Give second homes a second chance
There have been a number of schemes both proposed and enacted to try and tackle the perceived problem of 'second homes'. The ASI has written about the issue of second homes before (here).
Since then the problem of second homes has been strongly connected to the shortage of housing in this country. Many immediately put forward the case of restricting the welfare of others instead of addressing the root of the issue - that there are not enough homes for those living in these popular tourist communities.
The St. Ives scheme of banning the construction of second homes has some serious flaws as pointed out in these excellent articles by Christian Hilber at the LSE (here) and (here). This ban will likely result in an accelerated destruction of the communities. Firstly, it maims growth (and possibly leads to decline) in both the local tourism and construction industries, likely resulting in wage stagnation or job losses. Secondly, it results in an increased demand for existing primary and secondary homes causing locals to be priced out further.
Other schemes proposed include Onward's proposition for raising stamp duty on second homes by 3%, ultimately raising £540 million along with other measures, which would help fund taking homes worth £500,000 or less out of SDLT altogether. While we welcome attempts to reduce SDLT, this sadly looks like a tax grab and does nothing to help individual communities dealing with unaffordable prices. Furthermore, stamp duty only affects the buyer when they buy the property and does not impact how much they make use of the property after they have bought it.
All of this does not really address the main problem though, that locals in these villages are struggling to buy property. Councils could do more to ease planning regulations on homes built primarily for the local market, helping to deal with issues of supply. Or, if you did want to have market intervention, then councils could introduce low annual taxes on secondary homes to help subsidise building of homes for locals.
But it would be foolish to pursue a policy that would further price locals out while also killing the local labour market at the same time.
What an idea - things should be run by people who know about them
Of course, Michael Gove had a point about so called experts but here, from the other side of the spectrum, is an idea that has legs too:
I confess I was concerned that you’ve taken on a job in an area that up until now hasn’t interested you. Looking through your Wikipedia entry, you seem to have focused so far on fireplaces, chinaware, Northern Ireland, car boot sales and aircraft carriers. These are all fascinating areas but for the moment I don’t see a direct link to education. Do you think it would be a good idea if the person in charge of education had expertise in such matters as how young people learn, or what it actually means to assess what a student knows, or which education systems in the world deliver the fairest outcomes for all?
In your political career, you’ve worked as the chair of Conservative students, and deputy chair of Conservative party districts; you’ve been a parliamentary private secretary in the field of transport or working directly to the prime minister, you’ve served as chief whip and, famously, as defence secretary. This is all good ladder-climbing stuff in the adult world and, it has to be said, it’s an effort you’ve made at some distance from schools themselves.
This being Michael Rosen addressing Gavin Williamson.
Well, yes, we see the merit of this idea. Things should be run by people who have a clue about the things they’re running. This clearly meaning that things should not be run by people whose ability is in kissing babies to gain votes. That is, the demand - insistence, preference perhaps - that things be run by those with actual knowledge of the subject under discussion means that things should not be run by politics or politicians.
We’ll sign on to that, yes.
Milton Friedman and Student Debt
A lot can happen in thirty years. By the time of his death, Alexander the Great had carved out an empire stretching from Macedon to India. He had toppled kings, led armies and changed the known world forever. But the prospects for today’s twenty-somethings aren’t quite so rosy, and any odyssey across Eurasia is now rather out of the question. To a student in 2019, ‘thirty years’ has one connotation: the period after which any unpaid academic debt is written off.
‘Written off’ is the key phrase here. The fact of the matter is that at a cost of over £27,000 for one degree alone, coupled with a crippling six per cent interest rate outside Scotland, most student loans are quite simply impossible to repay. It’s not only young people that are losing out from this arrangement as a consequence; it’s also the government. The entire set-up, accompanied by occasional Cassandras warning of a public finance black hole of bad student debt, has a ring of the subprime mortgage fiasco to it.
