lördag 28 juni 2008

LIberal Democrate wash-out at Henley

Sadly, the Henley by-election result shows how little impact the Liberal Democrats have had over the past ten years, despite the fact that they have had more parliamentary strength than at any time since the end of World War Two.

It gives me no pleasure to say this. On the contrary, I find it dismaying. There was a time when Liberalism was a distinct political ideology, with a particular and unique analysis of the workings of the economy. Its policies were far from being a judicious mixture of the policies of the Labour and Conservative parties.

Given the British first-past-the-post electoral system, it is inevitably difficult for a third party to make an impression on the political system, but the failure of the Conservative government in the 1990s put the Liberal Democrats back on the map, whilst the evident contemporary failure of New Labour has revealed the project as literally bankrupt, leaving the way open for the Liberals. But whilst the way has been opened, the Liberals have not moved in to occupy the space.

Why this has not happened is an interesting question that it would take too long to answer, but paucity of ideas seems to lie at the root of the problem.

Why can't Brown mind his own business?

The result of the Henley by-election is a damning verdict on Brown and New Labour. So why is he passing comments about Robert Mugabe? Could he perhaps have in the back of his mind the idea of sending in the British army to give them democracy?

Waitrose quality, Tesco prices

Despite the falling £, Sweden still is not expensive. A short taxi ride from Stockholm to my hotel came to £19. Apart from that, nearly everything else still seems slightly less expensive than in Britain when comparing like with like. But food tends to be generally better quality - if you want to buy UK-style junk food in the supermarket, you can get it but will have to search. The norm is Waitrose quality at Tesco prices.

fredag 20 juni 2008

The fallen £

The fallen value of the £ is very noticeable. It has dropped from 14 Swedish kronor last year to 12 now, which is a decline of 14%, and matters are worse than that because the Swedish economy has also had its problems.

But it gives the lie to the notion that Britain's difficulties are due to things like "world inflation", higher world food prices or higher energy prices. How come Britain has been affected so much more, when, unlike Sweden, it has its own oil and gas?

The real worry is that there seems to be little understanding of where the present bout of inflation has come from - not that I would claim to know.

The fall in the value of the £ against other countries has meant that all imports from the Eurozone and many other countries have risen just because of the adverse exchange rate. What has also happened is that the UK, amongst other countries, has experienced a classic land price boom, fuelled by over-liberal lending and borrowing. This has driven up land prices and promoted a building frenzy. The large housebuilding companies are now left with properties on their hands that they cannot sell at a profit, based on the price paid for the land plus construction costs. That is an actual financial loss and a real misdirection of materials and productive resources. Strangely, however, although there are a lot of houses that are difficult to sell, they have not become "affordable" and there are still calls for the provision of affordable housing. Clearly, the housing (land) market is not working as the free market advocates claim that it should.

It is also the case that since the Bank of England has no means of regulating the economy other than by altering interest rates, it has only the options of reducing interest rates and allowing inflation to take hold - which goes against its remit - or of keeping interet rates high and taking the risk of precipitating a recession.

A possible explanation of the current bout of inflation is that large amounts of money have been created by banks through allowing people to re-mortgage their homes and spend the proceeds on consumer goods and services. But those loans will have to be paid back and then the forces for recession will be accentuated.

So much for Gordon Brown's claim to have banished the boom-slump cycle. Such cycles are an inevitable part of the economy. However, they are worse than they otherwise might be due to the positive feedback loop built in to the land market, which can only be eliminated by the right sort of land value taxation. Which is not going to happen in the UK.

torsdag 19 juni 2008

Gone away

I have gone away to Sweden for the rest of the summer so will be writing from there.

I have taken away copies of the Guardian and Rail for 18 June, which contained plenty to write about so from time to time I will comment on things I read in those.

The UK looks different from the outside.

tisdag 17 juni 2008

Inflation target missed

Inflation was once defined as "undue increase in the quantity of money". Such increases usually occurred when governments resorted to the printing presses. The effect, after a delay of a couple of years, was a generalised increase in all prices.

