A rational builder will stockpile planning permissions

Think through, just for a moment, the idea that those who run companies are rational. Not omniscient, not perfectly predictive of the future, just rational.

So, if it takes x amount of time to get a new supply of something then the business will - rationally - hold a stock of that thing equivalent to x times’ worth of production. If a car maker will only get new car making steel after a 6 month wait then the car maker will hold a 6 month stock of car making steel. We saw this in both 1970s British car making and also throughout the Soviet economy.

Actually, it’ll be a little more than that - for of course we now need to add uncertainty. But the general principle stands. You hold a stock of whatever to tide you over until you can get more.

If this confuses then try thinking that one level deeper again. The big costs of being in business are rarely those physical inputs like steel. They’re the costs of having the factory and plant to be able to transform steel, the workforce to do so and so on. The costs of those being empty, or having to be paid without work to do, are vastly greater than the carrying cost of some steel. So, steel gets carried as stock so as to allow continual employment of plant and labour.

This rational behaviour is not limited to something like steel for carbuilding. That essential raw material for housebuilding is land upon which you are allowed to build a house:

Mr Perrins has long called for an overhaul of planning rules to boost the housing sector. Berkeley Group specialises on building on brownfield land but has repeatedly said that obtaining planning permission for its sites is difficult.

The time taken to gain planning permission for new projects was now averaging almost four years, the company said, compared to two historically.

The rational building business will have a 4 year stock of planned and permitted sites given that it takes 4 years to get new ones.

Again, think on this. So, a housebuilder buys a site now, it will be late 2027 before it is permitted. The brickies, chippies and so on need something to do in 2024, 2025 and 2026 while they await that permission. A four year time span between land acquisition and permitting means 4 years of permitted sites moving through the system like a pig through a python.

There are, perhaps, some 1 million permitted sites. The housebuilding target is 300,000 a year. It takes 4 years from buying the site to building the house. We have not enough permitted sites in the system. Add in a bit of uncertainty and we have many too few permitted sites. So, we should increase the number of permitted sites.

Or, obviously, reduce the time taken to gain planning.

The alternative argument offered to us is that the housebuilders are a cartel who buy up all that potentially permittable land and then sit on it - land banking. Then a miracle occurs and they make a profit by doing nothing in the usual tale. Let us assume, just for this part of the discussion, that that’s true. OK, so what do we do?

The way to kill a cartel is to flood the zone with supply. No one can buy everything to corner the market - as the Bunker brothers found out with silver. So, if housebuilding is a cartel restricting supply by buying it all the way to kill that cartel is to flood the market with planning permissions.

That is, either argument - the rational and true one or the one made up by fools - leads us to exactly the same conclusion. Issue more planning permissions. Vastly larger numbers of planning permissions, millions upon millions of them. Or, as we say, blow up the Town and Country Planning Act 1947 and successors, proper blow up, kablooie.

If this is all too complicated then consider something very basic indeed. If you increase the supply of something then, against a settled level of demand, the price will fall. And that’s what we all want to do, right? Get house prices lower? So, issue more planning permissions.

Sure, there are bits of economics that are difficult. This isn’t, this is simple. Allow more housebuilding, vastly more housebuilding, and the houses that are built will be cheaper. Job done.

That zero cost of printing all the money to spend

Another one of those little effects of the Magic Money Tree coming back to bite us on the economic fundament:

‘Vulnerable’ £1.8trn private loans pose threat to UK’s financial stability

Scale of these high-risk loans has tripled to £1.8 trillion – but now ‘appears vulnerable’

Well, yes, this would happen.

Andrew Bailey has joined a growing chorus warning of the risk to the financial system of a collapse in the £1.8 trillion private credit market, which boomed in the era of rock-bottom interest rates.

The scale of these loans, which are often considered high-risk and take place behind closed doors rather than in banks or in public debt markets, has more than tripled globally since 2015, but now “appears particularly vulnerable,” the Bank of England said.

Recall what we actually did with Quantitative Easing. We deliberately printed new money with which we then bought government debt. Thiis lowered - by design - the risk free interest rate, that yield on gilts. At which point the rational investor went further out along the risk curve in a desperate attempt tp gain some sort of income. Which was the point of the printing and the buying, to push people out along the risk curve and hunt for yield.