Yet it has been the case for a while now that the student loan scheme as it operates in England isn’t the only way to get more people into higher education. In fact, an alternative approach was first explored in one of Milton Friedman’s papers back in 1955, in which he advocated an ‘Income Share Agreement’ by which universities could fund a student’s academic career in return for a cut of their future earnings.
The advantages of such a scheme are many. The first clear benefit is to the student, in that individuals with talent and a strong work ethic can have enormous value added by a university with no upfront costs and, equally importantly, no psychological burden of debt. A common criticism of ISAs is that they can leave students feeling short-changed when universities continue to take a small percentage of their income long after graduation. The counter to this, however, is twofold. Firstly, a small amount of regulation placing a ceiling on the size or duration of ‘repayments’ would go a long way to finding a balance. The second point is that ISAs give a university a genuine financial stake in each of their students, meaning the more value they add, the more they will receive back. The advantages are clear when compared to the current UK system, under which students simply sit with the burden of a loan until their salary rises to a level at which the government can start regaining its money.
Universities trialling ISAs are fairly few in number, presumably as under the loan scheme the university receives its payment immediately with any repayment risk passing to the government and its subsidiaries. Purdue University in Indiana, however, is one of those trialling ISA schemes through its Purdue Research Center. Purdue offers ISAs as an option, with the possibility of traditional private loans (under the American system) still present. This means the student is able to decide on the option that is best for them. If their course tends to produce high earnings fairly soon after graduation—or leads to a reliably high salary like many STEM disciplines—loan repayments pose less of a problem and look more attractive as an option. But other students expecting a slower start to their earnings, such as humanities, could opt for an ISA. This has added benefits for individuals from lower-income backgrounds, avoiding a heavy dose of debt on graduation whilst being able to enter graduate-level carers and pay scales that might have been financially inaccessible otherwise.
It is clear that if introduced in the UK, ISAs would need rules and regulations to avoid enormous inflation of the most ‘valuable’ degrees and an unwillingness to invest in low returners. But correctly handled, Income Share Agreements could provide a serious incentive for universities to add value to their students as the party shouldering the risk. The potential catastrophe for the government of bad student debt could also be avoided, making for a system designed to be stable, durable and to nurture hard work and talent across the social spectrum. Alexander the Great may perhaps still be relevant after all: just look what happens when you invest in the youth.
Peter Wollweber is a research intern at the Adam Smith Institute.
The architect as fascist overlord
One of the most acclaimed, and the most detested, architects of the 20th Century died on August 27th, 1965. In a eulogy delivered a few days later, French Culture Minister André Malraux described Le Corbusier as without peer among architects "because none bore insults so patiently and for so long." He deserved them. As a major pioneer of urban planning, he designed buildings and spaces that were described as inhuman, disorienting and inhospitable. Concrete and glass assaulted the senses in the brave new worlds in which he wanted people to live differently.
The architectural historian Witold Rybczynski described Le Corbusier's approach as "authoritarian, inflexible and simplistic." I would describe it as soulless. He took no account of the way people actually lived and wanted to live, but designed vast schemes of regimented housing, separated from commercial and office spaces, that had no vitality. His imposed planning destroyed countless vibrant neighbourhoods, replacing them with giant, forbidding edifices that gave people no sense of identity with their environment. His drawings looked magnificent on paper, but today they are being blown up or dismantled to make way for properly mixed communities that reflect the different activities people engage in, and combine them together.
The problem with Le Corbusier was that, like most people with futuristic visions of how they think people ought to live, he started from zero instead of first looking at what people did and wanted to do. Lewis Mumford wrote that Le Corbusier's towering skyscrapers were built only because they were technologically possible, not because anyone wanted to live or work in them. There was no reason, he wrote, for pedestrians to circulate in the areas designated for offices. They were places you went and left, not places you lived amongst. They were, said Mumford, "sterile."
