onsdag 30 januari 2008

Shipwreck Aftermath

Driftwood Structure, originally uploaded by seadipper.

A week after a ship was wrecked off Portland Bill, masses of timber were washed ashore on the Sussex coast. In Brighton, people were building structures like this on the beach.

Strict warnings were given against taking the timber away, even though it was battered and soaked with seawater. A week later a clean-up team arrived in Brighton. They began by clearing away the structures that people had made. They have some huge machines to collect the timber, consuming huge quantities of diesel.

This morning, because the swimmers can't use their arch because the lock has been glued up for the fifth time since the new year, we made up a fire below high water mark, using odd scraps, and the clearance people with their big machines promptly turned up even though there is a mile of beach they are working on, which looks as if they were trying to intimidate. But they didn't, and we had a nice swim and a warm-up afterwards in front of the blaze.

Apparently the wood is just going to be shredded. There is a mean-spirited way in which the whole thing has been dealt with.

tisdag 29 januari 2008

Railway vehicle layouts

The Danish IC3 trains (above) are amongst the most comfortable in Europe, though for how much longer? There is plenty of room and there ample space for luggage between the seat backs, so you can keep an eye on it. You can see out of the train from wherever you sit. This is an ideal arrangement and nowadays it is unusual.

But a member of DSB staff told me that the seating in the trains will be changed when they are refurbished with unidirectional (airline-style) seating instead of the traditional arrangement in facing bays. Airline seats are for aircraft, where the luggage is carried in a separate hold. Where they are fitted in trains, it is almost invariably unsatisfactory.

Look at the result where this has been done in Britain. The obvious effect is that the luggage space between seat backs is lost. This means that luggage shelves have to be provided, which loses space. Worse still, people cannot keep their luggage near by and there have been many instances of theft, including one case when a criminal stole a case which turned out to have an IRA bomb in it! Particularly bad examples are First Great Western's latest refurbishment of their HST fleet, the Swedish X2000 and the Thalys. In the X2000, luggage piles up in a heap in the middle of the gangway, and in the Thalys, I have seen it having to be taken off the train altogether just so that people can get on and off.

A blocked doorway on a refurbished HST

The second disadvantage of airline seating is that windows and seats are not aligned and you can book a window seat and find it has no window at all but just a view of a piece of plastic. This is the case even with trains on the scenic Oslo to Bergen route.

Obstructed outlook on a Virgin Pendolino

The third disadvantage is that passengers in groups cannot sit together; even where there are just two people, they may prefer to face each other, especially when they are older and need to see the person they are talking with.

The fourth disadvantage is weight. Airline type seats are unsupported at the rear and have to be substantial, not just for strength but to prevent resonant vibration. Back-to-back seats can be designed as a single structure, complete with luggage space beneath.

Good luggage space on an Alstom Adelante

Regulating the banks

Politicians from EU countries are meeting today to discuss methods of banking regulation to prevent a recurrence of recent events.

But neither regulation nor supervision will work. If the problem is to be tackled, this must be at source.

What has happened is a classic cyclic bubble. At the start of the cycle at the bottom of a recession, credit is in quite short supply. Nevertheless, banks lend money for land purchase, usually concealed at property or house purchase, but in which land value is a significant proportion of the total value. The money is lent on the value of the property as collateral. As time progresses and the economy starts to recover and with more of an assurance of income, people are more willing to borrow and lenders are keener to lend. This availability of funds starts to drive up land values.

The banks, seeing land values rising, become ever keener to gain business by lending. This sets in train a positive feedback mechanism, with banks lending on the strength of land values - land values that seem as if they will go on rising for ever - that they have themselves created. It might be compared with a snake feeding on its own tail. In time, and it takes about fifteen years, the bubble swells, to the point that rates of return on property from rents are barely enough to cover the capital sums paid for those properties. Then the bubble bursts.

As the peak of the boom is approached and things are still looking good, it becomes difficult for any bank to avoid being sucked into the lending spree, as those that keep out become unattractive to investors, who look to the high shareholder value generated by the banks that are heading for trouble.

These land-based boom/bust cycles have been observable since around 18 year intervals from the beginning of the nineteenth century, apparently disrupted only by the world wars.

The solution is unpalatable - it is to replace, substantially, existing taxes with a tax on the rental value of land, as proposed here.

Were such a tax in place, land would be unappealing to investors and banks would not using it as collateral for loans. It would transform the banking system, as banks would have to adopt different criteria for lending, the most important of which was, not the value of any collateral, but the ability of the borrower to repay the loan. But until the temptation to lend for land purchase on the basis of land as collateral for the loan is removed, no amount of regulation and control will prevent these periodic crashes.

måndag 28 januari 2008

Getting the unemployed and disabled back to work

The government is proposing yet another initiative to get the long-term unemployed and disabled back to work, with skills audits, training schemes and the like. It is all very worthy, but the problem is that, while the benefits do not exactly permit people to live a life of luxury, the shape of the tax and benefits system makes it costly to employ them whilst leaving them any better off. This is a consequence of targeting benefits. People move into the target area and stay there. Who can blame them? And this is why these schemes have had a marginal effect over the years.

With recession on the way, and no policies which would help to get the economy on the way to recovery when it comes, where are the jobs for these people newly equipped with skills?

