To reduce rents abolish tenants' rights

This is not some Dickensian cackle about how to increase pain in society - it’s an observation about reality. In order to reduce rents we should abolish tenants’ rights:

They pay less than the market rent but the trade-off is that they have fewer rights and, often, worse living conditions.

There we have it, from The Guardian no less. Fewer tenants’ rights lead to lower rents. So, if we desire there to be lower rents we should pare back upon, abolish, tenants’ rights.

Now, it is also possible to say that those tenants’ rights are, or should be, inviolable. Which is fine, that’s a choice, a trade off. But that does - see above - mean that rents are going to be higher.

What we can’t do is insist upon those rights and then whine about the height of the rents.

Hmm, sorry, obviously that is possible because some 99% of political discussion is a combination of both of those - joint insistences that tenants should gain even more rights and also that rents should be lower. Which, given the ineluctable logic of the situation is about as useful as shouting at the Sun rising in the east each day.

Our insistence is not in favour of the - admitted and obvious - joy of being able to evict Tiny Tim. It is rather that there is indeed this trade off here and reality says that it’s there, not politics, economics, morals or anything else. It simply is. Therefore it’s something that has to be acknowledged and dealt with, not shouted at.

Want lower rents? Relax tenants’ rights. Want stronger tenants’ rights? Put up with higher rents. To think that it can be otherwise is to be shouting at the universe on the street corner.

We're afraid that the Real Living Wage people are telling an untruth here

It could be that they’re just allowing their own propaganda to run away with them, or that they’re actively trying to dissimulate, but this is an untruth:

The real Living Wage rates remain the only wage rates independently calculated based on what people need to live on.

As they’ve spent a couple of decades telling us, the calculation is based upon Adam Smith’s linen shirt example. A linen shirt is not a necessity, but. If you live in a society where not being able to afford a linen shirt is regarded as being in poverty, then, if you cannot afford a linen shirt in that society you will be regarded as poor. From which it is possible to ask representative groups what it is that you should be able to afford in order not to be regarded as poor - we seem to recall a carvery meal once a month, a couple of pints out once a week as making such a list - and back calculate to the wage necessary to be able to afford those things.

But it is not, it is not by design, the amount “people need to live on”. It is the amount to be had and to not be regarded, by this current society, as being poor. To switch that statement is to tell an untruth.

Tsk.

There is also the criticism that we have been levelling at this calculation for this past couple of decades too. Exactly the one which led to the personal allowance for income tax and national insurance to be raised to the current £12,500 or so. The Real Living Wage is a pre-tax number. Meaning that a significant reason it is so high is the appallingly high tax rates faced by those on or around that minimum wage (of whatever kind, the minimum wage, national minimum wage or this, the real living wage). Thus also why we have been arguing - these past couple of decades - that the solution is to lower the tax rates on those at around this level of income. By increasing the personal allowances, of course.

The claim is that this real living wage is now £10.90 an hour, 37.5 hours a week, full year working. £21,294 a year. On which, under the current system, £12,570 is free of income tax, the rest pays 20% - £1,744.80. National insurance starts at £242 a week at the rate of 13.25%. On £408.75 per week in earnings, that’s £22.09 a week in employees’ NI or £1,148.68 a year.

That’s £2,893.48 charged in tax to this real minimum wage income. Or, post tax, £18,400.52 in net income.

If you work on the current national minimum wage of £9.50 an hour for the same working hours then your gross income would be £18,525. This before we even think about the influence of employers’ national insurance (which, yes, is incident upon wages).

So, if the national minimum wage were tax free then it would be higher than this real living wage post-tax. The problem is not low wages, it is high taxes. So, the solution is also obvious, lower taxes.

As we’ve said - again over these past two decades, repeatedly - the only real and accurate minimum wage is £0. But assuming that there is one then that should - must, on equity and good sense grounds - be the personal allowance for both income tax and national insurance. For the only argument for a minimum wage is that this is the de Minimis amount that an hour of labour is worth. So, why should Westminster get a chunk of that minimum amount?