Nowadays, inflation just means an increase in prices of a basket of goods and services included in some index or other, such as the retail price index or the consumer price index. Governments have a vested interest in choosing an index which shows a low figure, especially as pensions, savings and benefits are linked to the selected figure.

It is unfortunately the case that housing costs have been excluded from the UK indexes for several years. Had they not been, the higher inflation figures revealed now would have shown up long ago. Now those high housing costs were indeed caused by an undue increase in the quantity of money, but it was not money created by government but by the banks. Eventually, this money will be paid back but that will be far into the future. In the meantime, people have borrowed money on the equity of the higher land values pumped up by the banks' easy lending policies. This money is now circulating and will tend to drive up prices generally.

The present round of "inflation" is attributed to higher food and energy costs, but if there was no more money in the system, the prices of other things, including, and principally, land, would be driven down. Thus housing costs should fall, and if these were included in the index, there would be no inflation.

That is in theory. But in practice, land prices are "sticky downwards" - they do not fall in response to falling demand but instead, land (property) is simply held off the market. Under a regime of land value taxation, owners could not afford to do this and would exert themselves in getting land onto the market and into use. In that situation, land values would respond smoothly, upwards or downwards, in response to changing demand and economic conditions. But there is no such system in place.

And so there will be an increase in vacant properties the property market will become sluggish. Since housing-related industry such as refurbishment is important for the economy, all sorts of related businesses will be short of work. This is the way to recession.

A repeat of the "stagflation" of the nineteen-seventies is unavoidable. My hunch is that inflation will be 11% over the next 24 months. How bad the recession will be is still a matter of guesswork, but the the growing gap between energy supply and energy demand is going to have an impact, as is the increasing amount of meat-eating in developing countries, which puts a disproportionate pressure on food supplies and food prices. Expect trouble ahead.

Capitalism, Socialism or what?

I have pasted this from a comment I made on another blog.

Socialism doesn't work. But neither does the system of economic organisation which is sloppily described as "Capitalism". But to do a proper critique of Capitalism requires a deconstruction before it is possible to see the various elements of which it is composed.

Capitalism appears to lead to widening divisions between rich and poor, paradoxically going with material progress and technical devlopment. There is no trickle-down effect and there are resource and environmental limitations which are now setting a limit to growth.

On the other hand, free markets appear to, literally, deliver the right goods where and when they are wanted. So it is necessary to establish which of the components of "Capitalism" give rise to wage slavery and social injustice and which are beneficial.

måndag 16 juni 2008

Peverse incentives

I have just completed my online tax return and paid what I owe them using the online payment system. They have changed the forms which was a bit of a nuisance as I was all geared up to filling in the old ones.

Now I have got my flat refurbished and let I have had to pay a lot more tax out of the rent I am getting. No problem about that, but until last year the place was empty and going up in value and all I was paying was the Council Tax.

The perversity of this is that the system, in effect, rewards people who do nothing with their property. Where is the sense in this?

So what would I suggest. That the same tax is paid regardless of what people do with their property. The same amount should be payable regardless of whether they leave it as an empty site or develop up to the maximum the planners will allow.

Such a tax is known as Land Value Taxation.

onsdag 11 juni 2008

Housebuilders' woes

The big housebuilders are in trouble. Barrett's share price fell by 24% yesterday, to 85p, down from almost £11 a year ago. Other big companies have suffered similarly. What is going on?

The housebuilders do not make their money from building houses. They make it from purchasing land at just above its agricultural value, getting planning consents for development and then, after holding it in so-called "land banks" for a while, trickling it onto the market slowly enough to keep prices buoyant. In this throttling of supply, they are aided and abetted by the planners who have a restrictive attitude to development.

The strategy fails from time to time as the artificial shortage causes land prices to be bid up so that people are borrowing more than they can afford to pay back. Then the bubble bursts.