What is the head of the IMF on about?

Forth Road Bridge, originally uploaded by bridgink.

The Forth Road Bridge, built in 1964, is starting to show its age, and a replacement is needed. It is likely that weight restrictions will have to be introduced within the next five years and the new bridge will have to be opened by 2016. How should it be paid for? The Private Finance Initiative method is the most likely. But why?

The bridge is essential to sustaining land values on the north side of the Firth of Forth and its influence extends far beyond that. The logical method of payment would be through a bond issue, supported by revenues from a land value tax, but that is not going to happen.

But all of this has a bearing on a statement by the new head of the International Monetary Fund, Dominique Strauss-Kahn, approving of the US government's financial policy of injecting funds into the economy through tax cuts.

What is wrong with that policy? First, there is no guarantee that tax cuts will maintain consumer demand. Second, consumer spending is as likely to be on imports as on home-produced goods and services. Third, if it goes on imports, it will add to the balance of payments deficit and result in a falling dollar and increasing prices of imports, generally perpetuating the circumstances that have brought about the present problems. Fourth, the policy is inflationary, at the expense of savers who are being made to pay for the foolishness of reckless borrowers and lenders. Fifth, it is questionable whether the amount is sufficient to have a useful impact. Sixth, what has gone wrong is one of those cyclic collapses that will have to work itself out; there can be no soft landing.

So what has the Forth Road Bridge got to do with it? In conditions of recession, the best thing that governments can do is take advantage of the situation to enhance and renew infrastructure. If deficit budgeting is used in this way, no harm is done as the infrastructure helps to sustain and enhance the country's capacity to create real wealth. The difficulty is that infrastructure projects have a long lead time. But in Britain at least, there are many sound schemes that have been deferred from lack of funds, notably, the upgrading of the railways and the construction of urban light rail schemes, some of which might be brought forwards. It would be surprising if the same situation did not apply in the US. What proposals are there, for instance, to improve flood defence systems to prevent recurrences of the New Orleans disaster? So there are real wealth-creating projects needing to be done. But if the deficit is just used to keep a consumer boom going, it is irrresponsible.

Economics is difficult to understand

As the economies of many countries in the world slide into serious economic difficulties, one might be excused for asking how this situation has been allowed to come about? It is not as if similar boom/bust events have never occurred in the past. Governments are advised by experts, the newspapers all employ teams of expert commentators, and throughout the world there are academics and other professionals who are supposed to have an understanding of how the economic system functions. Yet seemingly they have no better grasp of events than fortune-tellers, tarot card readers, and diviners of chicken's entrails. Are these experts mere charlatans? If not, what has gone wrong?

The economic process is in principle simple. Human labour is applied to natural resources to create products that people desire - food, clothing, shelter and artefacts that give pleasure. Very early in human history, those products were transported and exchanged, from places where there was a surplus to places where there were shortages. Very quickly, too, means were discovered for storing surpluses so that they were available at times of scarcity. These technologies also made it possible for people to produce at one time and consume at another - for example, when they were young and fit, so that they could enjoy the fruits of their labour when they were old and infirm.

That is, in essence, pretty much all there is to economics. All the rest is an overlay. For instance, if goods are going to be exchanged, than some medium of exchange is needed. For centuries, precious metals were used. And as the processes of production and exchange became more complex, there was a need for "credit", for example, to cover the cost of construction of a ship and the expenses of a voyage, which would not be repaid until the ship came home and the cargo was sold. The word "credit" comes from the Latin word credo, which means "I believe". The person granting the credit believes in the trustworthiness and competence of the recipient of the credit.

The system proved to have limitations and since the industrial revolution, money has been issued by governments in the form of paper notes.

So where are things going wrong? First, there is the land issue. LAND IS NOT WEALTH. But nobody can do anything without land to do it on. And the supply of land is fixed. Every site is unique. Added demand does not call forth an additional supply. The price can only go up, and if this is happening, land owners may well decide to hold their sites off the market and wait until they can get even more, thereby squeezing the supply further and pushing up prices. If this happens, the entire production process is throttled.

The second issue is moneylending at interest. The Old Testament condemns it. The Koran condemns it. The Catholic Church has condemned it. Repeatedly, as, for example, in the encyclical of Pope Benedict XIV in 1745. What does usury consist of? It is not usurious to charge for credit, for example, to cover the wages of those arranging the credit, and as an insurance for risk. Usury is lending money, these days usually created by the banks themselves, against the security of some collateral, usually land or real estate.

Third is the matter of paper money, which in practice has proved quite unsatisfactory as governments have tended to spend more than they collect in taxes, with the result that the quantity of money has increased at a faster rate than the quantity of goods and services available for purchase. Because money behaves in the same way as any other commodity, if there is a surplus, its value goes down, resulting in a general and all-round increase in prices which is described as "inflation". This is a swindle on people who have chosen to defer their consumption till later, as the value of their "savings" is eaten away. Those savings are, in principle, a debt from the rest of society to the savers, and the inflation is in effect telling the savers that the debt will no longer be honoured in full. This is the dishonesty of inflation.

