What's wrong with housing policy in a nutshell

We’ll admit that Matthew Parris is not usually our go to figure for enlightenment upon public policy but here he’s extremely informative:

But the developers will turn out to be the usual handful of huge housebuilding corporations. Profit, not social need, drives them, so government’s job is to direct. Private housebuilders have rarely been interested in building for the poor, nor is it their business to care that huge profit margins may be related less to added value and more to the shortage of land.

Informative about what not to be doing of course.

Profit is the value added in an activity. This is by definition. The value of the inputs at market prices is the value of their alternative uses. The value of output at market price is, well, it’s the value of the output. Profit is the value added in the activity, the amount by which the value of the output is greater than that of the inputs. Again, that’s a definition.

Value add is what we all live off. GDP is value added - it’s all production, or all incomes, or all consumption. That production number is the value added in all the economic activities in the place and or country. More GDP - again, this is all definitional - means incomes will be higher.

So, the claim is that private housebuilding will strive to add value, something that increases incomes. It’s government’s job to direct, to make sure this doesn’t happen so that we can all be poorer.

We submit that that’s a hell of a way to run a railroad and a logical construction of the grandest idiocy. Therefore let’s not do that.

The idea that the capitalists are not interested in producing for the poor is belied by many centuries of experience. As has been pointed out, it was capitalism that allowed the mill girl to have stockings - feudalism provided QE I with them just fine. Building cars only for the rich, as Aston Martin is currently showing, is a great way to lose money. Henry Ford’s Model-T, that jalopy for the working man, created one of the world’s grandest fortunes. The history of the press is of every new entrant undercutting the previous price level - the penny newspaper for a halfpenny. That last still has subsequent generations rolling in lucre - why wouldn’t capitalists be interested in taking the poor’s money?

Finally, we don’t have a shortage of land, more of Surrey is under golf courses than houses. We have a shortage of licences to allow houses to be built, something that can be solved at a stroke of the bureaucrat’s pen. Which is exactly what we should do of course. For the current system is like complaining about the price of cars while ignoring that the real problem is the limit on licences for the man with a red flag to walk in front of it. Artificial scarcity will indeed concentrate minds upon what can be sold to the rich - only the rich can afford the scarcity.

Our establishment hamstrings that red in tooth and claw capitalism then complains that capitalism and profit aren’t producing the goods. The actual answer is to stop that government direction and leave that market be to produce.

Or, as we’ve said before now, the answer is to blow up the Town and Country Planning Act 1947 and successors. Proper blow up - Kablooie. Now there’s a proper housing policy.

The vital economic lesson from Dabloons

The aged attempting to be achingly hip never does come across well but still:

According to the website “Know Your Meme”, the dabloon trend’s origins can be traced back to two images, shared by the Instagram account catz.jpeg, of cat’s paws, with the simple caption “four dabloons” beneath.

This brand of nonsensical humour seemed to strike a chord with the account’s hundred thousand followers, and was shared consistently over the following months.

By October 2022 the phrase, “But it will cost you 4 dabloons” became a popular punchline on TikTok and by late November this had become a full-on craze, with thousands of accounts posting dabloon content and videos using the hashtag “#dabloons” collectively gaining nearly 500m views, as of 25 November.

And thus the dabloon economy began.

Trivial, possibly twee and almost certainly transient. And yet:

“I think the reason we all love this is that we all secretly miss being 5 and playing with our friends,” avid UK dabloon collector Beth Woodward says.

“I miss being a kidnapped princess or a witch making potions. Being a part of this trend means I can do that again. I can be a silly little cat buying silly little items and just having a great time.”

The aim of our having an economy, a civilisation at all - hell, that coming down out of the trees bit - is simply that more people can have a great time more of the time. That’s it. There is no other.

The definition of great time is to be made by those having it. That’s also it.

This does mean that certain economic theories are simply wrong. The Labour Theory of Value for example. The value of dabloons is the enjoyment that comes from the existence of dabloons, not the zero labour that goes into their creation. Nor, equally so, the labour that historically has gone into the creation of the system - the internet, the Web - upon which dabloons are created. That labour was there, already built in, before dabloons were created and will still be there, inherent, after they fade away.

It’s also true that no central planner would invent dabloons, none did, therefore central planning is not the optimal manner of creating good times.

