Doing something sensible about the High Street

Some 15% or so of retail sales now take place over the internet, with delivery vans not High Street shops involved. Some 15% of the country’s retail space is empty, This is not a coincidence.

We finally have something sensible being done and said about this:

Philip Hammond will use next week’s Budget to deliver a package of relief measures for the UK's battered high streets, including cutting business rates by a third for half a million companies.

The Chancellor is expected to say on Monday that he has listened to cries for help from the nation’s embattled shopkeepers by unveiling £900m in immediate business rates relief for 496,000 small retailers.

Mr Hammond will also launch a £650m fund to transform high streets by improving infrastructure and transport access. The “Future High Streets Fund” will help local areas switch under-used retail space into homes or offices, alongside a move to relax town planning laws that will make it easier to change...

The business rates stuff is blather, driven by a fundamental misunderstanding. Rates are incident upon landlords, not tenants.

However, easing change of use is indeed sensible (wonder where Mr Hammond got the idea from…). We tend to think that we’re short of homes at present. We tend to think we’re oversupplied with shops. Conversion from one to the other seems a sensible enough solution to both problems. No point in actually wasting the built estate.

The one puzzle is why this will cost money. If we free change of use, have market prices, then it shouldn’t cost anything at all. As relative prices change then so will uses, nothing else needs to be done, does it?

Our regular proof that Keynesianism doesn't work because politics

John McDonnell is doing us all a favour here as he’s proving why Keynesianism doesn’t in fact work as a method of managing the public finances. Not for any reason that the equations don’t work but because politics doesn’t work that way:

The shadow chancellor, John McDonnell, has said Labour would reverse cuts made by the government since 2010 as Labour highlighted more than £108bn needed to “end austerity”.

Labour’s pre-budget review said it would take £42bn to reverse departmental spending cuts. The Institute for Fiscal Studies (IFS) had already highlighted another £19bn needed to stop further cuts to government.

Some £33.5bn would be required to reverse cuts to social security and social care, Labour said.

Recall what the basic theory is. Prices and quantities do not automatically - and certainly not immediately - respond, therefore it’s possible to the economy to be too long in a recession, even to permanently be below productive capacity. Therefore, in such recessions, government spending - hopefully debt financed not monetary expansion but if needs must - should rise in order to jolt the economy back to full output and employment.

Once this has happened spending, the deficit, should return to normality. Even, perhaps, shrink a little in order to take some of that induced heat out of the economy.

True, that description’s not going to get an A* in an exam but it’s a useful enough pencil sketch.

So, why won’t it work? Because politics doesn’t work that way. Look at what McDonnell is arguing. He’s starting from the peak of that deficit and spending blowout in the last recession and claiming that any reduction in either is cuts, austerity, that must be reversed. Rather than the entirely normal second half of that Keynesian theory. That is, the theory doesn’t work as no one is willing to implement it all, only the spending and fun half of it.

Now it’s true that we shouldn’t blame McDonnell for this, he’s just doing his job. Arguing that all freedom, liberty and all effort by everyone should be absorbed into the state. That being the long term effect of this Keynesian ratchet. But there’s no reason why the rest of us should agree with him either, blame or not.

Given Uber why repeat the mistake with Airbnb?

We do need to learn the lessons of previous arrangements in order to prevent ourselves making the same mistakes again. So it is with this sharing economy lark.

What Uber revealed to us was who was really benefiting from the previous taxi licencing regime. In New York the licence to run a cab could be rented out for some $80,000 a year. That gave such a licence a capital value of some $1 million. This is pure rentierism, the extraction of an economic rent simply for owning the right government issued piece of paper.

The irruption of Uber into the market has brought down that rent, the licences are now worth perhaps some one tenth of that peak sum. Good.

Now, consider that lesson as we look at Airbnb:

In extreme cases such as Barcelona, the only answer might be a clampdown. (It would certainly help if Airbnb could be bothered to pay the €600,000 finethe city levied on it in 2016.) In other places, a more nuanced approach might be appropriate. Many cities now put a cap on how many nights per year a property can be rented short-term and it may be a good idea, too, to cap the number of properties a single owner can list, or limit the number of permits enabling owners to list property in a particular area. The lesson should be that no company is above the law.

We must, as previously with the cabs, limit the number of suppliers to the market. By law, with licences. The effect of this?