As that problem inducing QE goes away and we come to Quantitative Tightening, QT, then that hunt for yield, acceptance of risk, is also going to change. Which is also the purpose of QT. We want investors to wind their necks in that is.

So far, so good and all is going according to plan. The difficulty is that the money printing, the bond buying, gave government free money to spend. As long as that remained in the financial system we did not have a system-wide change in prices. Capital assets changed in price, yes, but then that’s the same thing as reducing yields to push people out along the risk curve. Just a different description of the same process.

One government got a taste for actually spending that newly minted money we got inflation - which we’re now trying to reduce of course.

Which is where we get to that cost of Modern Monetary Theory, or that magic money tree. By funding government via money printing we do indeed reduce the general interest rate. Which will make the corporate world riskier as investors reach along that risk curve for yield.

Anyone complaining about these “private loans” has to accept that this just is what will happen in a world of QE and MMT. Anyone objecting to these risks needs to understand that they are a product of that money printing method of funding government spending.

Just one of those things - you don’t have to like what economics tells you but you do have to pay attention. For economics does add up. This action here creates that effect there and no, you can’t take this action without that effect.

Gloriously, wondrously, bad economics on greedflation

Greedflation is this idea that recent inflation was driven by Big Business - you know, capital, them, they - upping their profit margins at this time of stress. The usual response to this is that if capitalists - them, they - had this power to push up prices then they would have used it already. If that power was newly arrived in this time of stress then it’s the newly arrived ability which is to blame - so, macroeconomic or monetary conditions again - for their ability to do what they always would. They’re capitalist, those they, them, after all.

But the idea is still attractive to many. After all, it cannot be a failure of government, politics, Modern Monetary Theory or the Magic Money Tree, can it? Those are all nice things and sugar and spice do not lead to puppy dog tails.

Which is what leads to this latest report claiming that, no, really, it’s all them in their top hats and with their cigars:

The report from the IPPR and Common Wealth thinktanks found that business profits rose by 30% among UK-listed firms, driven by just 11% of firms that made super-profits based on their ability to push through stellar price increases – often dubbed greedflation.

Excessive profits were even larger in the US, where many important sections of the economy are dominated by a few powerful companies.

Gosh.

Researchers said the energy companies ExxonMobil and Shell, mining firms Glencore and Rio Tinto, and food and commodities businesses Kraft Heinz, Archer-Daniels-Midland and Bunge all saw their profits far outpace inflation in the aftermath of Russia’s invasion of Ukraine.

“Because energy and food prices feed so significantly into costs across all sectors of the wider economy, this exacerbated the initial price shock – contributing to inflation peaking higher and lasting longer than had there been less market power,” the report said.

Ah. In fact, Snigger, Ahahahaha and even LOL in that non-Call Me Dave sense.

The claim is that commodities prices (those raw foods like grains etc, oils, metals) went up more than inflation thereby boosting the profits of their producers. This must therefore be evidence of that market power to push up prices and so cause that excess inflation. We do agree that’s what they’re saying? Yes?

Excellent - now, what’s the definition of a commodity? “A commodity is a basic good used in commerce that is interchangeable with other goods of the same type.” If it’s interchangeable it’s substitutable. That is, commodity producers have no market power. They have to take the market price, they cannot determine it. It’s right there in the base definition of the thing we’re talking about. Commodity producers take the market price.

IPPR and Commonwealth have decided to use commodity margins - where there is no producer market power, by definition - as proof of producer market power. This isn’t economics this is politics with counting.

Misunderstandings around austerity economics

After the 2008/9 recession the coalition government famously adopted a set of contractionary fiscal policies with the aim to reduce national debt. Elements of this austerity programme included significant cuts to government spending, public sector job reductions, and changes to welfare programs. Various Keynesian economists claimed that such policies would be detrimental to the British economy, including Nobel prize winners Paul Krugman, and Joseph Stiglitz. 

In some sense they were right, but for all the wrong reasons. 

Austerity in the UK was harmful due to the impact which it had on total expenditure. The reduction in government expenditure caused a reduction in public sector employment, which had a knock on effect in the private sector as lower total spending in the economy led firms to layoff workers. Primarily through these mechanisms austerity policy led to rising unemployment, and a general reduction in standards of living. 