Finally, dabloons have no value other than that good time created. Which means that all mitherings about exchange value, use value, real values and deeper and objective values are just wrong. The value is that transient human joy and that’s it. As with any- and every- thing else. The value of a house is, at root, the night’s shelter from the rain, of a raincoat the afternoon’s similar shelter, of a steak that replete stomach for a time, there just is no other value to anything than what we humans, at that time, place upon the thing.

As the man said, the important economic question is “Everybody having a good time?”

The human economic unit is the household

Much about human beings only makes sense when we accept that the natural economic unit is the household. True, that can come in different forms - nuclear or extended for example - but such varied things as the female pelvis and babies’ head size, the very long period of childhood helplessness, pair bonding and so on only do make sense when considered as a whole. This is not to be normative, merely positive:

Close to a third of single parents have resorted to skipping meals to make ends meet because of rising food costs, according to research revealing the household types worst hit by the cost of living crisis.

Three in 10 single parent households surveyed said they had missed meals as a consequence of runaway food prices. That compared with one in seven parents in couples and an overall figure of 14% in the poll by the consumer group Which?

The norm these days (as very distinct from normative) is for a dual earner household. A dual earner household will be in a better financial position than a single earner one, other things being equal.

Please note that we are not commenting upon the level of hunger Which? claims to have uncovered - just on the difference between singles and couples.

When these sorts of numbers are flaunted it is usually with the at least implicit insistence that something must be done about this difference. At which point, well, why?

Given that we are liberals we’re just fine with people deciding to live their lives as they wish. But also given that we’re liberals we think we’d like to see rather more justification than we get about why the outcome of those choices must be equalised. After all, all choices are trade offs, aren’t they.

Don't let the State do our investing for us

There’s a considerable body of opinion out there - ranging from the respectable and wrong, like Mariana Mazzucato, to the errors of the egregious Richard Murphy - which insists that the State should be doing our investing for us. After all, all those wise people collecting all the information government has to hand will be able to invest societal resources far better than any mere set of private incentives. Add in that government can borrow far more cheaply than the private sector and there we are, QED.

It has asked ministers to write off £1.3bn of debts, including £500m run up through a series of ill-fated commercial investments, arguing the sheer scale of Croydon’s crisis required an unprecedented financial bailout from the government.

Stripped of all complexity Croydon has borrowed at below market rates to invest. If you can borrow at below market rates then clearly you should be making more profit than those in the private sector who have to pay more. This is especially so in property - it’s a capital intensive business, your cost of capital is the major determinant of whether a project will be profitable or not. So, that special borrowing facility for local councils - who get to borrow from the Treasury at something like the interest rates the Treasury pays, not the private sector ones - should make substantial profits simply because of those low financing costs.

As with Warren Buffett say, whose insurance float (of $109 billion last time we looked) means that the cost of capital to Berkshire Hathaway is actually below the numbers the Feds borrow at.

Well, it’s an hypothesis and as with all such it needs to be tested against reality. That’s how science works. Further, when there’s a conflict between idea and the universe it is, always, the universe that wins - that’s also how science works.

Now we’ve got our test of the idea. It’s not true. Government does not invest better than the private sector. So, we should not use government to do our investing for us.

Once again a pretty little theory destroyed by an ugly fact. Which is, of course, the point of using markets at this level of intellectual abstraction. To find out whether those ivory tower theories survive that first contact with the market - as Moltke pointed out, they don’t.

Taxing investment means less investing gets done

Shell here is only giving us a little guide to a basic truth about this universe that we inhabit:

Shell is reviewing plans to invest £25bn in Britain’s energy system after Jeremy Hunt raided the industry for £55bn in windfall taxes.

David Bunch, Shell’s UK chairman, said the expanded levy announced in the Chancellor’s Autumn Statement is forcing the company to re-examine a slew of projects in the pipeline, from North Sea investments to renewable energy schemes.

Mr Bunch told The Telegraph this meant Shell “cannot take it for granted” that the full investment plan will still go ahead.

The people who run corporate spreadsheets are not, contrary to popular belief, fools. They know that, as with death, taxes are one of those sure things. So, it is the post-tax return to capital investment which is used to determine whether a project goes ahead. Raise the taxation and some of those projects will not hit the necessary return on the investment - they’ll not happen.