In Barcelona, it used to cost €250 (£221) for a short-term rental permit. Now that such permits are no longer being issued, they change hands for up to €80,000. It’s “sharing” for the rich, maybe, but not for the rest of us.

Our correspondent (in The Guardian, of course) complains about the creation of pure economic rents then demands that more be created? Do these people even read their own articles?

Why would we want to create capital value, incomes, for those who just happened to be in the right place when the pieces of paper were handed out? It’s an absurd ignorance of the market effects of restrictive regulation, isn’t it.

The latest gender pay gap misunderstanding

We entirely agree that we should look at the numbers for the gender pay gap. For only by doing so can we possibly uncover whatever reasons might be behind any gap that does exist. Which is an essential prerequisite for reaching a decision as to whether there’s anything which need be done about it or not. This making this problem exactly the same as all other ones of course. Unless we know what and why we cannot decide upon whether let alone what action, can we?

The following really not being all that helpful:

Women earn less than men and their wages grow more slowly even among the youngest cohort of workers, putting paid to the idea that having children is solely to blame for harming women's career progression.

Across the UK, women earn on average 9.8pc less than men per hour worked. Much of this difference is often ascribed to career choices after the birth of children.

But the latest Office for National Statistics data show that even the youngest workers aged between 16 and 29 earn different amounts, before many have children. The average first-time mother in England and Wales was 28 years and 10 months old in 2016, with men waiting until they are 33 and four months before having a baby.

Yeeees…this is how numbers work.

That 9.8% is the median. That 28 and 10 months is also the median age at primagravidae. This means that half of women will have their first child before this age, half after. If it is indeed children which produce the gender pay gap then that effect will strike half of women before that 28 and 10 months. Meaning that the effect of children in producing a gender pay gap - again, assuming this is the cause of it - will be there in the measures of pay at ages before the median women has given birth.

The figures being used are here by the way. It’s an odd data set to use, not really set or laid out for this purpose. This is a better one. You know, the one that shows as very small gender pay gap, one rising as we approach that age at which the median woman has given birth? Exactly as we would expect if it is children producing it?

If you're going to change the world it pays to understand it first

We’ve all noted the modern mantra. The tech companies have lots of money, we want it. We being those who would tax or regulate it off them - those who insist they know better how to create and dispose of human wealth than those who are actually successful at doing both. We should all also note the problems with the mantra:

And finally, we need to tax corporations more aggressively so we can all share the benefits. According to the European commission, global technology companies pay just 9.5% tax, compared with 23.2% for other companies. The irony is that they could easily afford to pay more. Most use their vast profits in share buyback schemes that inflate their share price. Buying your own shares is pure financial laziness.

Technical details first. The low tax rate is rather driven by the manner in which profits made and kept offshore were not taxable events for US companies. Now they are - that tax rate is going to rise as we see the next wave of published results. That is, that loophole is already closed.

It’s also laziness - or financial ignorance - to insist that those share buybacks are to inflate share prices. The idea of rewarding shareholders is what companies are for of course so it wouldn’t be a problem if that were all that was there. But as even casual observers will note tech companies tend to pay the staff in stock. Which must come from somewhere. That being the use of some of the profits made to buy in stock to then hand on to the staff.

Stock buybacks are, in part at least, the wages bill.

And to the conceptual error. We must tax so we share the benefits? Seriously, the only value to economic activity is the amount that can be extracted from it to pay for diversity advisers?

This is drivel, isn’t it. Sure, Zuckerberg’s got billions. And 2 billion people get to use Facebook. Larry and Sergey could climb to the Moon on their piles of money - and the rest of us gain a search engine of all of human knowledge. One recent estimate putting that consumer value of that engine at $18,000 per user per year. As opposed to the perhaps $50 or $100 in revenue it channels to its producers. Revenue note, not profit.

By far the greatest value of any organisation is that we get to enjoy the output of it. If you’re off to change the world and you don’t get that point then you’re not going to be able to reform very well are you? Even, not be able to reform coherently.

They're rather missing the point of having a market at all here

Some people - many more than we should be comfortable with - will complain bitterly about markets. They allow people to do what those complaining think they shouldn’t be, d’ye see? This being rather the point of having a market, so that people are free to do what others think they shouldn’t be. Subject to those usual Millian constraints about fists and noses of course.