So, again as we’ve been saying this past couple of decades, raise the personal allowance to the level of the minimum wage and the problem is solved. All those earning it will now, by the standards of the society we live in and as constructed by the real living wage campaigners, be earning both the real living wage and not be in poverty according to the standards of this population and society.

When we’ve raised this with the campaigners - again, that couple of decades - we’ve been told “Yes, yes, but” and the but has never been very convincing.

Increase the personal allowance and the minimum wage will be higher than the real living wage. So, let’s do that then, shall we?

We also note this little line they use “This year’s Living Wage rates have been brought forward in recognition of the sharp increase in living costs over the past year.” Hmm. In previous years the real living wage was calculated in November. The recent national insurance rise will be cancelled in November. So, if we were extremely unkind, possibly even conspiracy minded, we might suggest that the calculation has been brought forward so as to not include the effect of that tax cut upon the real living wage. But who would believe something like that of the Resolution Foundation? Tsk, it’s unthinkable.

Some things in life really are simple. If you want the working poor to have more money then stop taxing the working poor so damn much.

Action This Day, as the man said.

The laughable UN rankings

This is one of those assumptions that can bring one up short:

The UN recently demoted the US to 41st, down from 32nd, in a global ranking based on its sustainable development goals.

…

And, on this measure, the US comes just behind Cuba and just above Bulgaria.

The SDGs being a series of plans about how places should develop economically. Thus, by those very standards, Cuba is a more desirable end goal for economic development than the US is.

Which is, how should we say this, odd.

The trick to this is that the SDGs are deliberately constructed in order to make places like Cuba look good and nasty, capitalist, places like the US look bad. Take, for example, poverty. We do indeed agree that the aim of having an economy, even of the existence of a society, is that the life and living standards of the poor improve.

Here are those SDGs on poverty. They’re very much more complex than the earlier Millennial Development Goals for an obvious reason. That one was just to reduce absolute - the below $1.90 a day type - poverty and that was the only MDG overachieved and early. But that would never do as it was the spread of free market capitalism to places like China that achieved it - not the point at all. So, in the SDGs there’s lots and lots about relative poverty within a country instead of about actual poverty so much. Ta Da! Communist dictatorships look better.

Which is a goodly part of what explains the US ranking. On poverty it is agreed that the US has no $1.90 a day poverty nor any $3.20 a day - just none. However, there is a poverty line (the usual 50% of median household income used in international comparisons) and this means a significant downgrading of the US position on poverty. Despite the fact that by any measurement of absolute poverty the US doesn’t have any. They’re mixing inequality of income with poverty that is.

Cuba is of course entirely different. There we have no information - none on $1.90 a day poverty, none on $3.20 a day and none on inequality. But Cuba ranks better than the US becausesomethingmutter.

We can attempt to divine those numbers in a different manner. GDP per capita at PPP (so, accounting already for differences in costs) is a shade under $10,000 for Cuba. So, if we assume that all income is entirely and wholly equally distributed (it isn’t) and also that incomes to people are the only thing in an economy (by one GDP calculation of course they are, but here we mean for consumption, and they’re not) then that puts the entire population of Cuba below the American poverty line (around $13,000 or so these days).

But the UN seems to think that Cuba does better on poverty than does the US.

Well, yes. At which point we’re not going to take the UN rankings by SDGs seriously now, are we? Unless, of course we were a Guardian columnist.

Liz Truss is all about growth

Liz Truss is all about growth. We saw something like this in 1972, when Barber dashed for growth with monetary and fiscal loosening. In the event, seventies Britain got no growth, just inflation. In the eighties, Thatcher got growth by addressing the supply side, specifically, capital with Big Bang; labour with the union reforms and council house sales; and microeconomic institutions with the privatisations. 