With an effective system of land value taxation in place, supply and demand come into balance. When, as it needs to be, land value taxation is a substitute for existing taxes on labour, goods and services, the cost of construction comes down, making it possible to build larger houses on larger plots of land instead of cramming sites with sub-standard houses as happens at present; new houses in Britain are amongst the smallest in the EU. Because Britain has a high population density, this reform is essential.

Poverty, poverty, poverty

Today's news contains a report about the government's failure to prevent increasing child and pensioner poverty.

It is unfashionable to say this, but child poverty is to a large extent a consequence of the decline in the family. Single women with highly paid jobs may be able to function effectively as single mothers, but if the mother has no qualifications and can only do a menial task, or the child is not old enough to allow her to go out to work, then child poverty will be an inevitable consequence. And with the tax and benefit system the way it is, then it is quite likely that there will be no incentive to work, but rather to continue living on the bare subsistence provided by benefits. Tax credits were meant to address this but are evidently too complicated for people to get to grips with.

Pensioner poverty is a separate issue. The Chancellor's raid on the pension funds cannot have helped, but the main effects of that have yet to come. Most pensioners will have worked, if they worked, during the post-1945 period when they are likely to have paid 40% of their earnings in tax, and if they had a mortgage, a further substantial chunk will have gone out in interest payments. To that extent, their ability to save will have been badly hit, and it was inevitable that they would be hard-up when they retired.

The present generation of pensioners need assistance to deal with their problem but policy should be directed to the underlying cause to prevent this from recurring.

lördag 7 juni 2008

Re-vamped economics website

The Land Value Taxation Campaign now has a re-vamped web-site.

As I am one of the contributors, most of my current affairs economics comment will now be on that site instead of this blog. If you are interested in economics, you will find much else besides on the site.

To read these blogs, navigate to the site and register yourself free of charge with a username and password.

In future, on this blog I shall just provide a brief resume and link to the web site.

fredag 6 juni 2008

Mobile phone trouble update

The telephone was returned to me yesterday with the latest firmware loaded. I was still unable to transfer my contacts from my old Motorola to this one, although I tried at least three alternative methods - iSync, dragging the addresses to the Bluetooth icon and exporting the v-card. No luck.

I spoke to the assistant in the store who was most helpful and he recommended possible replacements - some Nokias - but advised that I check on the Apple and Nokia web sites, which I did, and confirmed that the Nokia products have iSync compatibility. In fact, Nokia have good Apple support. I left the V8 behind in the shop, expecting to be able to collect an exchange next day.

Then I got a telephone call telling me that my handset was ready for collection and was handed back the Motorola. I made a long call to Carphone Warehouse customer services from the shop explaining that I would not accept the item as it is useless to me. I have no intention of keying in 200 contacts and can not in fact physically do so as of course some of the contacts have letters Ä, Ö and Å which are missing until a new language pack is loaded, which also does not seem to be as straightforward as with the previous Motorolas. It is not unreasonable to expect to be able to transfer a contact list and diary from one mobile to the next by some means or other when both phones are of the same make and the new is sold as a successor to the old.

So I made the shop take the phone and got a receipt. In the meantime I hae signed up to a contract but am without the new handset which forms part of that contract. I am not getting what I have paid for. As I originally returned the handset within four days of purchase, it was well within the time limit for exchange, but agreed to try it again after it had been checked by a technician and reloaded with the latest version of the firmware. I have wasted the best part of four days fiddling about with it and talking to people on the telephone, as well as having had to deal with the unpleasant manager of the Churchill Square shop.

Unless the matter is dealt with in the next couple of days I am also no longer in a position to actually collect the handset and deal with the task of setting it up as I am going away very soon for several months.