Under Le Corbusier's influence, poor communities were separated off and housed in monolithic high-rise buildings that destroyed the social ties that had given life its rhythm and sense of belonging. His most ardent critic was Jane Jacobs, author of "The Death and Life of Great American Cities." She attacked his urban design theories for seeking to impose an order that confined and constricted people instead of allowing them to develop in organic communities that bustled with life and purpose.
To some critics, Le Corbusier's designs represented visions of a fascist state, one in which people lived as they were told in buildings of grand design that they had no relation to, and no identity with. Le Corbusier himself wrote that "not all citizens could become leaders. The technocratic elite, the industrialists, financiers, engineers, and artists would be located in the city centre, while the workers would be removed to the fringes of the city". You might describe this as moving the poor to the edges of the city where important people would not need to look at them.
For some of his buildings his design called for the use of raw concrete, whose surface was not smoothed or polished and which showed the marks of the forms in which it dried. He had to stop building workers trying to smooth or polish it to make it easier on the eye. He didn't want that; he wanted ‘beton brut’ – raw concrete in French. He wanted a brutalism that expressed contempt for peoples' yearning for soft spaces and humanistic decorative detail. Anthony Daniels wrote in City Journal that Brutalist structures represent an artefact of European philosophical totalitarianism, a "spiritual, intellectual, and moral deformity." He called the buildings "cold-hearted", "inhuman", "hideous", and "monstrous".
Few people today would disagree with that. The age of Le Corbusier and the concrete monstrosities of his time now seems like a bad dream, a dream in which we thought we had to reject the past in order to embrace the future. We learned the hard way that people are shaped to some extent by their built environment, but not in the way that Le Corbusier intended. A brutal, cold environment does not produce the forward-looking visionaries he had anticipated. It produces alienation from the environment and from other people.
Jeremy Corbyn’s Green De-industrial Revolution
A week ago Jeremy Corbyn visited the Centre for Alternative Technology in Wales; a site that looks more like the survivors camp from a dystopian movie than a bright vision of the future. I suppose it is apt then that this is where he once again announced plans for his green industrial revolution - a sweeping programme of nationalisation, market restrictions and public spending. It might not send us straight back to the stone age, but it would result in years of unnecessary economic hardship, stagnation, and a higher bill for families and taxpayers.
It is ironic that while Labour argues that business executives and not consumers should be blamed for this ‘climate emergency’ their policies would leave consumers worse off and shoulder a heavy burden onto the taxpayer. Labour’s focus though is not on solving environmental problems in a way that results in high living standards for everybody. Sadly it's much more spiteful than that. It’s mostly about concocting schemes that will destroy a perceived ‘few’ — they don’t care about the fact they’ll be making the ‘many’ worse off at the same time.
Much of Jeremy Corbyn’s plan for a Green Industrial Revolution is explained in The Green Transformation. Unlike the original Industrial Revolution where entrepreneurs drove advances in technology that brought efficiency and higher living standards than ever seen before, Labour’s vision is one of austere state socialism set up to pounce on the political popularity of Extinction Rebellion. Throughout the document you see Labour’s commitment to ideology rather than improving the lives of the people and their environment. Their promise to 'work with unions' (read: be captive to them) will certainly result in schemes that work for union leaders and not for workers or consumers.
Corbyn’s calls for public ownership of water, railways (both passenger and freight) and energy (transmission and distribution) — far from giving utilities back to the people are some of the greatest risks to consumers, our pensions, and the environment. Large scale public ownership of schemes would likely harken back to the 1970s with publicly owned industries weighed down by union demands. The grim memories of the winter of discontent would once again by a present reality. The future for the energy industry would be much like those industries of the 1970s; stagnating due to the lack of a profit motive, underperforming, over budget and resulting in higher prices for consumers. After all of this however, millions will still have the excitement of finding that their pensions, which were invested into these industries, have been decimated as well. Their £250 billion "National Transformation Fund" also sounds like a public finance black hole if you have ever heard of one which taxpayers will have the privilege of funding.