All the other things that are discussed in the financial pages of the newspapers are structures that have evolved out of the system just described. Shares are merely certificates of ownership, mostly representing the value of the land owned by the company concerned. Futures are promises to purchase or sell at an agreed date. "Securities" are collections of debts, which have a value because they amount to a stream of income. But anyone heeding Pope Benedict XIV would not have touched them with a bargepole, thereby avoiding the troubles that have overtaken most of the banks. But if things are going persistently wrong, part of the reason must surely be the the experts have lost sight of the underlying physical processes whereby goods are produced and exchanged, and instead become over-concerned with the complex overlays.

Effects of smoking ban

One of the effects of the smoking ban is cleaner air in pubs and restaurants. Another is piles of butt ends all over the streets outside pubs.

Failure upon failure

This used to be the Casino. It is on the main road from Brighton Station to the sea front. No doubt it will be vacant for many more years. The owners have little incentive to do anything with it in the depressed state of the property market.

söndag 27 januari 2008

UK political sleaze outbreak

The news is full of stories about politicians who have been accepting large amounts of cash for their campaigns to get elected to various political positions.

It is easy to understand why people would give money away for this kind of thing, but why does anyone crave political office? Especially positions like US President and Prime Minister in the UK. It is my idea of spending a period in hell.

Gordon Brown, for instance, wanted to be Prime Minister for years. Now he has got his wish, just when things have all gone wrong. Any sensible person in that position would be sorry they had ever got the job.

This is a good argument for monarchy. At least the head of the country never wanted to be.

Democracy, especially UK and US-style, seems to almost guarantee that the countries are run by ambitious and stupid people with debts to the vested interest groups that have helped them gain office. Which is not a new observation, as the same point was made in Plato's Republic.

lördag 26 januari 2008

Why laptop computers keep on failing - the Ball Grid Array problem

The BGA is a popular method of attaching integrated circuit packages to printed circuit boards. The IC package has one face covered (or partly covered) with balls of solder in a grid pattern.

The printed circuit board has copper pads in a pattern that matches the solder balls. The assembly is then heated, either in a heater, or special oven, melting the solder balls and forming conductive connections.

Because of surface tension, the molten solder holds the package in alignment with the circuit board, at the right distance, while the solder cools and solidifies.

Whilst there are advantages, there are also snags. The main ones are that the solder balls cannot bend, for example if the components expand due to warming, or flex due to movement, for example, in a laptop computer which is moved around. The joints are therefore liable to break, and the problem is compounded due to the recent adoption of lead-free solder, which is more brittle. The system is also makes for difficulties in inspection, fault-tracing and repair.

These factors seem to be behind the crop of failures that have affected many makes of laptop computer.

Matters should improve with better lead free solders and the shrinking size of components, but if you have a laptop computer of between 2004 and 2006 vintage, don't be surprised if it proves troublesome.

fredag 25 januari 2008

Trade protection does nothing but harm

Protectionism is a benefit only to sectional interests, paid for by taxpayers and consumers. Where the protection applies to agricultural produce, the beneficiaries are not even farmers, but owners of farmland, as the higher prices for produce due to the reduced competition means that the farmers end up paying higher rents. Where the protection applies to manufactured goods, the resulting lack of competition means that over-priced and poor quality products are imposed on the unfortunate public in the "protecting" country. The EU's agricultural policies are a blatant example of how taxpayers and consumers have been exploited for decades; food is over-priced, to the benefit of owners of agricultural land. In other words, nearly everyone loses from protectionism.

Retaliation is pointless, since its main effect is to harm those in the countries that retaliate. It is obviously difficult for producers if developed countries "dump" their surpluses in third world countries, but it is real wealth that is being given away to them and it is up to them to work out how to make the best of these gifts.

The reduced exposure to external markets means that the manufacturing industries in the protecting countries have less incentive to improve and develop their products to the stage that they might become desirable exports. And conversely, restrictions on imports deprive consumers of their choice of price and quality. This ultimately debilitates the economies of the protectionist countries.

To retaliate is the logic of the madhouse, as if to say, "you have shot yourself in the foot so I will chop off my hands".

We are all consumers. We all want the opportunity for access to the goods that we want, at the best price we can obtain them for in relation to the quality. But as producers, we are divided into sectional interest groups. Any government that favours one group over others through protectionist policies is dividing their nation and promoting conflict.

torsdag 24 januari 2008

How to fight recession

Maidstone West, originally uploaded by Boxley.

Memo to George Bush

You do not fight recessions by giving away tax and running a budget deficit in an attempt to try and sustain consumer spending. In that direction lies inflation and a growing balance of payments deficit.

If you want to run a budget deficit, and it should only be a temporary thing, it should be spent on infrastructure so that there is something to show at the end of it which adds to the nation's stock of wealth.

The railway here was electrified in the 1930s as part of a series of measures designed to alleviate mass unemployment. This was a permanent addition to Britain's wealth, and a tangible one as it resulted in enhanced land values.

The same principle was applied by your predecessor F D Roosevelt, in the policy known as the New Deal.

Next generation green train prototype

Could this be the latest idea to make bigger profits for Britain's train operating companies?

onsdag 23 januari 2008

Recession is unavoidable

There is nothing that any government can do to avoid the coming recession. But taking the wrong measures in an attempt to avert it could make matters much worse, and that is seemingly what the US central bank is doing, with the Bank of England likely to follow suit.