We all know where the big bottlenecks lie: healthcare, energy and land-use. So where to focus? To answer that we need to consider how much opposition will reform provoke; and how may the benefits be shared. This is not just for the high road of balancing the chancellor’s books and goosing up the economy. There is also the low politics of creating constituencies of interested parties, as Thatcher did with privatisations and council house sales; and placating the opposition, as Bevan did with the doctors when he “stopped their mouths with gold”.

Healthcare. At first sight healthcare has its attractions, with Covid flushing out its dysfunctional regimes of capital, labour, organisation, research, sourcing, talent and treatment. There could be some £300 billion available to the Exchequer after turning the liability of the NHS into an asset. Politically, however, it’s still too hard. Taking money from hospital operators and insurance companies won’t mollify the King’s Fund, the Royal Colleges or the health service unions. Nor will it create a popular constituency sufficient to overcome the national sentimentality towards the NHS. On the other hand, it’s worth ventilating the issue energetically to prepare opinion for reform, after the decisive collapse in the NHS to be expected within an electoral cycle or two.

Fracking and oil in general. We could see a tax take of £280 billion on newly recognised onshore and offshore reserves, assuming that the UK levies royalties at 10%. This would be over the lifetime of the reserves, so perhaps £28 billion per year. Truss has made a good start by removing the ban on fracking, but we couldn’t be sure that the sums involved will be enough to mollify the nimbys, while net-zero campaigners plain can’t be mollified. There is much to be said for improving our energy resilience, but the climate of the times may not wear it.

Land-use reform. Once again, Truss has made a good start, speaking of her enthusiasm for “roads and houses”. This would be after a bonfire of planning, plus dysfunctional building and fire regulations. Developing green belts would give rise to at least £12 trillion of appreciation in land values, to be shared between owners, developers and the exchequer. Over a twenty year period this is some £600 billion a year. Realising these sums involves securing the land, distributing the appreciation in value and managing the flow of development to avoid depressing values. This calls for private sector development skills and capital market instruments. 

Such reform would also offer an opportunity to reverse three generations of architectural misadventure. This has left Britain as something of a pre twentieth century theme-park, with inadequate roads and elderly houses which are attractive but draughty, punctuated by the popularly relished but professionally despised (e.g. the interwar suburbs and Milton Keynes) and the reverse, (e.g. the housing estates and other postwar new towns now becoming slums together with brutalist public buildings). Indeed, why not reform the listing regime so that the latter can be demolished, also taking in the last two decades of cramped private housing? Regardless of this last point, introducing international standards of design and construction would avoid repeating postwar mistakes.

The sums involved are so substantial as to hold out a realistic prospect of placating the anti-car lobby, architectural profession, heritage lobby, levelling-up campaigners, local authorities, nimbies in general, plus planning and other dysfunctional regulators. In addition, it opens the door to creating a constituency of new homeowners, enjoying something which no Briton has seen in seventy years: attractive homes with modern amenities and spacious accommodation at reasonable prices and with proper infrastructure. This makes eminent political sense. 

Land-use reform offers substantial upside for the economy and the exchequer. The sums make it possible to contemplate buying out the opposition with generosity, leaving plenty left over for energy, transport and other infrastructure throughout the country. But it will call for deft communications and politics, to conciliate antagonists and create supporting political constituencies. 

If there are to be sweeping tax cuts then raise the personal allowance

So it is said there are to be sweeping tax cuts. At which point, well, which taxes should be cut how hard?

The correct answer, we insist, is simply to take people out of the tax net altogether. As with Nigel Lawson’s gleeful aim of abolishing a tax each budget. Don’t lower a tax rate, kill a tax that is in his ambition.

Liz Truss suggested further sweeping tax cuts were on the way as she put economic “freedom” at the heart of her premiership.

The Prime Minister gave a heavy hint that she would go much further than reversing the rise in National Insurance and cancelling planned increases in corporation tax, with cuts to income tax and VAT potentially in the frame.