It’s also nice to see, in the middle of a housing crisis, Labour trying to restrict the supply of housing making it harder to for people to find an affordable home. Their suggestion to "block poorly insulated homes from being rented out" does just that. Their "zero-carbon home standard for new build homes" also creates another barrier to increasing the supply of desperately needed homes. But do not forget Labour's generosity as they propose that their new insulation scheme will save UK households a massive £275 a year. This is, of course, until you have to pay for the scheme through taxes which will probably involve insulating your house at above the current market rate. Their “land for the many” is even worse... but I’ll save that for another post.
Beyond particularly damaging policies; their environmental posturing is misinformed, too often contradictory, and based on class prejudice. A recent call for an end to heather rotational burning demonstrates how their contempt for a section of society they hate is more important than effective land management (heather burning is a process of careful and effective environmental management). You can only expect them to cry and strop when their independent review into grouse shooting proves that it has a positive impact on the environment and provides jobs and money for rural communities. As and when it does, don’t be too surprised if politicians chasing cheap votes ignore it and plow on with a ban anyway, its not like we’ve seen that one before...
And we shouldn’t forget Labour’s proposal to renationalise British steel handily forgetting the site burns through enormous amounts of coal to run its operation. I must have forgotten that nationalising carbon emissions makes them suddenly have no impact on the environment. Another example of how labour is more concerned about pursuing its vision of socialism rather than effective environmental protection.
There were, however, some good things we were able to extract from "The Green Transformation".
Labour recognises the opportunity to "review the allocation of UK fishing quota to promote the most sustainable fishing practices, in a way that benefits coastal communities and the small-scale fishing fleet." We would like to point them towards our market-based solution here.
Their claims to remove barriers to onshore wind will help to allow the market mechanism to work. The average costs of energy consumption for wind and solar (Thin film and crystalline Utility scale) are cheaper than conventional energy sources (here) when taking construction cost and lifetimes of generators into account. Thus, because these costs are lower for renewable energy compared to non-renewables we will eventually see an almost total use of these non-renewable energies as the old generators depreciate.
Sadly, however, it is unlikely that Labour would embrace these market based methods to help deal with these environmental problems. Labour’s policies for the environment is simply socialism made to look green.
But we don't need to spend money to solve the High Street problem
What do we - that is, we the people, not we the omnisicent planners - want the ~High Streets of the future to be like?
We dunno, you dunno and the government doesn’t know either. Therefore it’s a bit odd to be spending money on it:
More struggling high streets will be turned into modern community hubs or redeveloped as 50 more towns have been given the right to bid for a share of a £1 billion Government fund.
The 50 towns - from Dudley to Dover and Scarborough to Stockport - will join 50 successful areas already shortlisted to develop plans to reinvent their high streets.
Boris Johnson said: “Our high streets are right at the heart of our communities, and I will do everything I can to make sure they remain vibrant places where people want to go, meet and spend their money.
“But with our town centres facing challenges, we’re today expanding the High Streets Fund to support over 100 high streets to regenerate.....
Which is where the mistake is. What happens next depends upon how people decide to use the now redundant retail space. It is emergent from the experimentation and voluntary interaction. It’s simply not something that we can plan.
Nor, obviously, is it something we need to pay for. If we simply relax the current rules about how property uses may change then we’ll fine out what it is that people wish to do. The High Street of the future becomes something that will happen by allowing people to create it, not paying anyone to stop it happening.
Our task is not to do something, it’s to prevent government from stopping it happening. Fortunately, something which is rather cheap. Also, laissez faire will be more successful than blowing a billion pounds on something we’ve no idea how to do and don;t even know if people want to happen.
