in front of each seat and 3" in from the door.

The cover plate is the round blue thing:

The cover plate/plug is normally glued into place. I assume that if the interior fills with water and you want to empty it in a hurry, you just pop it out from underneath

My car must have hit something, because the rim of the hole was partly bent downwards (go figure) and the cover plate/plug was bent almost in two, thus leaving a nice big unsealed gap to really scoop up the puddles.

I hammered the cover plate flat again, used the car jack to press the rim of the hole back up flush with the rest of the floor panel and then gummed it all up with silicone sealant. I'll glue the carpet back down once the sealant has dried properly and pop the nice new mat back on top. Fingers crossed!

Saturday, 26 November 2016

"This is like trying to predict earthquakes or hurricanes, they don't happen very often"

From the BBC:

… Neel Kashkari, president of the Federal Reserve Bank of Minneapolis is proposing an alternative that may be more in line with Donald Trump's way of thinking. He believes that banks should be forced to massively increase their capital reserves (1) - the amount of cash they are obliged to keep in hand for the day when everything goes wrong at once.

Currently, US banks need to keep 6% of what are known as their risk-weighted assets, a formula that values their their loan book, in cash. Under the so-called "Minneapolis Plan", Mr Kashkari wants banks to significantly increase this ratio to up to 38%.

Neel Kashkari says [existing] measures to prevent another bank meltdown don't go far enough:

"My highest focus is making sure we don't have another financial crisis where the banks get into trouble and they have to turn to the taxpayers," he told BBC World Service. We've looked at the history of financial crises - this is like trying to predict earthquakes or hurricanes, they don't happen very often.(2)

"And if you look at financial crises all around the world, that's the level of capital that we need to reduce the chance of a future crisis to as low as 10% over the next century."

1) The word "reserves" is largely meaningless in this context as it can mean quite different things. "Cash" is as crystal clear as you can get.

2) He can't have been looking hard enough, there has a been a banking crisis in the USA every 18 years or so since the early 19th century, interrupted only by the second world war (and the mid-cycle dip in the 1973-1989 cycle). The cycles in most other countries in the world have now synchronised with the US cycle (i.e. the last full one was 1989-2007). And these cycles always go hand in hand with land price bubbles; you can't have a land price bubble without a credit bubble - a credit bubble will always go into higher land prices.

So as ever, the question is, is he deliberately lying or is he stupid?

Friday, 25 November 2016

"CCTV captures moment a cow creeps up and attacks a man in the street - for no apparent reason"

Tweeted in by James Higham and JuliaM, from The Daily Mail:

This moody cow decided to take some frustration out on an innocent bystander while it was having a stroll down an alleyway. The footage, shot in Pakistan, shows a man stood [sic] talking on his mobile phone next to a wall.

Wandering the streets of its own accord, the cow is seen heading down the same alleyway, seemingly minding its own business. However, it clearly takes a disliking to something the man is doing, and pauses behind him.

After a couple of seconds of consideration, the cow instigates its vicious attack by digging its horns into him and catching the man, who has his back turned, completely unawares.

The animal pins him up against the wall and then then sends him flying through the air with an almighty flip of its head. He does a complete somersault in the air before crashing down with a painful-looking landing on his side.


Black Friday Special on this 'blog!

All posts will 50% off and comments will be free. There will also be a bewildering array of vouchers for new readers and discounts for regular commenters.

Thursday, 24 November 2016

Economic Myths: Cost-plus

The point of the post Economic Myths: Business Rates hike may force UK's shops to raise prices is that prices are set by where marginal revenue and marginal costs per unit happen to cross on the supply-demand chart.

Fixed costs quite simply have nothing to do with it. In the very long run, most fixed costs are actually variable costs. It is a question of fact and degree. But clearly rent and rates are a fixed cost for these purposes (from the point of view of the tenant).

The chart showed the supply-demand curves for monopolistic competition, but the same principles apply wherever a business is on a sliding scale between perfect competition and absolute monopoly. Most businesses are somewhere in the middle.

(Land ownership is a not a business for these purposes, that is a pure monopoly. By putting up and maintaining buildings, land owners act like businesses of course, they have a dual role and it helps if you don't confuse the two distinct functions.)

From the comments:

Dinero: However I don't see the relevance of the chart from Economics help.

Me: A change in variable costs per unit = changes the optimum price/output level. A change in fixed costs = has no effect. Business Rates and rent = fixed cost = have no effect. That is why the linked chart and article ONLY mention variable unit costs (or marginal costs or whatever you want to call them).

Dinero: The chart is a diagram of profit maximizing price setting for a monopolistic supplier (1). Retail is competitive market (2), where prices are a competitive level of profit plus variable costs (3) plus fixed costs.(4)

Wrong on so many levels.

1. Even with perfect competition, the market clearing price is where revenue and marginal costs per unit happen to cross on the supply-demand chart. Same for monopolistic competition, cartels and a pure monopoly. Fixed costs have no impact on prices; they affect profits.

2. Yes, bricks and mortar retail is competitive, but not that competitive. Most shops have their own niche, customer base or brands etc. And by occupying space (and crowding out competitors), most shops have some degree of local monopoly. Even if it were competitive, see 1.

3. That misses the whole point of the article and pretty much everything else you need to know about economics. With most industries without absolute barriers to entry and even with cartels, abnormal or super profits are competed away, so that prices end up at a level of what looks like cost-plus. This is not because each individual business decides to aim for cost-plus, it is because of the competition.

4. For 'fixed costs' read 'rent'. Rent is not a 'cost' in economic terms, it is an appropriation of the earned profits of the business. Profits (or the profits of potential other tenants) are what dictates rents, not the other way round!

I've done this one dozens of times.

Imagine a partnership running a business, the two partners share profits 50/50. One partner might secretly consider himself the senior partner and consider the other partner's profit share to be a 'cost'. It might be a cost to him personally, but it is not a cost to the business. Perhaps they change the profit share ratio to 60/40. Does that change what customers are prepared to pay or the optimum level of output of that business?

Does it heck.

In the same way, maybe this year, the landlord is taking half the profits in rent and next year ups the rent to 60% of the profits, makes bugger all difference to prices and output. That's a dispute between the business owner and the land owner.

In the same way, the local council takes a slice of the rent from the landlord (Business Rates). The business tenant, as 'customer' of landlord (who provides the building) and the local council (which provides pretty much everything else) couldn't care less how they split up the rent between them. Each tenant has his own pain threshold, if landlord and local council demand more than he is prepared to pay, that's it, he vacates the premises, end of.
UPDATE: Dinero: And so the opportunity to set a price using a profit maximizing policy , marginal revenue vs marginal costs, is more or less removed by competition, and so the suppliers to the market are left with selling at the minimum acceptable profit plus the costs.

To reiterate: in a reasonably competitive market with sufficient reasonably well-informed consumers the market clearing price is still set by the basic rule tends to settle at, price = marginal revenue = marginal cost + 'minimum acceptable profit'. This happens to be the point at which - given the competition - an individual business (or indeed the whole industry) maximises its gross profit. Prices are NOT dictated by fixed costs. Gross profits dictate 'fixed costs' i.e. rent.