The underlying problem is a credit-fuelled land price boom that had been going on for about ten years. This has had many interrelated effects. The first is that banks had an incentive to tempt people to borrow more than they could repay. The availability of ready credit pushed up the price of land, although this went unrecognised and was seen as a "housing" price boom and a good thing to boot. Banks then saw these bloated and rising land values, created by their own lending policies, as good security for more loans. They continued to lend even more, on the assumption that the inflated land values were real and would go on rising, seemingly indefinitely. Northern Rock, for instance, was advancing loans of up to 125% of the value of a property. A further factor that then came in was the buy-to-let fashion, when people were accepting rental returns which barely covered the mortgage repayments; they were relying on increasing land values to make their speculation pay. Another ingredient in this toxic stew was the Bank of England's policy of low interest rates to maintain consumer demand to meet targets for economic growth, as former Governor Eddie George admitted recently, again stoking up land values. The final straw was that existing owners were encouraged to borrow money against the inflated value of the land their homes were standing on, to pay for consumer sprees, resulting in balance of payments deficits in favour of producer countries, particularly China.

The entire edifice is a classic bubble, which the slightest disturbance was bound to burst. It happens to have been the collapse of Northern Rock and the US sub-prime lending market that tipped it, but it could just as well have been something else such as a sharp rise in fuel prices. Whatever a government does will cause pain to one or another group of people. Seemingly, the US and UK governments want to protect those who have borrowed or lent unwisely, at the expense of the prudent and thrifty, and of potential house purchasers, who have no interest in keeping housing at unaffordable levels. What kind of message does that give?

In this disaster scenario, what will happen next is inevitable. Land values will drop substantially. Recent purchasers will find themselves owing more than the value of the property they have as collateral - in negative equity. With the tightening of credit, general consumer demand will fall and unemployment will rise. Some people will be unable to repay their mortgages and the lenders will repossess. Some buy-to-let purchasers could be in trouble too, though cuts in interest rates will help them. Repossession will not, however, be a good option for lenders as the value of their collateral has now dropped, and some may choose to hold off for a while until things pick up.

Tax cuts and reductions in interest rates will, at best, delay the inevitable for a while, but will cause inflation. In effect, those who have saved will, in real terms, be made to pay some of the debt. And it will still not stop the recession from happening. It will be deep and, though I am guessing, the economy will not begin to pick up until around 2014.

As the economy slides into recession, the one beneficial thing a government could do would be to bring forward good - and not merely prestigious - infrastructure projects, paid for through judicious deficit budgeting; indeed, periods of recession are a good time to implement improvements in infrastructure, as there is some spare labour around to do the work. Many of the suburban railways south of London were electrified in the 1930s as part of a package of measures to alleviate the recession that was going on at that time. If, but only if, economic growth occurs due that investment, the deficit budgeting is not inflationary.

Looking beyond that: first, there is a need to question the whole concept of "growth" on which the present economic system is predicated. The economy cannot keep on growing. There are natural constraints. And what is it that we are trying to grow into? Second, these 18-year boom-slump cycles are not inevitable. They are, as is evident from current events, a consequence of the interaction between the land market and the banking system. The trough of a recession would be a perfect time to implement a programme for the replacement of existing taxes by land value taxation. This will promote recovery from the coming recession and prevent another, around the year 2025, in any country with a government wise enough to introduce it.

måndag 21 januari 2008

Vacant land will stay vacant

Portland Street, originally uploaded by seadipper.

The buildings on this site in the middle of Brighton were knocked down about 20 years ago. Consent for office development was quickly given but nothing happened. The owners have re-applied for consent a couple of times and got it, but still nothing has happened.

With the developing recession, the owners will hang on and wait for the recovery. In the meantime, people have to look at an eyesore,

This is just one of the reasons why land value taxation is required.

If a properly designed system was in place, the site would have been developed long ago.

Train passengers invited to bus rally

If you are a bus enthusiast you might enjoy riding in these middle-aged vehicles. If you are just trying to get somewhere by train on a Sunday you could be less keen to find yourself having to make part of the journey on a bus, taking much longer on the way.

Railways which are used heavily and constantly, day-in and day-out, have to be closed from time to time for maintenance. But the construction of short lengths of connecting track would considerably shorten some journeys - for instance, it would enable trains to get from Brighton to London via Horsham without having to go into Littlehampton and out again, which adds a further 15 minutes to the detour. And reinstating the Lewes to Uckfield line and Shoreham to Horsham routes would also provide useful and better alternatives when the main line is closed, as well as giving access to small towns at present without rail access.

söndag 20 januari 2008

Finance Meltdown and the Crash of 2026

The row over what to do about Northern Rock rumbles on. It will be surprising if there are not other banks in a similar situation. If there are, can the government guarantee their depositors' savings too?

The other issue is this. Huge amounts of money have gone abroad to pay for consumer spending, with the result that previously British-owned assets have fallen into foreign hands.


And what has funded this consumer spending? Borrowing on the security of land values which have themselves been stoked up by injudicious lending.

This is in principle no different from what happened in the great crash of 1929. My own suspicion is that not only are we are moving towards the worst economic crisis since the end of World War 2, but that the problems that we are seeing at the moment are just the start. Things will get a lot worse over the next couple of years.

