In praise of gentrification

In a column for Inside Housing I’ve looked at some of the data around how gentrification affects existing residents to see if there’s any reason to worry about it. Surprisingly, it doesn’t look as if gentrification really does push out existing residents very much – involuntary movement out of a gentrifying neighbourhood is about 0.6 percentage points higher than city-wide averages:

Instead of displacing people, gentrifiers tend to add to a local area’s population through new builds and property conversions (like warehouses and former industrial buildings). Although rents might rise for existing tenants as overall demand for the area rises, the involuntary displacement rate is very small – in one US study, it is 1.4% compared to a city-wide average of 0.9%. . . .

And gentrification brings benefits for locals, with better jobs opening up:

It often feels like the staunchest opponents of gentrification are other gentrifiers who got there a bit earlier. The evidence from the US and the UK is that gentrification raises the incomes of people living in affordable homes and improves their credit scores.

And this is not even to mention the reduction in crime that usually takes place as well. Read the whole thing here.

Seven reasons not to care about high pay

  1. Executives can be worth a lot to firms. When bad CEOs are sacked or new CEOs who are expected to be good are hired, the firm they work for can become a lot more valuable. Apple lost 5% of its value after Steve Jobs died, about $17.5bn. Microsoft became 8% more valuable after Steve Balmer resigned in 2013 – he represented more than $20bn worth of losses to Microsoft. Angela Ahrendts’s departure from Burberry in 2013 wiped £536m off the firm’s value; Tesco became £220m more valuable when its CEO merely announced that he would take an active role in managing the firm. Why? Because CEOs make really important decisions that can make or break the firm.
  2. Critics of high pay can’t say how much they think CEOs should be paid. The High Pay Centre says it thinks CEOs are paid too much, but how much would be the right amount? They don’t say, and don’t suggest any real way of knowing. They emphasise multiples of employee pay on their website, but there’s no reason at all to think that would be a good way of judging how much a CEO is worth to the firm, and doesn’t even make sense across firms – is the CEO of a giant firm with a low average wage, like McDonald’s or Tesco, less important than the CEO of a relatively small firm with a high average wage, like QinetiQ?
  3. CEOs might be much more important now than they were in the 1960s. The most interesting question about executive pay is: why has it risen so much since the 1960s compared to median worker pay? There are a couple of different reasons this might be. One, as Scott Sumner suggests, is that CEOs actually are much more important now than they were (so being a good one is more valuable to a firm). Executives’ decisions probably mattered less when the world was less globalized and markets were less diverse – you knew what sorts of appliances and groceries consumers wanted, and your job was to manage capital competently to produce them. Now, even big firms face rapid destruction if they make the wrong call about what sort of products are going to popular in a few year’s time. As Sumner says, “Think how much Sony would have benefited in the past 10 years if it had had the Samsung management team”.
  4. …But tax and regulation probably plays a role too. Economist Kevin Murphy argues that history of executive pay (particularly in the United States) is only understandable in the context of tax and regulatory changes, like penalties on golden parachutes, a rise in stock option grants caused by changes to tax and accounting rules, and “changes to holding and listing requirements that favored stock options over other forms of incentive compensation”. (NB: This doesn’t mean that these rules are bad or undesireable, but they may help us to understand why executive pay is higher now than it once was.)
  5. Performance related pay causes executive pay packets to rise on average. Critics of high executive pay often call for pay to be more closely linked with performance – in the form of stock rewards, for example. But as Murphy shows, this actually makes the ‘problem’ of CEO pay even worse, because pay has to rise on average to reflect greater risk. “The payoffs from stock options, for example, are inherently more risky than are payoffs from restricted stock, which in turn are more risky than base salaries.” So the more we try to make CEO’s pay reflect performance, the higher CEO pay will be!
  6. Employee representation can be bad for firms. The High Pay Centre’s policy prescriptions are quite modest – today they’re calling for firms to include a worker representative on remuneration committees, which doesn’t sound like a big deal. And it probably isn’t. But employee representation on boards can be a very bad thing: according to a Financial Times report on Volkswagen last year, worker representation on the car company’s board turned the board atmosphere toxic, and led to very bad decisions being made. Reform of bad practices was blocked by the employee-supported Chairman, who worked against shareholders and his own Chief Executive to stop jobs from being cut and working time limits from being raised, ultimately harming the firm. Strangely, the High Pay Centre cites Volkswagen as a success story.
  7. It’s shareholder money on the line. Ultimately, it’s hard to see the public interest argument here. If shareholders are really missing a trick and overpaying their chief executives, who loses out? Well, shareholders, in the form of lower profits. And they’re the ones who stand to gain if they can fix that problem. Unless the High Pay Centre can show that the market is completely broken (and pointing to high pay as evidence for this is circular reasoning) there must be an opportunity for a firm to realize that CEOs are being overpaid, to buck the trend, and presumably to prosper. Why hasn’t that happened yet?