She told reporters there was “no doubt” in her mind that tax cuts promoted economic growth, saying her government would be looking at tax rates across the board.

So, to repeat something we started saying near two decades back - and which did work, until inflation caught up with it again. Reverse fiscal drag.

We shouted for a number of years that the personal allowance for income tax and national insurance should be the same - at minimum - as the full year, full time minimum wage. On the very simple grounds that the entire claim of the minimum wage proponents is that there is some minimum amount labour is worth. No, we don’t agree - that minimum is £0 - but within the debate as framed that this is the minimum allowable does mean this shouldn’t be taxed directly.

That personal allowance has risen to £12,500 now - which is what the full year, full time, minimum wage was back when the ambition was announced, in 2010.

So, the tax cut now should be to do the same. Further, to nail the two together. The minimum wage is the personal allowance, the personal allowance is the minimum wage. The Chancellor wants to change one of those two then the other must also be changed. The advantage of this is that a politician giving away other peoples’ money in a wage rise might think a little more if it makes collecting his tax money more difficult too.

But the base logic here - minimum wage is tax free allowance - makes perfect logical sense to us. Simply because what is the argument for a minimum wage other than this is the minimum amount people should be getting? So, why does the bureaucracy get dibs on it?

Scaling the Heights - A History of the Mont Pelerin Society

My colleague at the Adam Smith Institute, Dr Eamonn Butler, has written a thoroughly absorbing history of the Mont Pelerin Society, originally founded by FA Hayek and other liberal (pro-freedom) intellectuals shortly after the Second World War. It was founded to provide an intellectual antidote to the centralism and socialism then so prevalent.

Eamonn’s book, “Scaling the Heights,” is published by the Institute of Economic Affairs, and presents a blow-by-blow account from the society’s early years to the present day. Far from the conspiracy theorists’ idea of it as a sinister, secret organization funded by dark corporate money and focused on world domination, the reality is of a hand to mouth existence, a string and sealing wax affair, always struggling against inadequate funding, and with different views about what its purpose and method of operation ought to be.

Hayek’s original insistence that the MPS be intellectual, rather than political, met with some disagreement from those wanting it to be more pro-active, but Hayek prevailed, and the MPS remained an organization that held meetings to discuss ideas. There was disagreement, too, as to the degree to which a free society could encompass some degree of redistribution to those needing help.

These disputes could be rancorous, sometimes prompting bitter personal exchanges, and Eamonn makes no attempt to sanitize and gloss over them. Disagreements about how the MPS should be organized sometimes led to resignations, and Eamonn covers these events in a very readable, and indeed at times thrilling account. 

The success of the Society is a matter of record. Several of its members were awarded Nobel Prizes, and its ideas on how a free society and a free economy could promote prosperity better than the alternatives gained widespread, though by no means total, acceptance. More of the world today is freer and wealthier than it would have been without the ideas put across by Mont Pelerin members. In some countries it was able to give to isolated supporters of freedom and free markets the assurance that they were not alone, but part of a worldwide movement.

It’s an enthralling story. An isolated minority viewpoint became widespread and influenced governments around the world, not by political pressure, but by the strength and intellectual rigour of its ideas, 

They didn't even agree on the name, so after much debate, they decided to call the society after the place in Switzerland where they were meeting. I went there for the 50th anniversary of the society, and was impressed by the fact that a small band of scholars meeting there in 1947 went on to change the world. Eamonn’s account of how they did that is written in a very readable style and makes a huge contribution to understanding what the MPS is about, and how it became what it is today. Highly recommended reading for lovers of liberty.

What lithium shortages?

We have a warning that lithium will be in short supply and so therefore…..

Now, as it happens, the resident energy geek here (me) thinks that hydrogen and fuel cells will turn out to be a major part of the solution to all this climate change stuff. As also will synthetic fuels, meaning that batteries aren’t going to be as much of the mix as many seem to think. But that is just opinion.