Yes, sure, we grasp that fairness argument. Those who earn their money from investing, why should they pay a lower tax rate than those who rent out their labour? The correct answer being, well, we do think that investment is a pretty good idea. It’s what makes the future richer after all. So, we want a tax rate on investment which optimises investment in that making the future richer. Which might well be entirely different from the tax rate which is optimal for labour income.

We would say that the optimal taxation rate on investment income is nothing in this sense - despite noting that it’ll not pass that equity and fairness test (also known as “people won’t put up with it”). In that efficiency sense the best tax system is probably one of no corporate taxation at all (resource rents are another matter of course) and all investment returns ditto. A progressive consumption tax instead - no, that’s not a VAT, instead money added to an investment pot, money made in an investment pot, is tax free, money consumed whether from labour or investment returns is taxed.

But leave aside such details for a moment. Think about this larger issue. Raising the tax rate on the returns to investment reduces the amount of investment that is done. Shell here just being today’s little guide to that basic truth.

So, what we’ve got is the massed progressives of the world screaming that trillions upon trillions must be invested to deal with climate change. At the same time as they’re insisting that investment returns must be more heavily taxed so that there’s less investment. Someone is confused here and it’s not us.

By definition, Net Zero in steel means closing blast furnaces

Something that the system in general seems to not know:

A British Steel spokesman said: “Jingye has invested hundreds of millions of pounds to support the ongoing transformation of the business and is committed to investing in the long-term future of British Steel as we transition to net zero. The steel we make can play a central role in transitioning to a low-carbon, circular economy and we’ve ambitious plans to invest in a range of technologies to reduce the carbon intensity of our operations, with solutions that are globally recognised and accepted.”

OK, super. Net Zero means one of two things about steel. If the solution is to go circular then that means recycling scrap steel. That can be done, it means using electric arc furnaces and it’s a just fine way to make steel. Britain exports scrap steel so there’s a domestic supply of the raw material. There is a problem in that it’s still not possible to make certain steels via this technological route - anything for the nuclear industry for example. That’s just an industry where we must always create from virgin, not recycled, material.

If we’re not to go circular, but still Net Zero, then we have to change the technology used to make that virgin steel (“virgin” here means from iron ore) to some form of direct reduction, or DRI. That’s OK, that can be done. This allows the production of all kinds of steel (in those words from the movie, “both country and western”) but at greater capital and possibly operating costs.

The problem with these simple facts is that it’s not obvious that the system - politics, government, the bureaucracy and so on - quite grasps the next part of this:

The Chinese owners of British Steel have injected only a fraction of the £1.2bn they promised to invest despite begging British taxpayers for a bailout worth hundreds of millions of pounds.

Jingye, the largely unknown Chinese company that acquired British Steel almost three years ago, has pumped in just £156m since acquiring the business in a Government-supported takeover in March 2020, the Telegraph can disclose.

Jingye is threatening to close one of the plant’s two blast furnaces and make 2,000 people at the British Steel works redundant unless Grant Shapps, the Business Secretary, agrees to provide state aid totalling hundreds of millions of pounds.

Either of those potential solutions means closing those blast furnaces. It is not possible to go either Net Zero or circular while retaining those blast furnaces. By definition, the stated ambitions for the industry include closing those blast furnaces.

This is true whether it’s done by the Chinese, the government, with or without subsidy, today or in two decades’ time. Net Zero means closing blast furnaces.

It’s actually necessary to make a decision here, it’s not possible to fudge this matter. Blast furnaces and no Net Zero or Net Zero and no blast furnaces? Yes, we know, politics never does like having to make an actual choice but here’s one that cannot be mithered. So, and?

Against the subsidy of nightclubs

Just as we start here, yes children, your current elders did used to do all this sort of stuff. Where do you think you, you next generations, come from? Having pointed that out:

As a DJ, I know the government must intervene to save the night time industry

Dave Haslam

The increasing closure of nightclubs threatens jobs, as well as the future of music and the souls of towns and cities

No.

At least, not yet, not without further examination.

It is, of course, possible that government action is destroying a previously viable business sector. Given our views here that wouldn’t surprise in the slightest. But it’s also necessary to grasp the point we like to make so often - there are structural declines in business sectors as well, simply things that have passed their time.