However, this is not inevitable. Following the recession the US adopted a very similar set of austerity policies to the UK, if anything they were slightly more radical. Just as economists did in the UK, a letter signed by 350 Keynesian economists suggested that this might push the US economy into recession. The US budget deficit was then reduced from roughly $1,050 billion in 2012 to $550 billion in 2013. Despite this, there was never an equivalent ‘double dip’ recession, as was experienced in the UK and EU.

This is because the Federal Reserve adopted sufficiently expansionary monetary policy to offset the impact of the reduction in government expenditure on NGDP (total expenditure). While government expenditure fell, this was negated by the increase in private sector expenditure, meaning there was no significant increase in unemployment. Had the Bank of England adopted similar monetary policy, the country undoubtedly would have fared far better during the austerity period. 

Austerity in the UK was not harmful because government expenditure fell, as many will often suggest, but instead because inappropriate monetary policy allowed total expenditure to fall. 

We think this is probably a very good idea indeed

Not, particularly, about KFC and or fast food near schools, but:

Anti-obesity policies designed to stop takeaways being opened near schools are being thwarted by challenges made by the fast-food giant KFC.

At least 43 local councils in England and Wales have had their anti-obesity policies challenged by KFC since 2017, The Times has found.

In more than half of these cases the fast-food giant has succeeded and town hall bosses have either abandoned their plans or significantly watered them down.

The supposed justification of these policies is that child obesity - the thing that Chris Snowden has proven does not, in fact, exist - spiced up with a post-rationalisation:

The findings come after an analysis found this week that Britain’s weight problem is costing the state almost £100 billion a year. Henry Dimbleby, the government’s former food adviser, found that the effect on national productivity from excess weight was nine times bigger than previously thought.

As we’ve pointed out that Dimbelby number is abject nonsense. And The Times doesn’t even manage to quote it correctly either. As the fishfinger sandwich salesman actually says, more than £60 billion of that cost is private, individual, costs, not costs to the state at all.

But let us assume, just for the sake of argument here, that everything said about fast food, childhood obesity and the costs to us all is correct. We still support such challenges and such watering downs. For:

Officials said that after they submitted their plans to improve children’s health, KFC has argued in some instances that the measures were “unlawful” because they had not been through all the correct processes, or that there was not enough evidence of links between obesity and the proximity of fast food outlets to schools.

We are in favour of the rule of law. It’s a basic and absolute requirement for a free and liberal society. Whatever it is that may not be done must be written down, passed through the legislature and be a rule, not a matter for the discretion of whoever is currently occupying the corner office.

Local authorities create unlawful plans? Then local authorities should be - must be - challenged about their plans until they manage to bestir themselves into producing something that is actually legal. They’re swift enough to impose that duty upon us, the citizenry, so fair is fair, no?

That is, the O Tempora, O Mores, complaint here is not that obesity is not being attacked, it’s that we now have to rely upon a fried chicken joint to preserve the most basic of civil liberties, the primacy of the rule of law.

One reason we don't believe certain economic claims about climate change

Geoffrey Lean - yes, yes, we know - tries to tell us about climate economics.

The Cop28 president told a shocking lie about fossil fuels – and he’s wrong about climate economics too

Wrong, eh?

Study after study has revealed the immense potential. One, by Deloitte for the World Economic Forum, concluded that a transition to net zero could benefit the world economy by $43 trillion over the next five decades.

A commission of some of the world’s top businesspeople and financiers decided that similar measures could create 380 million jobs.

Jobs are a cost, not a benefit. Having to direct human labour to some task reduces the amount of such human effort that can be devoted to sating some other desire - it’s a cost. So that boast is that dealing with climate change would add 380 million costs to the global economy. Yes, obviously, this is an opportunity cost but if you’re not doing opportunity costs then whatever you’re doing it’s not economics.