I have no confidence even in the security of such seemingly solid pension schemes such as those provided by local authorities and other public sector bodies.

None of this need have happened. Booms and slumps running on an 18 year cycle were a persistent feature of the nineteenth century. As long ago as 1880 it was demonstrated that they were a consequence of the interaction of the land market with the banking system. A solution was proposed, which nobody has ever convincingly refuted. Unfortunately and unforgivably, politicians and the professional economists who advise them have consistently ignored and even dismissed this analysis. Unless the proposals put forward in 1880 are implemented within the next five years, it would be a good idea to pencil in the next crash for around 2026.

lördag 19 januari 2008

Bush will ruin the dollar and the US economy with it

Bush's announcement of an injection of money into the US economy through tax cuts - without spending cuts - in order to prevent recession, is classic inflation of the kind condemned by monetarists such as Milton Friedman, who was not wrong in his analysis of the causes of persistent and generalised increases in prices, which is what this policy will lead to. It demonstrates the economic illiteracy of Bush and his advisors. It is the worst possible thing the US government could do. It will lead to disaster.

The US balance of payments deficit has resulted in very large dollar balances being held abroad, especially in China and the oil producing countries. The mere announcement of this fiscal policy will promote holders of dollars to unload them and into currencies that seem more substantial, such as the euro, which is why it has risen against other currencies. The pound will probably fall with the dollar, which will result in widespread price rises in the UK also, especially if interest rates are reduced in the coming months. That is precisely what the Monetary Policy Committee should not be doing but probably will, even though its remit is to hold inflation within certain limits and not bow to political pressure from the government or other groups. Once it caves in, it will have lost its credibility.

Bush's scheme, which is also substantially that advocated by Democrat politicians also, is a re-run of the "dash for growth" pursued by Edward Heath's Chancellor, Anthony Barber, in 1972-73. The eventual result was several years of cumulative inflation at 20%, economic stagnation, and widespread industrial discontent and the destruction of people's savings, as the purchasing power of money continued to slide. Other than in degree, there is no difference between this, and what the Reichsbank did in the 1920s and what Mugabe's government in Zimbabwe are doing now.

Whatever happens, the slump will come. The only question at the moment is whether governments will have have the wisdom to avoid inflation in addition, in their frantic and an inevitably futile effort of avert it.

There is an alternative. Cut the taxes on wages, goods and services by all means. This will indeed stimulate the economy. But the revenue foregone must be replaced by a tax on the annual value of land, to avoid the need to resort to the printing presses and the consequential inflation. Such a tax will not depress economic activity - on the contrary, it would stimulate it. Unfortunately it is too late to introduce it in time to avert the slump, though not too late to promote a faster recovery and prevent a recurrence.

This is because, in a recession, landowners hold sites off the market, awaiting an upturn. If a properly conceived land value tax was applied, then then these sites would be brought onto the market and be made available for construction and industry.

But no politician will embrace it. The concept of land value taxation is not in most government's repertoire of policies. Instead, the US and other countries will eventually be faced with the reality of what happens whenever booms turn to slumps, in the absence of land value taxation. This is a classic land price boom-bust crash of the kind that occurs approximately every eighteen years. The US and Britain will see the large scale inflation and financial ruination that characterised the early years of the Reagan/Thatcher regimes. Prepare for a glut of boarded-up shops and derelict factory buildings. And look for a re-run around 2025.

onsdag 16 januari 2008

Microsoft's Big Brother software

There was a report today about some Big Brother software that Microsoft has come up with so that bosses can check whether their workers are slacking. Apparently it monitors various bodily functions.

I never use M$ unless on someone else's computer. I find everything takes two or three times as long as doing it on Linux or Apple. A friend of mine who is wedded to M$ spends a fortune on software and support. She and her staff sit in front of their screens cussing and blinding like troopers all the time while they try to get it to do what they want. If they had swear boxes on their desks they would always be full.

So if the aim is productivity, I would have thought the best thing would be to ditch M$ software. On the other hand, the concept is interesting. M$ certainly raises my stress levels when I am forced to use it, so perhaps they could use the technique to measure the frustration factor and change their software to reduce the stress it causes to the users. Or perhaps there could be a direct link to Accident and Emergency so that people can be whisked into hospital when they are about to crack. Or it might be used, in combination with voice recognition software, to make automatic donations to charity when people curse under their breath when frustrated by M$ software.

måndag 14 januari 2008

The plummeting £

The £ has dropped 9% against the Euro since November. This is a comparable rate of decline to that which occurred in the run-up to Black Wednesday in 1992. That led to Britain's enforced exist from the exchange rate mechanism and demolished the Conservative government's reputation for economic competence.

Fortunately for the present government, the newspapers now devote their headlines to trivia and to stirring up anti-immigrant emotion. But this respite will be short lived. The inflationary effects of the falling pound, of around 3%, will quickly find their way into the shops in the form of higher prices of foods, especially out-of-season produce imported from southern Europe, where higher costs will be augmented by recent fuel price rises. These are likely to lead to pay demands, which will further compound the inflationary pressure.

The weaker pound will also cause problems in the Eurozone as producers find it more difficult to export to Britain, and this could hit growth in those countries, thereby leaving the European Central Bank in a dilemma.