So, we need to work out whether nightclubs are failing because of enemy action or because they’re going the way of buggy whip makers and coal mines - things we either don’t need, or don’t want, or at least need fewer of. If it’s enemy action then stop said enemy doing that. If it’s structural then the correct response is a shrug and an “Ah, well”. The general point is true whichever of these it is that is affecting nightclubs.

Yes, we know, dance is the oldest of the human arts, that the young gather to do so is hardly a surprise. And yet there is - clearly and obviously - a certain amount of sexual display and even sexual commingling that accompanies the practice. Such sexual display and commingling now has other outlets - Grindr, Tinder, Bumble are the ones we oldies have heard of as they appear in the newspapers often enough - so is the decline in the nightclub sector because of actions to force it to decline or the disappearance of one of the uses to which nightclubs used to be put?

Before whatever might be done is even planned, let alone done, we need the answer to that question. If the - to adapt the old vernacular - meet market function is now online, not in physical space, then this is a secular, systemic, change and not one that requires action to reverse. If it’s the other, if it is supply being suppressed even while demand remains strong then we should stop doing whatever it is that is doing the suppression. No, not subsidise, not grant special conditions, but stop doing that suppression - for if the one sector is suffering from such conditions then so will others. We should lift the same such weights upon all sectors, not just the one.

So, yes, we’re against the subsidy of nightclubs, either way. Even as what should be done differs dependent upon the answer to the important question. Why are nightclubs having these problems? Is it government or folk now have another method of finding sex?

Just to note, an observation that the young no longer do use nightclubs to meet others rather proves the point.

The tax sums of Associate Professor Advani

In this analysis of the recent tax changes we find something we agree with:

Most of the “stealth tax” comes from freezing the threshold at which employer’s national insurance kicks in. This freeze means employers will have to pay more for each employee. Proportionally it affects the lowest paid the most, ultimately feeding through to lower wages and employment for that group. This alone raises £5.5bn.

Quite so, employers’ national insurance is incident upon the workers’ wages. This means that the combination of income tax, employees’ and employers’ NI leads to a marginal tax rate of over 40%. An over 40% marginal tax rate which applies to those still working part time on the minimum wage. This is not just bad tax policy it’s an outrage and a vileness. Which is why, of course, the personal allowance for all three taxes should be, at minimum, the level of the full year, full time, minimum wage.

If you want the poor to have more money then stop taxing them so damn much.

Not that Advani - necessarily - agrees with our solution but we do agree with his analysis of the incidence and thus the problem.

We have much more difficulty with this idea:

Despite repeated mentions of the former chancellor Nigel Lawson during his budget speech, Hunt did not follow his example and equalise the tax rates on income and on capital gains. Currently, someone earning an income of £1m as an employee will pay 47% tax on every additional pound they earn, and their employer has to put in another 13.8% on top. If they can instead take their pay through a company they own and manage, they can take the money out as a capital gain. This allows the first £1m to be taxed at a rate of only 10%, after which the rate is still only 20%.

No, that’s not quite how it does work. You do not “take out” money from a company as a capital gain. You have to sell in order to make the capital gain. This is conceptually different.

The chancellor could have paired an increase rates with a reintroduction of the inflation allowance for capital gains, reverting to the system we had before 1998, benefiting many people who receive income in this way.

One of the reasons Gordon Brown changed the system was that he thought - rightly or wrongly - that a lower rate without the inflation allowance increased the tax take. To reverse the decision we’d all need to see the actual sums that back up the insistence that he was wrong. Given that CPI is 9,6% presently we think it unlikely to be honest.

Perhaps Associate Professor Advani would like to do those sums for the rest of us?

Well, yes Mr. Sparrow, and?

Jeff Sparrow treats us to an extended whine about wealth and inequality.

The grotesque inequality embodied by Musk, Bezos and Zuckerberg is a threat to democracy

Gosh.

Oxfam tells us that a mere 10 people now possess more wealth than the bottom 40% of humanity – and that the richest 20 tycoons collectively own more than the entire GDP of sub-Saharan Africa.

This is normal. For it is possible to have negative wealth - in a way that we do not record negative incomes in the associated figures - where debts are higher than assets holdings. The obvious example is the student fresh out of college who has student loan debt, a high lifetime income to look forward to but as the sheepskin is not counted as a financial asset but the debt is, well, a debt, then they have negative wealth. In fact, some of the poorest people in the world by this wealth measure are the top graduates from the top American universities and training programmes about to embark on globally top earning careers.