The Deloitte claim is here. The “bad” outcome they’re testing against is SSP2 6.0. That’s a target we’re already going to hit, we’re - roughly, you understand - on RCP 4.5 or so at present. But rather more importantly:

$178 trillion in global economic losses Net present value terms to 2070 in US dollars

Ah. So, divide by 50 years (yes, ignoring discounting, aren’t we such terrors?) to give $3.4 trillion a year. Perhaps 3% of global GDP currently. And very much more like 1 to 2% in 2070 - yes, all these forecasts assume that the global economy will continue to grow over the decades. For the loss being detailed is the cumulative loss, not the annual.

So, one thought is that this is a fraction of the Stern Review loss of 5% (an annual number off in that future) and so Deloitte is telling us that climate change is very much less of a problem than Stern did. Which is interesting.

Rather more apposite we think is that we don’t, in fact, know current GDP to within 1%. Whether or not we add drugs and commercial sex or not moves the number by that much. Imputed rents (what people don’t pay for living in the houses they own) is multiples of that. The difference between the first estimate of the monthly GDP numbers and the final count 6 or whatever months later can be 0.5% of GDP. Claims about a few percentage points 50 years out strike us as little more than a demonstration of a sense of humour.

As with Peter Lilley we’re fine with what people tell us about the physics of climate change. But the economics of it all is much more marginal. Leave aside the deluded who think that job creation is anything other than a cost. The reason that the Nordhaus and Stern analyses insist that we must do this the cheap and efficient way is that the difference - absent a Venus-syle runaway - is marginal. It’s a few percent either way. Therefore the efforts cannot, logically, be more than a few percent either way for if they are then the costs will be greater than any possible benefits.

The actual economics of climate change does tell us that avoiding disaster is a pretty good idea. After that it’s all rather a marginal issue.

Mr. Dimbleby really is wrong on this - obesity costs the nation near nothing

Yet another attempt from the founder of a fast food chain to tell us that - well, fast food actually - obesity is one of the grand public costs:

Britain’s weight problem is costing almost £100 billion a year and will scupper Rishi Sunak’s plans to get the sick back to work, analysis suggests.

This is not, in fact, true. It’s not true in the slightest. We assume that the idea is if the insistence is made forcefully and often enough then the political system can be stampeded into doing the wrong thing.

The cost to the NHS of obesity-related illness is now estimated at £19.2 billion a year, up from £10.8 billion, while the wider social costs include productivity losses of £15.1 billion, compared with £1.7 billion previously. The total cost of £98 billion, which includes the £63 billion cost of shorter, unhealthier lives, is equivalent to about 4 per cent of GDP.

As we’ve pointed out, repeatedly, obesity does not cost the NHS money. Yes, obviously, treating obesity related diseases has a cost. But we have a lifetime health care system. Therefore it is lifetime health care costs that matter. People dying young of exploding hearts save the system the money required for decades of hip replacements and Alzheimer’s care.

The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run.

On average, healthy people lived 84 years. Smokers lived about 77 years and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.

Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.

The cost of care for obese people was $371,000, and for smokers, about $326,000.

That NHS cost of £19.2 billion therefore does not exist. The correct number is actually negative, not positive. The £63 billion is a private, individual, cost not a societal nor public one.

We’d be willing to take a bet that those public costs, all in, are negative given that the NHS cost is negative.

All of which really does leave us with something of a puzzle. Why are people trying to influence public policy with numbers that are so obviously untrue?

We’ve even been quoted making this point:

Tim Worstall, of the Adam Smith Institute, has called warnings that obesity poses an NHS funding crisis “nonsense on stilts”. He wrote: “When you add in the costs of the state pensions that those who die young don’t get, smoking and gorging save the government vast sums of money. Having us all slim . . . would cost the NHS very much more money than the current level of topers, smokers and lardbuckets does.”

Disagreeing with us is obviously no sin but being at odds with reality is. So why are they doing this? What’s the plot here?

Hayek did warn us about this

How people larffed and larffed when Hayek said that the creation of the National Health Service was to Road to Serfdom. Free health care would lead to an imposition upon us from government would it? Larff, Larff.

If we want lower taxes in the UK, we should get serious about becoming healthier

Hmm.

Our older and sicker population has a big price tag. Spending on working-age health and disability benefits is heading to £71bn by 2028-29, a 51% increase from today. We can’t get younger but, if we want lower taxes, we should get serious about becoming healthier.