And yet this claim is, in our opinion, still wildly wrong:

The government-backed agency helping to fund the motor industry towards a zero-emission future has warned that with likely shortages of lithium for electric battery production, Britain must lead a transition to hydrogen fuel cell vehicles.

The first issue is as we put it in this report. There simply is no shortage of any of the metals that we might want to use. The amount of whatever out there in the crust of the Earth is simply so vast that we’re not going to use it all for millions upon millions of years - in many cases before the expansion of The Sun to a Red Giant. Sure, there’re shortages of plant able to extract and deliver right here right now but that’s a relatively trivial problem - the very point about plants being that we can build more.

The second is that people just aren’t grasping what happens in a market society when a mineral becomes more expensive. Vast armies of people rush off to test this and that and t’other potential source.

Historically the world has depended upon lithium from either brines or as a byproduct of spodumene. Recent years have shown that ionic clays, geothermal brines are also viable sources, varied micas are getting a look in. There’s even one - a bit hopeful perhaps - who thinks the Red Sea is a viable resource (which brings to mind the closing of this Goon Show).

People just aren’t getting how large the world is, how much of everything there is out there. Change demand, that changes the price, vast mountains of a mineral or element thereby become viable sources.

We can well imagine - indeed believe it to be true - that fuel cells are the answer to part of the puzzle, more than folk currently seem to think. That batteries are going to be a much smaller part of any solution than current plans seem to indicate. But there’s not going to be a shortage of lithium so that’s not going to be the cause of those, nor the hold up in that battery driven world.

Better technologies might cause all sorts of things, mineral shortages just aren’t going to happen.

Sadly, Autonomy has entirely the wrong end of the stick here

Autonomy wants us to know that a four day week would aid in solving the inflation problem. Sadly, Autonomy has entirely the wrong end of the stick here:

A four-day week with no loss of pay would save parents thousands of pounds a year in childcare and commuting costs, according to a thinktank that suggests the policy could help to alleviate the cost of living crisis.

Someone with a child under two would save £1,440 in childcare and £340 from commuting on average across a year if they did not have to travel to work one day a week, the leftwing think tank Autonomy calculated.

Campaigners and economists in favour of a four-day week have tended to focus on the benefits to workers in the form of increased leisure time and potential improvements in productivity that enable companies to carry out the same amount of work but in less time.

We can have the most lovely arguments about what causes inflation - demand shock, supply shock, modern monetary theory, money printer go brrr - but what inflation is is not in doubt. We have, relatively, more money chasing, relatively, fewer goods and services. The relationship between the amount of money around and the goods and services available has changed - therefore each piece of money is worth less, buys fewer of those goods and services. That’s just what inflation is.

This is not a problem to be solved by maintaining the same amount of money and reducing the number of goods and services. Which is what Autonomy is suggesting. Yes, there’s muttering that we could produce the same in four days that we currently do in five. Well, maybe. But they’re then saying that there should be less commuting, less childcare - less output as a result. So, the end game of the proposal is that inflation increases - we have still that same amount of money but fewer goods and services. So, the relationship between the two gets even further out of whack, each piece of money is worth even less.

The actual solution is to reduce the money supply or to increase the output of goods and services.

At which point we gain a solution. If it is possible to increase productivity then why not do that? Why not, for the same effort we put in now, increase the output of goods and services?

For upon examination that we can produce in four days what currently takes five is not in fact about workers being more rested, happier, more joyously productive. In all of the detailed studies it becomes the lesser time available for work means the killing off of unproductive activities. Those interminable meetings, the discussions in HR about equity and leadership on reaching out and all that malarkey. The increase in productivity actually comes from people stopping doing unproductive things - because there’s not the time left to do them - and only doing productive things during those hours of work.

So, our solution is to do that but to do it for 5 days. Output increases, which makes us all richer anyway. Inflation reduces as we’ve more output to soak up that excess money, the cost of living crisis goes away.