The government's reputation for economic competence will certainly not survive substantial inflation. Now the supposedly independent Monetary Policy Committee is meant to use interest rates as a means of keeping inflation below its target figure. Its only option is to push up interest rates significantly. But if it does this, then there will be a precipate collapse in land values, which will show up in falling house prices. This will induce a recession, negative equity and mortgage defaults and repossessions. Thus the MPC will probably bow to pressure for interest cuts, destroying confidence in its independence and with it, confidence in the pound. We shall see.

Looking back over the period since the Labour government was elected in 1997, it is now apparent, as some people recognised at the time, that its success was not due to any action on its part but to the fact that it was elected on the rising side of the eighteen year land price cycle. Now that the cycle has gone through the boom and is approaching the inevitable bust, the consequences will stick to Brown's reputation. There is nothing that can be done now as all options are going to hurt. Most likely, the government will decide to hit the prudent and thrifty rather than the foolish who lent too much and borrowed too much, and so the stage will be set for the election of a Conservative government, which will probably last until the next boom and bust, in around 2025. Unfortunately, the Conservatives appear to have little to offer other than their usual tired policies and a few gimmicks. But if they were to deal with the underlying causes of the boom-bust cycle, and it is well within their power to do so, they would be doing everyone a great favour and go down in history as one of the country's great governments.

Britain's terrible trains

Thameslink has been taken over by First Group who have rebranded it as "First Capital Connect", a meaningless term if ever there was one. One lot of people who have done well from the railway privatisation are publicity companies who do branding and that kind of marketing nonsense, trying to present less and worse as more and better, as if people are fooled.

The trains have been refurbished (they needed it), with a psyschedelic livery on the outside. The inside is another story. The seats seem even more tightly packed than they were before. The other evening I was sitting in the empty corner seat where the red bag is and the largish guy on the left came and sat opposite me. As my knee has been playing up and I cannot tuck it right under myself without it hurting, I was forced out of my seat and had to stand.

söndag 13 januari 2008

Liturgical language row

The 1973 translations of the Catholic liturgy done by the ICEL are having to be replaced by something more true to the Latin. This has aroused protest by the ageing liberals, who continue to defend the 1973 version.

It is a terrible translation, and now it is dated too. The translators could not even get the response "Et cum spiritu tuo" correct, transforming it into the bizzare and awkward "And also with you".

Some other languages at least have been accurately translated.

But now congregations in many parishes come from so many different countries, and people are travelling abroad so frequently that there is little point in using a vernacular liturgy. If the clergy were doing their job properly, in accordance with the various documents that have been repeatedly issued on the subject, they would make sure that their parishioners were familiar with the Latin texts and simpler Gregorian chants, a task that would start in the Catholic schools.

Catholic schools under attack by Labour MPs

Labour MPs are indignant about the success of religious schools, especially Catholic schools. They claim that middle class parents are playing the system to get their children into one. A new concern is the number of children being baptized.

This is strange because I thought that religion was considered completely uncool these days. I am surprised as I was under the impression that most of the pupils at the local Catholic secondary school hardly ever darken the doors of a church. Perhaps there is something about the Catholics whom the non-Catholics meet at their school that makes them admired as role models.

Why the "faith schools" are successful is an interesting question. The large number these days, especially on the liberal Left, who take a strongly anti-religious stance are generally unwilling to ask it as the answer might upset them. And so they tend to dismiss their success as "cherry picking". The curious thing is that fifty years ago, the Catholic schools were notoriously rough, so something has changed.

Britain today - disturbing news items

There were a couple of really disturbing news items today. The first was about a student with terminal cancer who was deported to Ghana, only to find that she could not receive the treatment she needed in Accra. It was said that the immigration officials had checked and found that the treatment was available. Obviously they did not check hard enough. They should be sacked. And as if any serious problem would have arisen, or bad precedent set, if she had been allowed to stay.

The second was about a young man who had been stabbed to death when he tried to intervene in some yobbery near where he lived. His mother received a payment from the Criminal Injuries Compensation Board, but the amount was reduced on review, on the grounds that he had contributed to his own death.

This was later reversed but what kind of people are they that sit on these committees?

torsdag 10 januari 2008

The state of the UK Pound

Now the pound is down to the point that one Euro is worth 75 pence, and there is no sign of any respite. This is its lowest value against European currencies since 1996 and its lowest ever against the Euro. Aggravated by higher fuel prices and consequently higher transport costs, it will quickly feed through into higher prices of food and goods that come from Europe, including staples such as vegetables.

What next? The Bank of England's Monetary Policy Committee (MPC) has decided not to reduce interest rates again this month, which may check the fall, but the pound remains vulnerable to political pressure and the MPC would have to hold firm or even raise interest rates for several months running if confidence in the UK currency is to be restored.

In the meantime, the lower value against the Euro, together with higher fuel prices, will quickly lead to higher prices of food and other commodities in the shops. This will put pressure on wages, and could lead to industrial unrest. It is not surprising that public sector workers' unions are against the proposed three-year pay settlement. They have no confidence that all-round prices generally will not be significantly higher in 2011.