The case against Minimum Alcohol Pricing

The EU seems to have killed Minimum Alcohol Pricing, for now at least. That’s good news, but the case against it will still need to be made as its advocates push for it despite its illegality.

Last week I went on Ireland’s flagship news programme, Prime Time, to argue against it. In Ireland, the price floor being proposed is €1 per 10g of alcohol, which is 12.7ml – so a can of beer with 20g of alcohol must be sold for at least €2.00, a 14% ABV bottle of wine with 85g of alcohol for at least €8.50, and so on. Drinks that are already priced above this floor will be unaffected.

Minimum Alcohol Pricing does not even succeed on its own terms, for two reasons. One, it is extremely regressive. And two, it will probably not affect problem drinkers as much as moderate drinkers.

  1. Minimum alcohol pricing is regressive.

Galahad lager is Aldi’s own brand beer here in Ireland, and you can buy normally buy twelve cans of it for €9 – 75¢ per can. It contains 16g of alcohol per 500ml can, so its price floor under Minimum Pricing would have to rise to €1.60 per can. A man and a woman who drink within the recommended amounts (which are very low – more than three pints in a day is defined as being ‘binge drinking’) can drink 170g and 110g of alcohol respectively, 280g in total, per week. This equivalent to 17.5 cans between two people per week – just over one can a day each. Almost everybody would agree that these are moderate drinkers.

At the moment, they can do this for €13.13 per week (if they buy a couple of weeks’ worth at a time). Under Minimum Alcohol Pricing, this rises to €28.00 per week, a difference of €14.87. Over the course of a year this means that a couple who drink within the very low recommended limit at home would be €773.24 worse off under Minimum Pricing.

When I put this to Dr Steven Stewart, an advocate of Minimum Pricing, on Prime Time he said this was “just wrong” and the true figure was 70¢ per week (€36.40 per year) per person. That might be true of someone who drinks a quarter of a bottle of wine a week, or for someone who buys more expensive brand name beer, but it is not true for people who shop at Aldi or buy other budget lagers and wines.

The impact of Minimum Pricing is not felt disproportionately by people on tight budgets, it is felt exclusively by them. Not only is this regressive, it is misplaced – alcohol consumption rises with income, as does drinking large quantities of alcohol. So we’re hammering the poor even though the poor don’t actually seem to be the problem.

  1. Minimum alcohol pricing doesn’t deter problem drinking, and the health benefits are overblown.

As we demonstrated in our 2012 report by former NHS statistician and epidemiologist John Duffy, “The minimal evidence for minimum pricing”, the model that Minimum Pricing advocates use is deeply flawed. Among the assumptions it relies on is that alcoholics and other problem users are more sensitive to price than moderate drinkers. That is, when the price of booze goes up, alcoholics are more likely to drink less than people who don’t drink very much.

This assumption is based on a misinterpretation of data. When the price of one brand of alcohol goes up, alcoholics are the most likely to switch to another brand – they are indeed price sensitive in regard to the type of alcohol they drink. But they are actually the least likely to reduce their consumption of alcohol in general – as meta-analyses of the evidence have shown. For the heaviest drinkers, price elasticity of demand is “not significantly different from zero” – they won’t drink less almost no matter how high the price goes.

Advocates of Minimum Pricing typically point to Canada’s success in reducing deaths from alcohol abuse after introducing minimum pricing. But the studies that show this are typically quite bad – most lack any control group which is essential in a situation where alcohol consumption has been falling anyway, almost across the Western world. Apart from this, the research is dubious:

The key finding was that over the period 2002–2009, “a 10% increase in minimum price for all alcoholic beverages was associated with a 31.72% reduction in wholly alcohol attributable deaths”. Whilst this study was greeted as a breakthrough by public health lobbyists, independent statisticians have demurred.

In fact, the actual finding was that a 1% increase in pricing gives an estimated 3.172% decrease in wholly alcohol attributable deaths. Despite the complex statistical analysis used elsewhere in the paper, the authors then used a simple multiplication factor to estimate that a 10% increase in prices would therefore give a 31.72% decrease in mortality rates. Even this lawyer can see that a simple linear relationship cannot hold true. If it did, a 33% increase in price would reduce the estimated level of deaths by over 100%!

Got that? They found that a 1% rise in the minimum price led to a 3% fall in deaths and then just multiplied that by ten. This is sloppy in the extreme, obviously wrong to anyone with even a basic understanding of the issue, and advocates of Minimum Pricing should treat it and the researchers who produced it with caution.