This complaint is therefore rather missing the point:

Urgent action is needed to tackle discrimination against benefit claimants by mortgage providers, according to the Residential Landlords Association (RLA), which has found lenders representing 90% of the buy-to-let market refuse a loan where a tenant is on housing benefit.

On Saturday, the Guardian revealed how NatWest told one landlord that she would either have to evict her tenant of two years, or take her mortgage business elsewhere, after a blanket ban by the bank on benefit claimants.

The bank’s stance came to light after Helena McAleer, who lets out a home in Northern Ireland, approached NatWest to remortgage her loan.

She refused to evict her tenant, a vulnerable older woman who always paid the £400-a-month rent on time for more than two years, and instead moved her loan to another provider.

NatWest is lending out depositor's’ money - for those of an MMT persuasion, funding the creation of new money - with shareholders on the hook if it isn’t repaid. How it decides to do that is up to NatWest, that’s what the shareholders have hired that management to do after all.

It’s possible that there are some risks, costs, to lending to buy to let landlords who rent to benefits recipients. At which point that discrimination makes sense. Or perhaps there are no such costs, in which case NatWest shareholders are losing that business and thus money. Which is their cost and their fault for hiring that management which made that bad decision. This being the point of this capitalist idea, that you lose if you get your investment decisions wrong, win if you don’t.

The point of the market part being that everyone gets to make different decisions and that’s how we zero in on what actually does work, being able to thereby discard all those myriad options which don’t. This being the point, the market is our discovery process.

So, capitalism and markets working just as they should. For do note the final part, someone else has a different opinion and the loan was financed. So, it’s all working. What the heck is anyone supposed to do about it?

Madsen Moment - Public Health England

Dr Pirie takes on our state nutritionist in this week’s Madsen Moment. Bad enough that we have a publicly paid body to tell us what we can and can’t eat, but even worse that they fail to issue advice that actually works. Instead they offer pseudo-science, with one-size-fits-none recommendations and proposing bans on perfectly fine foods. Give it a watch below.

This is to get the incentives entirely the wrong way around

There are two views we can take of profits. One is just the unearned moolah that the plutocrats gain. The other is an incentive to do something, something we might desire done. After all, profit made by the butcher, the baker, provides the incentive for our dinner to arrive. That first view is more generally held by the ill-educated and the left, but we repeat ourselves. Sadly, it seems to be shared by the current Tory government which isn’t the point of having one of those at all:

Councils would be able to strip landowners of large portions of profits from the sale of their land, under proposals expected to be unveiled in the Budget, The Sunday Telegraph can disclose.

An official review commissioned by Philip Hammond, the Chancellor, is to endorse controversial calls for the state to “capture” more of the increase in value of sites when they are granted planning permission.

Sir Oliver Letwin, the former minister carrying out the review, is expected to recommend that local authorities should be able to seize greater amounts of landowners’ profits in order to fund the construction of local infrastructure such as roads and affordable homes.

There are practical reasons why this is a bad idea. Section 106 agreements already strip much to most of the profit from such schemes to make such payments. There are even reports that some schemes don’t go ahead as they’re just not worth the candle any more, not what we desire at a time of purported housing shortages.

But to move up a level to something more like theory it’s to take the wrong view of those profits. It is only possible for there to be a profit if the output is worth more than the inputs. That’s the definition of profit in fact. And such creation of value, that’s the very definition of the creation of wealth more generally. So, we actually desire that more people transform low value farm land into high value housing. The profit by doing so is that increase in the general wealth. Why should we be taxing this punitively?

And from theory to practice again. Why does this profit exist? Because the planning system does not allow enough of such land to be transformed. So, even if you are pearl clutching at the idea that people profit the solution is simply to issue more permissions to do so, thus the value of each one declines.

The answer, as ever, is to blow up the Town and Country Planning Act 1947 and successors. There’s a certain wonder that a Conservative government doesn’t do this, remove one of the great socialist planning exercises of the post-war years.

Venezuela campaign: How nationalisation caused food shortages in Venezuela

Venezuela is currently in the grip of a devastating food shortage. Reports estimate that in 2017 the average Venezuelan lost an average of 12kg, following a 9kg weight loss the previous year. 60% of Venezuelans said they woke up feeling hungry each day.

Nationalisation, a key policy of the Venezuelan regime, is an important cause of the hunger. Also called expropriation, it was applied to every aspect of the food chain from basic agriculture to food processing and retailers.