To use interest rates alone as a tool of economic management is to charge the MPC with an impossible task. In the present state of the economic cycle, as boom turns to the inevitable bust, to raise interest rates would help the mortgage-led bubble go down faster, leading to tumbling land values (usually misrepresented as "house prices") and growing numbers of mortgage defaults, with economic activity going down in its wake.

But whilst putting interest rates down would help stave off the collapse, if only for a while, the effect would be to further weaken the pound, leading to higher prices, initially of imports, but eventually of everything.

Whatever policy is adopted, recession is on its way. This one is genuine, being land based and coming 18 years after the previous one, in accordance with the workings of a cycle which has been running since the start of the nineteenth century. The government will be faced with rising costs, for example to cover welfare benefits, and falling receipts as economic activity declines.

It then has two options. It can raise taxes or print money. It is more likely to adopt the latter course. Then Britain will be back to the inflation levels of the 1970s. Whether the US and Eurozone countries fare any better is doubtful, as they are in a similar state. The value of money is set for a fall.

onsdag 9 januari 2008

Luxury, poverty, and the Pope

The growing gap between rich and poor has been the subject of recent comment by the Pope. He has called for a fairer distribution of wealth. Some people have accused him of being a socialist and criticised him for not being an economist. They believe that market forces will suffice.

But market forces are unable to produce a just outcome without prior equity. This means that everyone must have equal access to land and other natural resources which are God-given. Whilst Marxist systems of economics produce tyranny and poverty, and Socialist ones have the same effect but do it in a softer way, the mode of economic organisation usually referred to as "Capitalist" invariably leads to a division between a small number of very rich and a mass of poor.

In the absence of free access to land and a genuinely free market, the notion of "Free Market" is a cover-up for a fundamentally unjust state of affairs. Free markets would, for example, rule out things such as restrictions on trading between people in different countries, subsidies, for example, to farmers, intellectual property rights, and many other practices which advocates of the free market conveniently forget to mention when putting their case.

The Pope is indeed no economist and one would not expect him to be. But if systems of economic organisation do not give everyone the right to the basic necessities of life - air, water, land - then there is something fundamentally wrong and it does not need anyone to be an economist to condemn that state of affairs.

Note, however, that the Pope was not calling for RE-distribution. He was calling for proper distribution. There is a difference. Socialists advocate RE-distribution. That is what is ultimately wrong with that system, because it implies an acceptance of an initial MAL-distribution.

Anyone who uses the term DISTRIBUTION is marking themselves off as being in opposition to Socialism, so there is no justification for accusing them of being Socialists. They are setting up a straw man and then attacking. If it sounds like socialist claptrap, they need to read it more carefully, as it most definitely is not Socialist.

The economic stance of the Catholic church has been DISTRIBUTIST since Rerum Novarum was issued in 1891. Socialist it most definitely is not. In fact, Rerum Novarum was deliberately put into circulation as a counter to Socialist notions. People might dislike that but they are putting themselves in opposition to the official views of the Catholic Church. Which they have a perfect right to do, of course as long as they understand this.

Distributism means that the God-given natural resources of the should be fairly distributed and available to all. Once that has been done, and only then, it is essentially Libertarian. It is a subtle position.

The other issue is that there is such a thing as a public realm, which US style Libertarians, and the Thatcherites who still dominate in "New Labour" Britain, seem to have forgotten. And so there are generations of unemployed or mentally ill people wandering the cities and sleeping in shop doorways, and squalid and unkempt public facilities, alongside smart wine bars and shops filled with luxury goods that most people cannot afford.

Those, and there are many, starting with the Pope, who do not find that state of affairs acceptable, are not necessarily Socialists.

The nub of the problem can be expressed by these two parables.

(I) A ship arrives on an uninhabited and fertile island. The people disembark and discover a chest containing title deeds to all the land on the island. They share it out between them. Then a second shipload of people arrive. They have no option but to accept a labour contract from those who got there first.

(II) Four people sit down for a game of Monopoly. When all the sites have been sold, a fifth player joins the game. He quickly finds that wherever he lands, he has to pay rent to one of the other players. He complains that he is having to play on unfair terms as he had no opportunity to obtain a site.

In most developed countries, land is monopolised in this way. The US government sold it all off or gave it away in railroad grants a century ago, though whose was it to dispose of? Where is the equity or morality there, and what of subsequent generations and descendants of those who were not around to take advantage of this distribution of largesse, whose value goes on appreciating?

Given that the distribution has taken place, how might the initial wrong be redressed?

The Capitalist way is to just accept the situation, as a few people can always pull themselves up by their own bootstraps. But the result will be a dwindling middle class and a drift towards tyrannical and corrupt government.

The Marxist way is to start off with a tyrannical and corrupt government and use robbery with violence as an instrument of policy. The Socialist way is to do the same thing, but with a smile. That way, as in Scandinavia, you end up with nearly everyone middle class and almost nobody rich or poor. This is a very good outcome but it is not sustainable, as there is a disincentive to enterprise. The wealthiest man in Sweden is Ingvar Kamprad - IKEA Founder and one of the world's richest men. Only the company is not in Sweden and Kamprad had to live as a tax exile.

But there is another way altogether. Private value is left in private hands but public value is collected for public purposes. What is public value? It is the value of God-given land and natural resources, which acquires a value only as a result of the presence and actions of the community. It was the American economist Henry George who proposed that the rental value of land should be collected and used for public purposes or distributed to all.