Putting on paper the "Rights of Man"
On August 26th, 1789, the National Constituent Assembly of France set forth "The Declaration of the Rights of Man and of the Citizen." It leans heavily on the notion of natural rights, those held to be universal, valid everywhere and at all times, and deriving from human nature. It is often hailed as an historic blow for human freedom and dignity, akin to Magna Carta, the English Bill of Rights, the US Declaration of Independence and the US Bill of Rights.
Some observers have pointed out that whereas those classic documents secured historic liberties for their subjects, the French Declaration represented more of an aspiration, lacking the mechanisms to deliver in practice the lofty aims to which it aspired. Thus, for example, Article VII says, "Those who solicit, dispatch, carry out or cause to be carried out arbitrary orders, must be punished; but any citizen called or seized under the terms of the law must obey at once; he renders himself culpable by resistance." But there seems to be little to protect an accused from arbitrary laws passed in haste to secure advantage against political opponents.
Article VIII tells us that, "The law should establish only penalties that are strictly and evidently necessary, and no one can be punished but under a law established and promulgated before the offense and legally applied." Again, in practice it seems that for tens of thousands the penalty deemed "strictly and evidently necessary" was the guillotine, applied at short notice, often with only lip-service paid to the motions of law and due process.
Furthermore, the Declaration divided the population into 'active' and 'passive' citizens. The active ones were men aged 25 and over who paid taxes equal to 3 days of work and were not servants. This meant male holders of significant property, and granted the vote to about 4.3m out of a population of about 29m. It did not include women, slaves and foreigners, and gave no rights to children. And while slavery was subsequently abolished in 1794, it was reinstated by Napoleon in 1802.
To people versed in the language of English Common Law, the Declaration seems long on the caveats and loopholes that would allow an unscrupulous state to have its way over people, and short on the limitations that restrict what actions governments can take against their citizens. Perhaps this judgement is coloured by the hindsight we have, knowing the multitude of atrocities and injustices that were inflicted daily during the Reign of Terror.
At risk of offending my French friends, the Declaration rather reminds me of the motions that used to be debated in student unions, and no doubt still are. Lengthy meetings involved minute arguing over fine detail about amendments to the substantive counter-motion, and a form of words finally emerged to much satisfaction by the exhausted participants, but none of it ever made the slightest difference to the real world.
It certainly didn't help Antoine Lavoisier, born on this day, August 26th, 1743. He virtually invented modern chemistry, discovering oxygen's role in combustion, and identifying oxygen and hydrogen, and drawing up a lengthy list of the elements. Unfortunately, he had an aristocratic background, and was an administrator of the Ferme Générale, that took part in tax collection. In 1794, he and other members were charged with stealing state money and watering down tobacco. Lavoisier showed that the charges were false, but the court decided to condemn the accused and seize their goods, to rake in huge funds for the state. The judge remarked "La République n'a pas besoin de savants" (the state has no need of scholars), and Lavoisier with his 27 co-defendants were guillotined. The revolutionaries killed everyone they wanted to, and the pious words of the Declaration afforded no more protection than do the written constitutions of every totalitarian state.
NEF still stands for not economics frankly
It was Giles Wilkes who point out that NEF stands not for the New Economics Foundation but rather not economics frankly. The latest evidence being this suggestion of theirs that more paid time off will increase productivity:
Earlier this month, the New Economics Foundation also argued that giving workers more paid holiday would help drive up spending power in the whole economy and could give firms a greater incentive to raise their productivity, as confidence about demand increased.
There being a slight problem with this. Which is that labour productivity is defined as how much is produced compared to how much it costs (yes, we often use hours worked, but it’s still he cost that matters) to get the labour to do the production. Meaning that if we decide that all should get paid for more days of not producing then productivity declines.
There’s more here:
Alfie Stirling, the head of economics at the foundation, said: “Raising demand by putting more cash in the pockets of the UK’s poorest workers, while giving people more paid time off from work to spend it, should now be part of a radical mix of options for any government that is serious about increasing productivity in a way that works for people and society.”