Chavez introduced a Land Law in 2001 permitting the expropriation of agricultural land. Seized estates were turned over to co-operatives and regime supporters. The new farmers lacked the technical know-how, management skills and capital necessary to maintain production. Moreover, as state retained title to the land, the regime would repossess it if the new farmers did not continue their political support. By 2010, the government had seized 20% of the agricultural land in Venezuela. The remaining private farmers do not invest in their farms for fear of expropriation.

These expropriations destroyed Venezuela’s agricultural capacity. According to the National Confederacy of Agriculture and Livestock Associations, agricultural productivity dropped sharply from 2007 to 2011. Maize production fell by 40.3%; rice by 38.9%; sugar by 33.6%; coffee by 46.5%; potatoes by 63.5%; tomatoes by 31.0%; and onions by 24.6%. Livestock farming was also devastated. Beef and veal production have dropped by 75% between 1998 and 2014.

Nationalisation also affected Venezuela’s food processors. The government expropriated 18 of the 27 plants producing the staple corn flour. All are now making a loss and are in various stages of collapse. One of the most egregious nationalisation cases is the Cariaco Sugar Plant: within two years of being nationalised it was only producing at 11% of its previous production levels. The Ezequiel Zamora Sugar Plant, started in 2002 as a new state enterprise by Chavez in his home state, has cost a huge amount but is largely in ruins and barely producing any sugar. Workers in nationalised food-processing firms who protest the situation are treated with no mercy. In February this year, the regime arrested several trade union leaders at the Lacteos Los Andes “Hugo Chavez” plant in Cabudare who protested corrupt and incompetent management.

Chavez also nationalised food retailers, such as the large supermarket chains Exito and Cada in 2010.  These were turned into a state-owned operation called Bicentennial Supplies that by 2017 had largely collapsed, with 60% of its shops shut and 6,000 of its 9,000 workers dismissed.

Of course, nationalisation is not the only cause of food shortages in Venezuela. Price controls forced businesses to operate at a loss or shut down. Three-quarters of private businesses in Venezuela have ceased to operate as of 2018. Venezuela now imports 70% of its food and people are reliant on inadequate government handouts. To rescue the situation drastic measures are needed. To prevent a famine the Venezuelan government must abolish price controls and end expropriations. Only then will hunger be relieved.

More information on the Venezuela Campaign can be found on their website. 

Clearly, therefore we must stop recycling plastics

A point we’ve been making for a decade now - recycling’s a great idea as long as you’re adding value. If you’re subtracting value by doing so then it’s just yet another method of making us all poorer. Making us poorer not being a known aim of any socio-economic system outside the heads of the Momentum crew.

Thus, if we find that we cannot recycle something because it’s too expensive to recycle that something we should not be trying to recycle. So it is with plastics:

Plastic is becoming too expensive to recycle, councils across Britain will on warn Saturday, raising fears that homeowners' efforts to sort through their waste may be futile.

The warning by the Local Government Association comes as the Telegraph reveals mountains of plastic waste are sitting on an abandoned airfield because the local council cannot afford to send it to be recycled.

The LGA, which represents more than 400 councils across Britain, is demanding that manufacturers contribute more towards the increasing cost of recycling.

Otherwise, they say, local authorities will no longer be able to afford to keep processing it.

Recycling plastic eats money, swallows the wealth of the nation. Therefore we should stop doing it. No, we cannot argue that it saves some precious natural resource - we’re already told we’ve too much of that natural gas around, that we cannot use what we already know is there. To the point that we shouldn’t be drilling for any more. Not that we agree with that last but that is what we’re told by these same people who want us to recycle.

This also does not mean that we should just tip it into the oceans to choke whales. We’ve got it in a nice pile, so we can burn or bury it. We’ve still that waste management problem and the point is simply that there are cheaper ways to deal with it than trying to recycle.

Another way to put this is that if something is worth recycling then someone will pay you for it. If they demand money to haul it away then recycling is not the correct response. Money is being demanded - we should stop this recycling because it’s not adding value, is it?

Do note the overall economic problem, resources are scarce in aggregate. Thus if we waste our wealth on this waste of waste recycling there will be orphan waifs shoeless and subsisting on yesterday’s crust. Burn the plastic, for the kiddies.