This is the kind of fiscal arrangement that would be in alignment with what the Pope is calling for.

Read about Henry George's proposals here

Kibera, Nairobi, the world's largest slum

When the troubles broke out in Kenya after the elections, a TV commentator described the country as one of Africa's successes.

If this is success, what does failure look like? So is Africa a basket case? It does not have to be but the continent needs land reform. The right sort of land reform. Which is not just land distribution.

This photograph comes from the Church Missionary Society, which like other Christian bodies, has projects all over Africa. It is good work, but never more than tinkering. Sadly, Catholic Church organisations do not have any better grip on the problem and the underlying issues of economic justice.

fredag 4 januari 2008

The sinking shrinking pound - 5% lost in three months

The pound is now worth only 1.33 euros. Three months ago it was worth 1.40 euros. That is a drop of 5% of its value.

What the hell is going on?

Cobalt price hike

Cobalt is the metal which is added to glass to make it blue, as in the Chagall stained glass window here. It is scarce and the main source is in the Congo. Its price is three times what it was a couple of years ago. The main reason is rising demand, as it is used in a range of electrical and electronic goods such as batteries and magnets.

The Prius hybrid car has about 2kg in its batteries. And this illustrates another problem with permanent economic growth. It is not just energy that is in short supply, but other commodities too. We need to use less of everything, and that means the whole notion of "growth" is not viable. Unfortunately, what are described as "capitalist" economies take growth as a underlying given, which means that the system is doomed. One must hope that there is enough perception around to make the changes before they are forced on us.

Big train order for Bombardier

These trains, called Electrostars, and the diesel version called Turbostar, were originally designed by Adtranz, the train manufacturer which is now part of Bombardier. They got off to a shaky start in 2000, but after a lot of work by the engineering teams they are well established and reliable. But when the initial orders were complete, the production line at Derby was shut down. Now, there are new orders, for example, from London Overground, and the production line has been reopened, demonstrating the industry's confidence in the design. It is likely that it will comprise a high proportion of new build for in the forseeable future, for example, as replacements for classes 313/507/317 and 455 as these become due for replacement.

The trouble is that the design, never entirely satisfactory, needs a thorough overhaul to get rid of the things that are wrong with it and take advantage of technical developments; for example, because of changes in the way the infrastructure is managed, it might be possible to make the trains wider, which would be more comfortable for the passengers. Other modifications could increase the capacity, improve the bouncy ride and reduce the time the trains stand at station while passengers get on and off.

These changes would cost money in research and development, but with this unexpected prospect of a big production run, they would be a good investment to make at this time.

Sadly, the most likely outcome is that the production line will go on churning out the same thing, warts and all indefinitely. There are many worse trains around but it is a pity that there is no real desire for improvement.

Income tax misery can be avoided

HMRCs site allows you to submit your tax return on line. You log in, fill in the information and submit. It is very clear and easy to use and you can save your work and log in again to continue, as many times you want until you have finished. Full marks.

Pity though that the notion that tax should be related to "ability to pay" is so entrenched. But what is wrong with "ability to pay"? First, in practice, it means that those with the deepest pockets have the ability to pay for the best professional advice and so exploit the inevitable loopholes in a system that equates "ability to pay" with "income".

The second thing wrong is the cost of the system, around £25 billion a year, which amounts to about 6% of the total collected.

The third thing is that it penalises work, thrift and honesty. There is a story about a Soviet commissar who was trying to gather crops from the newly established collective farms. His method was to ask how much they needed for their own use, and take anything more to the towns. Not surprisingly, the collective farmers didn't exert themselves to produce more than they were allowed to keep and the result was a food shortage. If, however, they had been told that they would be allowed to keep everything above a certain minimum amount produced, they would have had every incentive to work hard to grow what the commissar required, knowing that once that had been achieved, the rest was theirs. A similar tale talks of a shiekh who had a tax on palm trees and wondered why the farmers were cutting them down. When he replaced the tax with one on the value of the land, the farmers planted and there was abundant production.

Income tax is another one of these destructive taxes. It hits hardest at the margins and the best estimate is that it costs the country about £140 billion a year in lost production - what is known as "deadweight loss".

But while the wretched system persists, the authorities deserve credit for setting up a good piece of technology to deal with it. Not all the government's IT projects are disasters.

torsdag 3 januari 2008

Billions will be wiped off the nation's wealth

Accountants Grant Thornton predict that house prices in 2008 could end 10% below the peak they reached in August last year. According to a report in the Daily Mail, "A fall of this level would wipe about £400 billion off the nation's wealth held in bricks and mortar."

That is precisely wrong. Bricks and mortar go down in value all the time due to the effects of time, weather, and wear and tear. The peak referred to was a peak in land values, not the value of bricks and mortar. And it is a paper value. If it falls, nothing tangible has gone anywhere. Land can be exchanged for wealth, but is not itself wealth, and a failure to understand this is the reason why the problem of periodic booms and slumps is seemingly intractable.

This fall in values will indeed cause big problems for all sorts of people and institutions, in fact it will cause trouble for everyone, but false descriptions of the situation make it impossible to deal with and prevent recurrences.

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