Their statement really is that increasing the costs of production is the way to increase productivity. This can be all sorts of things but it ain’t economics, is it?
America buying land
The United States has bought land to increase its territory several times. On August 25th, 1829, President Andrew Jackson offered to buy Texas from Mexico. Two years previously, his predecessor, John Quincy Adams, had tried to buy it from Mexico for $1m. Now Andrews Jackson’s aide, Col Anthony Butler, tried to bribe Mexico’s Santa Anna, but he far exceeded his authority, and Jackson recalled him. Jackson was reportedly prepared to go “as high as $5m,” but Mexico would have none of it.
It was not the first such transaction. The Louisiana Purchase of 1803 had bought 828,000 square miles of France’s American territories from a cash-strapped Napoleon for $15m. This effectively doubled the size of the United States, acquiring land that stretched from Louisiana in the South to Montana in the North. Jackson had thought this included Texas, but a previous Florida Treaty had left that to Mexico. After Jackson’s offer was rejected, the Texans eventually declared their independence from Mexico, and General Sam Houston’s army defeated that of Santa Anna. The independent Texas was later annexed in 1845 as part of the United States, without Mexico receiving any money for it.
The US had previously extended its territory in 1818 by securing the Red River Valley without payment by agreement with the British. In the 1819 Florida Purchase, Spain ceded lands in Florida and Louisiana, but since the US assumed $5 million in claims by US citizens against Spain, no money actually changed hands.
The 1853 Gadsden Purchase bought land within what is now Arizona and New Mexico from Mexico for $10m. And in 1867, the US bought Alaska from Russia for $7.2m. The US finalized a deal with Denmark in 1917 to buy the Virgin Islands after a referendum in Denmark had assented to the deal.
In the context of this history, President Donald Trump’s expressed interest in purchasing Greenland is in a long tradition of American territorial purchases. The US first offered to buy Greenland from Denmark in 1946 for the sum of £100m, but the Danes declined. From the US point of view, such a purchase would make sense, given Greenland’s strategic location and resource development potential. America does not want Chinese investment increasing its influence so close to the US’s own doorstep.
From Greenland’s point of view, acquisition by the US would have some attractions. US finance and knowhow could help to augment the island’s wealth and improve the lives of its peoples. Obviously, any such deal would require the consent of the Greenlanders, as well as that of the Danish government, and it might be wise to include a clause promising that the territory would proceed at some stage to the status of a state within the Union, instead of remaining a protectorate or dependency.
The proposed deal would be well within the tradition of America’s previous stages of expansion, and is by no means as outlandish as much of the media have suggested. Denmark has said no, but the intriguing question is whether there is a price at which they would say yes.
We have Adam Smith to blame for computing
Not that far fetched when thought about. As Adam Smith did indeed point out if we carry the division of labour “too far” then a man is reduced to a mere automaton. An automaton being exactly what we are doing with computing, dividing and specialising the labour until it is the rote manipulation of 1s and 0s by an entirely unthinking machine:
M. de Prony was employed by a government committee to construct, for the decimal graduation of the circle, logarithmic and trigonometric tables which would not only leave nothing to be desired from the standpoint of accuracy, but which would constitute the most vast and imposing monuinent of calculation that had ever been executed or even conceived. The logarithms from 1 to 200,000 are a necessary and essential supplement to this work, It was easy for M. Prony to convince himself that even if he associated with himself three or four experienced collaborators the longest reasonable expectation of the duration of his life would not suffice to complete the undertaking. He was preoccupieed with this unhappy thought when, finding himself before a bookstore, he saw the beautiful edition of Adam Smith published in London in 1776. He opened the book at random and chanced upon the first chapter, which treats of the division of labor and where the manufacture of pins is cited as example.
Hardly had he perused the first pages when, by a stroke of inspiration he conceived the expedient of putting his logarithms into production like pins.
From that all else follows.