It is - roughly and about - true that if you’re a £10 note and no debts then you’re richer than 30% of fellow Britons. Wealthier that is. The same is true of $10 and fellow Americans.

Oh, also, comparing wealth, a stock, to GDP, a flow, is very bad number crunching.

But, you know:

Between April 2020 and April 2021, Musk reportedly made nearly US$140bn……Not so long ago, the Zuck earned an eye-watering $28,538 a minute……..A few years back, the Guardian’s Arwa Mahdawi noted that, if you had earned $5,000 each and every day from 1493 onwards, you’d still have less money than Jeff Bezos – even after his divorce. The monstrous scale of global inequality renders genuine democracy a farce.

Hmm, well.

Mark Zuckerberg has shed $90 billion in 2022 while Jeff Bezos and Elon Musk have both lost $58 billion as gloomy earnings reports leave tech stocks reeling

So, what happened last year has all gone into reverse this. Global wealth inequality - by this specific measure being used about the tech bro’s - is markely lower than it was last. Perhaps those 20 tycoons now own less than the GDP of sub-Saharan Africa.

OK, is democracy now better? Has that position of sub-Saharan Africa been improved as a result of this change? Are we, in fact, better off as a result of this reversal of the thing being complained about?

Not obviously, no. We’d be fascinated to find anyone at all who would be able to - heck, try to - point to anything that has got better as a result of this reversal.

So, the original complaint is not a real one, is it. It’s nobbut a whine and a mither. But then this is The Guardian on economics so how surprised should we be?

Larry Elliott gets suckered by the wrong kind of environmentalists

Larry Elliott tells us that there’s something to this degrowth idea as a method of dealing with climate change. That’s because he’s been suckered by the wrong kind of environmentalist - those who know nothing of the economics of climate change:

Given the existential threat posed by global heating, the concept that growth is good is being seriously challenged by those who say policymakers should be aiming for zero growth or even degrowth economies, ones that are shrinking. Make no mistake, it is a good thing that the accepted wisdom is being questioned. The idea that faster growth is the solution to every problem is no longer tenable.

It’s possible to be very basic indeed here. The solution to the problem - as described - is a change in the technologies used. Moving to higher value add technologies is - by definition - economic growth. Therefore growth is the solution, as both are that change in technologies used to those which add more value.

There is nothing new about the current debate. Thomas Malthus predicted eventual famine once population growth exceeded food supplies. John Stuart Mill’s comment, that the “increase in wealth is not boundless”, paved the way for what became known as steady-state economics. Herman Daly, who died last month, long championed the idea that the constraints of the natural world imposed limits to growth.

Well, in one sense of course there’s nothing new about this. Economics is the study of the allocation of scarce resources. So, we’re all agreeing that scarcity is a limit to, a brake upon, growth. Where Daly, specifically, went wrong - and we had this out with him directly - is in his insistence that we can only have qualitative growth, rather than quantitative. Sure, he might even be right about that - but he adamantly refused to accept that GDP is both of those. It’s value added and if we add more value by qualitative growth then that’s still GDP growth.

Being more specific about climate change this has been looked at. Back when, before the patina of repeated layers of economic misunderstanding were spread over the subject. The Special Report on Emissions Scenarios. The economy has growth, does not have growth, the population rises, comes to a peak then falls, what energy producing technologies are used and so on?

The results were that the growth limiting models produced a worse climate outcome. Or, more accurately, the highest growth model plus increased coal use (A1FI) produced the worst, the highest growth model with technological advance (A1T) produced the second best climate outcome plus a vastly better human outcome in terms of the richness with which folk could live their lives. The lowest growth model (B2) produced the second worst climate outcome and by far the worst human outcome.

It really is all there, in those original models that the entire construct of climate change is built upon. The Stern Review - as one example - uses these models, as does Nordhaus’ Nobel winning work. RCP 8.5 in today’s set of models is really just A1FI gussied up a tad.

We started the whole climate change game with the setting of some rules. Which is that our models even showing that it could happen were based upon the idea that economic growth - without coal - is the solution. Given those rules of the game we cannot then turn around and say that growth is not the solution to climate change.

Well, of course, we can, for many are saying so. But they are wrong.