The moral? Perhaps, avoid getting a new mobile phone if the old one is OK. But the guy in the shop was helpful and put me on a cheaper tariff, though I did not need to sign up for a new contract to have done this. The problem was not his fault - he assumed that is the phone was described as a successor to the V3, it would have had at least all the same features and then some, instead of less. Also, it sounds as if Motorola has gone to the bad again, as quite apart from the compatibility problems, the software is not easy to use. Even if Carphone Warehouse does nothing at all about it and leaves me with a new contract and no new phone, this trouble will have cost them all the profit they should have made, so perhaps they should be more careful about what they sell.

torsdag 5 juni 2008

House price expectations

Tidy Street, Brighton
Originally uploaded by seadipper

I just received a questionaire from a Brighton estate agent asking what I expected would happen to house prices in the next year.

I do not have a crystal ball but If there was no expection of inflation I would say that prices are 20% too high. The house two doors away from me in a street like this is let for £1500 a month which is about £15,000 a year net. Others in the street, which is near the station, are on sale at about £380,000 which is about £10,000 less than what they were at the peak 12 months ago.

But I would expect inflation at 4% in the next 12 months and 7% in the 12 months after that. It might have been higher but the Monetary Policy Committee seems to be able and willing to resist calls to reduce interest rates.

If you work out how much you would need to leave in an account to get that amount in interest, and add on a bit for the expectation of future growth and allow for inflation, the right figure for a house such as those in the picture figure is in the region of £340,000. I think that is where the prices will settle in due course. But trading will be at reduced levels while present uncertainties and lack of confidence continue. There is a lot of fear around.

I would also expect to be the rental market to be fairly stable or possbily buoyant and rentals to rise roughly with inflation. This is the normal pattern.

tisdag 3 juni 2008

Nobody would have expected this forty years ago

11-10 60163 Darlington
Originally uploaded by delticalco

Forty years ago nobody would have expected to see a brand new high speed steam locomotive approaching completion.

The end result of a £3 million project, it will start running for the first time in August and after thorough testing it will be allowed on Britain's main lines. This will be exactly 40 years after the last steam locomotive ran in regular service in Britain.
It was built to fill a gap in preservation, as every one of the type was scrapped prematurely after less than 20 years in service due to the hasty introduction of diesel locomotives on Britain's railways.

Some people have suggested that by following the original design fairly closely, the opportunity was missed to build-in the technical improvements that have been made to steam locomotives in recent years. These have pushed up the efficiency and power of steam locomotives by a useful 30% or more. But to have introduced new features would have been technically risky and given rise to all sorts of problems over safety certification, which has been difficult enough even with few alterations.

With the experience gained, there is talk of following up with other projects. Already there are a number of other steam locomotive replicas under construction, including an additional Clan class 4-6-2.

For what it is worth, I would suggest one of the following projects. First, there is the Wardale design for an advanced two cylinder 4-6-0 and an associated type of 2-8-0 heavy freight locomotive for third world countries. With fuel prices going the way they are, it would not be surprising if the latter will not be an attractive commercial option within the next few years.

The other possibility is the tank locomotive design prepared by Roger Waller for DLM intended for short distance tourist and commuter routes which have never been electrified. Alternatively, the design might be based on the British Railways standard 2-6-4 locomotive, for which, again, there would probably be an immediate demand both from preserved railways and possibly from community railways looking for inexpensive rolling stock.

Whatever is constructed, costs start to fall to a competitive level when the production run reaches six, and they continue to drop until batch sizes go up to about 20. Either way, the time has come to demonstrate the potential of this updating of an old technology.

Advanced 4-6-0 locomotive by David Wardale
Advanced tank locomotive by Roger Waller

The Silver Bullet

Silver bullet
Originally uploaded by Combined Media

The world is no closer to consigning poverty to history. Why is there still poverty - from whole countries of the poor "south", to the ghettos and trailer parks of the wealthy USA and the depressed estates of the UK? Good intentions, rhetoric, pity and media expressions of outrage have achieved nothing. People now say there is no silver bullet. High profile pop star circuses by people like Bono and Geldof have scarcely scratched the surface of the problem. Neither have the heavyweight programmes of international aid or development agencies.