Sure, Autonomy’s right in one sense, the solution is increased productivity. But do that by killing the bureaucracy of modern work anyway rather than reducing time worked.

The actual analysis of these four days week ideas is that everyone entirely wastes one day a week at work on useless irrelevances. So, let’s stop doing that then, eh?

Subject to certain caveats, the NI cut is the right thing to be doing

It’s possible to hold, as we often do, that macroeconomics is largely Woo. Far too much theorising balanced upon a paucity of evidence. The complicated nature of the mathematics used in it reminds us of the gyrations astronomers had to use before heliocentrism became established. The maths being complicated precisely because certain underlying assumptions were wrong, so great effort had to be made to fit observations into the theory. Then there’s that problem with being able to do any fine tuning given Hayek’s points about the knowledge problem. Oh, and the time lags associated with any action.

But that’s us and our biases.

Let us stick exactly within the strictures of the current set of macroeconomic models. Largely New Keynesian - all the Treasury, Fed, ECB and so on models are such. This makes the national insurance cut the right thing to be doing:

Liz Truss's National Insurance cut will take effect in workers' November payslips, Kwasi Kwarteng is expected to announce this week, as he ditches the Coalition-era focus on "sharing the proceeds of growth".

Again, we can put in all sorts of provisos here. Macroeconomics is Woo, we can’t fine tune because knowledge, perhaps the economy doesn’t in fact require stimulus - the inflation rate certainly isn’t suggesting such - and on and on. But accept that we’re working in a Keynesian policy structure, even if now New, that stimulus to households is required, government must do something. The NI cut is the right way to do it - as Keynes himself said:

I am converted to your proposal…for varying rates of contributions in good and bad times. (June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.

…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times. (July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.

Well, there we go, got it from the fountainhead himself. It’s large enough in aggregate to make a difference, small enough individually not to be subject to Ricardian Equivalence and works fast.

The interesting thing about this being that damn near every Keynesian in the country now says reducing NI is the wrong thing to be doing because somethingsomethingmuttermutter.

We did say that we consider macroeconomics to be largely Woo, didn’t we?

Price fixing and free markets

We’d just like to commend The Guardian for noting an important economic point here:

The timing could hardly have been more appropriate. On the 30th anniversary of sterling being ejected from Europe’s exchange rate mechanism, the pound came under renewed pressure on the currency markets and hit its lowest level against the US dollar in 37 years.

Black Wednesday – 16 September 1992 – has a special place in British postwar economic history: a moment in which the Treasury and the Bank of England took on speculators led by George Soros – and lost.

There will be no such dramatic shootout this time because the ERM debacle marked the end of Britain’s attempts to maintain the pound at a fixed rate against other currencies. Ever since, sterling has been allowed to find its own level.

Quite so. When we tried to fix the price of the pound that caused repeated problems over the many decades we tried to do it. Churchill’s fixing the rate post-WWI at the pre-WWI rate was a gross mistake, matters improved when the pound came off the gold standard in the 1930s.

Fixing again post-WWII led to repeated problems and forced devaluations and that most recent disaster of that Black Wednesday. Since then we’ve not had sterling crises because we’ve not tried to fix the price of sterling.

Of course, this lesson is incomplete, for all too many fail to grasp the significance of this issue. Which is, don’t fix prices. Markets always will out, markets always will win. So it’s something of a pity that near the entirety of all public debate these days is which prices shall we fix, at what level? When the correct answer is none, at none.

It’s entirely fine to then say that we should compensate, or subsidise, or alleviate the pains of, the effects of those market prices upon individuals. If we wish to that is.

But the correct policy is always to subsidise people, not things. Don’t mess with markets, don’t fix prices, even if we then deal with the results of those uncomfortable facts about the universe we inhabit.

Minimum wages, maximum wages, rent control, energy price caps and on and on. The correct answer is simply “No”.