We must eat our morning granola, do our press and sit ups, so as to be able to afford that health service. Physical jerks are to be performed in praise of the Wonder of the World. Somewhere out there we hear the echo of an Austrian accented chuckle.

We’ve got to stop smoking, eating meat, imbibing, exercise more, to save the NHS budget.

A warning to prohibitionists

This is true of booze, of drugs, of tobacco and, yes, jet engine parts:

Ryanair has found “fake parts” in two of its aircraft engines during scheduled maintenance checks, becoming the latest airline to be impacted by a brewing scandal.

The parts were discovered during assessment in Texas and Brazil over the past few months and have since been removed from the engines, the low-cost carrier’s chief executive Michael O’Leary told Bloomberg News.

It comes as the global aviation industry is grappling with a fake parts scandal that has left airlines and regulators scrambling to assess engines and trace equipment.

We do not, of course condone this. But we do know quite a bit about it as a result of having been out there in that international and global economy for all these decades.

The difficulty is that the nut, bolt or screw for a jet engine is worth 5x to 10x with the right piece of paper than it is without. Let’s not make the situation more complicated than that. It’s righteous that it should too, traceability of parts in something so complex, so horrendous in effects if failure occurs, is a very good idea indeed.

But, it’s always going to happen that people will try to trade across a 5x to 10x price difference. Note that this is not a result of markets or capitalism. This isn’t neoliberalism run riot - this is just what happens among humans. This also doesn’t mean that people who do even fake jet engine parts should not be righteously jugged, not that we should not investigate allegations of it - as here, allegations only so far.

What it does mean is that governments simply cannot go around creating 5x and 10x price differences as will be true of banning tobacco and so on. Because people simply will trade across those differences. As they do with drugs, at large scale, and as currently also does happen with both tobacco and booze.

With jet engines the consumers - the airlines - absolutely do not want fake parts at any price. For knowing use of them would likely violate both their insurances and also their licences. Now switch the model to one where consumers do desire the item on offer - drugs, booze, baccy. There is that demand, there is that profit margin, trade will happen across it.

This then being the message for the prohibitionists. Even if it were true that society would be better without these things - it wouldn’t - it still won’t work. And there’s absolutely no point at all in implementing a policy that won’t work. So, don’t.

A reminder - That basic supply and demand works, yea even for housing

There’s a waiting list for social housing. This could be taken as the number of people sleeping under hedges who desperately require housing at taxpayer expense. This could also be taken as being an exemplar of basic supply and demand. We can even go one stage further and suggest that it’s telling us something about the shape of the demand curve for housing.

The numbers:

There were 1.21 million households on local authority waiting lists on 31 March 2022, an increase of 2% from 1.19 million in 2020/21.

Or more recent numbers from the activists:

1.2 million households in England are currently stuck on waiting lists for a social home, a rise of 5% in the last two years.

The other numbers:

The number of people estimated to be sleeping rough on a single night in autumn 2022 is 3,069, which after 4 years of decreases has risen for the first time since the peak in 2017.

So, the 1.2 million is not those sleeping under hedges. If it isn’t, then what is it?

A reasonable definition of social housing is that housing on offer at lower than market rents. As our basic Econ 101 chart of supply and demand tells us, demand rises as prices fall. 1.2 million (minus the 3,500 if we insist) is therefore the number of people who would be willing to move in return for lower than market rents.

We can go further too. This tells us something about the shape of that demand curve for housing. Affordable housing (one component of social, but let’s run with that) is defined as being at 80% of market rents. So, a 20% price fall seems to increase demand by that 1.2 million of the about 30 million households (we might be blurring UK and England numbers here but the point still stands). A 20% change in price seems to move demand by 4%? That means that housing demand is inelastic with respect to price. Demand changes, as a percentage, by less than the percentage change in price.

That then - again from that supply and demand theory stuff - tells us that an increase in supply will have a significant effect upon price. For the same reason, demand doesn’t change that much with respect to price therefore an increase in supply will move the price more than the demand.

Building more houses therefore will indeed solve the housing affordability problem.

We could also abandon all this economic theory nonsense and just return to basic, plain, common sense. There’s a queue for cheap stuff, is there? Gerraway.