Every human in the world has an equal right to a good life. There is plenty of wealth in this world. Why then, are so many poor, even in "wealthy countries"?

According to economist Fred Harrison, there is only one way to kill poverty...

It is described in his latest book, The Silver Bullet, available from Amazon. Expect an incisive analysis and a prescription that would address the key factor that all the other experts ignore.

Illustration : artwork / graphic by Michael Whitehead for Next 16-9-2003.
Shows a silver bullet / speeding bullet

Previously published work. For permission to reproduce this work in any form, you must contact : photo_sales@theage.com.au
or Lucas Carter on +613 9601 2301

The Number of the Beast

Originally uploaded by ridgway

666 is the Number of the Beast. The reference is from the Book of Revelations.

According to the Wikipedia there are all sorts of explanations and some authorities say it was 616 anyway. I had not come across this weird number stuff until recently. All I knew about 666 is that it was the number of my local trolleybus. When London trams were replaced by trolleybuses in the 1930s, they added 500 or 600 to the number of the previous tram route. 666 replaced tram 66 in 1936 and went from Edgware to Hammersmith via Cricklewood, Willesden and Harlesden. I never heard it referred to as the Route of the Beast, which suggests that this nonsense could be a recent invention.

To bring things up to date, the 666 trolleybus was replaced by bus route 266 in 1962 (above). The first replacement buses were Routemasters, which ran until the route was converted to one person operation. So you could say that 266 is the current number of the beast. Only now it goes to Brent Cross shopping centre instead of Edgware.

måndag 2 juni 2008

"Fair Trade" is pointless

Fair Trade sounds like a good idea. By fixing the market, farmers in underdeveloped countries get a "fair" price instead of a lower free market price.

A report by the Adam Smith Institute sets out, not altogether successfully, to explode the myth. But the main points it makes are conclusions that follow automatically from any economic analysis that looks at the overall picture. They flesh out concerns about Fair Trade that I have had for a long time.

Fair trade schemes create little sanctuaries where people are better off than those around, who do not benefit from those schemes. Where demand for produce is limited, the result is that those outside the fair trade schemes are liable to be worse off than they would otherwise be. Fair trade could never be a scheme of universal applicability whereby people could be lifted out of chronic poverty. It would not make poverty history.

Worse still, higher prices are inevitably claimed by landowners in the form of higher rents. Where the farmer is the landowner, the result of the scheme is to enhance the landowner's imputed rental income, not his wages. Where the farmer is not the landowner, his rent will go up. Fair trade does nothing for the landless. It is unfortunate that it takes a so-called right-wing think tank to point out this unpalatable fact. Fair trade is no more than a marketing device to help middle class people in first world countries assuage their feelings of guilt.

So what is necessary? Land reform. And the right sort of land reform. This is not the same thing as land distribution, which in some situations can make matters worse. The important thing is what happens to the economic rent of land. The economic rent must be collected and used as public revenue for the benefit of the people at large. If it is not, then those who have land will accumulate wealth and the landless will become poorer and poorer, certainly in relative terms and often in absolute measure also.

In the wake of that division of the community into landowners and landless comes a secondary division into those who have surplus money and those who do not. This creates the situation in which a host of other evils will flourish such as moneylending at high interest rates and the associated cycles of booms and busts.

As long as the economic rent of land is collected, then whether land is left in the hands of large holders or distributed amongst smaller farmers is a matter that is best decided according to local circumstances. If there is no longer any particular privilege associated with land ownership, then the evils of moneylending that follow in train are averted.

One would not expect the Adam Smith Institute to advocate taking the rental value of land into public ownership, though Adam Smith himself proposed precisely this. But if, and only if, this is done, free trade become fair trade, workers receive the full fruits of their labour and feel-good schemes become irrelevant.

Fair Trade, like the Jubilee Campaign and Making Poverty History, serve only to divert attention and energy away from the underlying issues.

Ricardo’s Law in brief