Other points

There are other points to be made against Minimum Alcohol Pricing. It is not justifiable on cost grounds – unlike excise duties, it does not raise any more money for the government, only for supermarkets. Ireland has the second highest alcohol taxes in the EU already and, morbid as it may be, because heavy drinkers die young they usually end up saving the state money on other healthcare, social care and pensions costs.

We don’t really need to do more to curb drinking, despite what doctors like to tell us. Under-age drinking has fallen by 25 percent in the last ten years, and alcohol consumption across the board has been falling for decades.

The Irish health minister, Leo Varadkar, likes to point out that Ireland consumes much more alcohol than the OECD average. But the OECD average is skewed because it includes large countries where large sections of the population barely drink at all, like Turkey, Japan and the United States (where a third of adults don’t drink alcohol at all). In fact, Ireland is behind Austria and France and just barely ahead of Germany in terms of alcohol consumption – countries not exactly known for their sobriety, but not problem cases either.

People drink alcohol because they enjoy it. Being drunk can be fun, and having a beer or a glass of wine after work can help us unwind and relax. Everybody knows this, yet the debate that is taking place seems to ignore this fact altogether.

Doctors advocating this should back off – they are here to give us advice about how to live healthily, not force healthy lives upon us through the law.

But you don’t need to be a liberal to oppose Minimum Pricing – the case in favour of it is paper-thin even on its own terms. It will not affect problem drinkers, but it will give a kicking to any moderate drinker living on a tight budget. For once, thank goodness for the EU.

The ASI’s best of 2015


Song: Easy Love by Sigala.

Musician: Charlie Puth.

Movie: The Martian.

Book: Chavs (updated edition) by Owen Jones.

Restaurant: East India Club Dining Room.

Cocktail Bar: Ozone Bar of the Ritz-Carlton, Hong Kong.

Article: The New Statesman’s piece on the mountain Labour must climb to regain power.

YouTube video: Anton Howes on Innovation & the Industrial Revolution.

Political moment: Waking up to learn I’d won my election bet.

Toy: Phantom 3 drone.



Song: Well it sure ain’t The Writing’s On The Wall by Sam Smith.

Album: I suppose after all the hype it has to be 25 by Adele but it’s pretty dreary stuff.

Musician: Neither of the above, sadly.

MoviePaddington – one of the funniest films of all time, surely (OK, it came out in November 2014, but I only saw it in on the way to Peru in March).

Book: Am I allowed to say Magna Carta – A Primer by Eamonn Butler?

Restaurant: La Rosa Nautica, perched on a pier in Lima – with the Jumbo floating restaurant in Hong Kong a close second.

Article: Matt Ridley: ‘The Climate Change Agenda is a Conspiracy Against the Poor’ in The Spectator.

Political moment: The look on David Dimbleby’s face when he opened the envelope containing the UK general election exit polls and realised the Tories had won.

Person: Charlotte Bowyer – a hole opened up in the office when she moved on



Song: Run Away With Me by Carly Rae Jepsen (My top 63 list is here).

Album: E•MO•TION by Carly Rae Jepsen – one of the best pop albums of all time, in fact, up there with ABC’s The Lexicon of Love.

Musician: Carly Rae Jepsen (surprise surprise).

Movie: Inside Out.

Book: The Man Who Would Be Queen: The Science of Gender-Bending and Transsexualism, by J Michael Bailey – essential reading to understand one of the major debates of the year. Or the Life-changing Magic of Tidying Up by Marie Kondo – I just need to apply it to my desk as well as my house!

Restaurant: The floating restaurant Jumbo in Hong Kong, followed by Megan’s Kitchen in Wan Chai, which did a (delicious) hot pot broth so spicy that I wept and spent most of the day doubled over in pain. Totally worth it.

Article: Has to be my own posts on, which Ben, Philip and I have set up to review London’s restaurants and (eventually) cocktail bars.

Political moment: Ireland legalising gay marriage in a referendum – the first country to do so by popular vote.

Person: Rachel Dolezal.



Song: Justin Bieber – What Do You Mean (a triumph for tropical house and beliebers across the globe)

AlbumThe Mars Volta – De-loused in the Comatorium (terrified warblings from ‘03)

Musician: Carly Rae Jepsen (my introduction to pop music)

Movie: Mad Max: Fury Road (if only for the Fallout 3 nostalgia)

Book: Albert Camus – The Myth of Sisyphus (assuaging my existential doubt in the least philosophically robust way possible)

Favourite sports moment: Chelsea’s decline (and, by extension, Jose Mourinho in all his petulant glory)

Political momentDave and Xi chillin over a pint.

Person: Donald Trump (for taking it upon himself to berate a Saudi prince over twitter).



SongFrank Fiedler – Transhimalaya (full list here).

Album: DJ Richard – Grind (full list here).

MusicianTuluum Shimmering – eight or nine albums in one year, all very good, is pretty impressive.

MovieQueen of Earth (Alex Ross Perry).

BookDictator (Robert Harris) or Blindsight (Peter Watts).

RestaurantShotgun, Soho.

Article / blogpostWould cracking down on guns in the US really reduce violence? (Robert VerBruggen).

Political moment: Madsen’s correct prediction of the general election.

Person: Donald Trump.



Song: Wild Beasts, Wanderlust (it’s 2014 but I think I only first listened to it in 2015).

Album: Maccabees, Marks to Prove It.

Musician: Laura Marling.

Movie: Slow West OR Mad Max: Fury Road.

Book: Miriam Toews, All My Puny Sorrows.

Restaurant: Murano. Italian posh nosh. What more could you want?

Article: Hugo Rifkind: My Week: Robert Peston.

Political moment: Miliband doing “mockney” during Brand interview/Miliband pledge stone.

Person: Wiggo, for breaking the hour record.



Song: White Lightning – The Cadillac Three.

Album: Cold Beer Conversation – George Strait.

Subbing Musical for Musician: Hamilton.

Movie: TIE! Mad Max: Fury Road / Inside Out.

Netflix Original Series: Narcos.

Book: Yes Please – Amy Poehler.

Restaurant: The Dairy (Recommendation: Ben Southwood)

Article: A Bow to Charleston – Peggy Noonan, WSJ.

Political moment: Mitt Romney 2016 (any day now…)

Person: This angry patriot.



SongHouse Every Weekend, David Zowie. My school leavers’ trip to Zante (aka Baes Abroad 2K15) would not have been the same without this song.

Album: If You’re Reading This It’s Too Late, Drake. All songs make for excellent taxi music, relaxing music, or even telephone holding music if you’re cool enough.

Musician: The Weeknd.

Movie: Straight Outta Compton

Book: Girl on a Train

Restaurant: Oblix at The Shard. Tasty food with an equally tasty view.

Article: “The Dalai-Lama is as sexy as a fungal nail infection”, Rebecca Reid. (Discussing the hypocrisy of the Dalai-Lama saying his successor should be an ‘attractive’ woman)

Political moment: When Kanye West announced that he’s going to run for president in 2020. Iconic.

Person: Shigetaka Kurita (The man who created emojis)

Business rates: not such a good tax after all

Taxes, eh? Just when you think you’ve found a good one, it lets you down. We usually think of business rates as some of the least bad taxes we’ve got, because to a large extent they’re like land value taxes.

Land value taxes are far from perfect but they do less harm than most taxes. For a start, they tend to fall on landowners, rather than land occupiers, because the supply is fixed. Tim Worstall explains this here, and the empirical evidence is quite strong that a £1 rise in rates leads to a nearly-commensurate fall in rents over the long term.

They’re also less distortionary. A good rule of thumb is that if you tax something, you get less of it, which is why taxes on capital are such a bad idea. But since there’s a fixed supply of land, taxing the value of land doesn’t get you less of anything. Nice one.

Unfortunately this might not be how business rates really work, because they tax the value of property rather than land. To a large extent this is a tax on land and that’s all fine and dandy, but you’ll notice that a five star hotel costs more to stay in than the Bates Motel next door, even though the land they’re built on is worth the same. This is because the actual bricks and mortar on top of that land have different values too.

The British Property Federation (and chums) have a new report out today which points out that this might be a serious flaw in business rates. They argue that most landowners have other investments too, and will shift their money from property to those investments when business rates rise:

A rise in business rates will reduce the rents that a landlord is able to achieve and therefore reduce the potential level of new real estate investments by a sum equal to the value of the tax burden transferred from occupiers to landlords business rates … If a proportion of business rate increases are capitalised into lower rents, then there is a likelihood that this will impact on the level of new funded commercial development.

That’s an important point – I’m not sure about the numbers they use, which suggest an extremely high elasticity of investment that I don’t think is justifiable, but it’s still an important point.

Just as important: the less frequently revaluations are done, the more uncertainty there is in the system. Uncertainty is a deadweight loss – it destroys wealth and makes everyone worse off. As we’ve pointed out, it’s not difficult to estimate property values on a rolling basis.

What’s really interesting about this report is not just what it’s saying but who’s saying it. Most industry bodies are woeful on business rates – they wrongly assume that the incidence is on firms because they’re the guys writing the cheques. For the BPF to come out and reject this – and do so with reference to most of the existing academic literature, no less – is very encouraging. But they do have a point about the investment effect.

So, must we throw business rates on the scrapheap too? It depends on the elasticity of investment – how much less money goes on property investment when rents fall after rates rise. And the way to fix things is quite simple: tax the value of the land, not the property that’s built on it.