Why poverty? that would be Ricardo's Law

Someone told me that poverty exists as wages are too low to pay for rents and house prices are too high. This chap was right, but did not understand the connection between wages, rents and house prices. Once you understand Ricardo's Law then everything else in economics makes sense:

A recent history of why rents and house prices are always too high:

1. ·         Since the 50’s the euro-dollar and offshore banking system has been able to magic up endless credit to any western financial player or developer free of tax and regulation. This is the key economic change along with the abandonment of post war controls on the movement of capital
2. ·         Political changes since the thatcher/Reagan era, which were facilitated by my point above, and the triumph of the ‘neo-classical' economic cover story paraded by the dangerous buffoons from the ‘Chicago school’ of economic policy have effectively hidden real economic thinking. This has kept wages down while allowing a ‘free market’ to allow the full force of what is known as ‘Ricardo’s law of rent’ to capture most of our economic production and pass it into the hands of unproductive monopolists, of which landowners, owners of natural resource rights and banking are the biggest.
3. ·         By understanding ‘Ricardo’s law of rent’ further and better explained by Henry George in the 1870’s in a ‘free market’ rent and land prices will increase to match the surplus of production and therefore capture our growing national wealth and all the money created by loose lending policies and the dodgy international shadow banking system.

Therefore most people are no better off, and will never be better off as long as we allow the monopoly value of land(and all the other monopolies  that operate in the world) to be captured by rents and inflated property values. It is immaterial what wages are, real wages could double and all that would happen is that rents and property values would expand to capture the higher level of disposable income.

In the UK the continued reduction in house building plays into the hands of all the little monopolists who bought houses in the Thatcher false boom. Then in the ultimate act of class betrayal New Labour found it much easier to continue the policies of credit expansion, reduced house building and neo-classical economics.  This way they kept floating voters in key marginal constituencies happy as the increase in value of their houses made them feel rich, while at the same time keeping the ‘plutocratic’ forces  happy as their wealth expanded enormously. Tax credits and housing benefit allowed the poor to feel a little richer but in the end the economic processes I explained means that this money really just filters through to enrich landowners and bankers. The banks have taken their slice of economic rent through ‘Buy to Let’ private landlords and people taking out mortgages they cannot really afford to pay back (just look at how many people have interest only mortgages or have lied to obtain a mortgage they cannot afford). House prices are a function of what banks are prepared to lend and have little relation to any intrinsic factor so they will rise and rise until people cannot afford to pay back the debt incurred to buy them, famously known as the 'Minsky Moment' after the great economist  Hyman Minsky. 

http://en.wikipedia.org/wiki/Minsky_moment. 

This was of course unsustainable and we now face at least 10 years of recession as debt deflation consumes the over borrowed. By bailing out the banks and enacting policies that keep asset prices high at the expense of the  average taxpayer, Government policy will extend the advantage of our plutocrats while furthering  poverty and wealth divide. The bank bailouts have effectively privatised a sizable portion of the next 15 years or so of taxpayer money.

The privatisation of future taxes will see a large drop in Government funding on nature conservation as we have seen in the last year and will continue to see in the foreseeable future. Lower incomes will mean even less money for wildlife charities from private donors, low interest rates will mean much less income from grant making trusts and artificially high land prices will allow less land to be acquired for nature conservation purposes. My nightmare is that wildlife charities will be forced back to their roots where they are apologists for land owners managing postage stamp  areas of marginal farmland donated by a kind soul but without the resources to make a real difference to wildlife and habit protection.

This policy has accelerated since Thatcher, no matter which political party has been in power and I do not see the Liberal Democrats doing anything about it apart from Vince Cable’s heroic efforts to extend a property tax and reform capital gains tax. I have grave doubts Miliband will do anything to change it too. Although there are some in in all 3 political parties who understand real economics, most have no idea of the forces at play in our economy and/or are just vain puppets.

So far Vince’s polices have not come to the fore and the only real change enacted by the coalition government has been the extension of VAT to 20% which is the most regressive of all the main taxes and the tax that has the least effect of the ability of monopolists and landlords to extract economic rent out of the general population. Vince agreed to this in the hope capital gains tax would rise and a property tax would be enacted. I fear this was an empty promise by the Tory coalition partners and we will never see an increase in these taxes as they will directly affect the rent seeking “plutocratic” forces that have so much power.

Our political system seems unable to do anything to counteract this trend, with policy formation being a squabble between the most powerful rent seeking forces, even organisations such as the CBI are now controlled by businesses that are more interested in monopolies and rent seeking than real productive industry. Even the house building industry seems far more interested in the untaxed capital gains they can make from their land banks and its interaction with offshore tax dodging shenanigans than on getting on with the business of making a profit from building and selling houses, and their lobbying of Government is reflected by this in the way they wish to relax planning laws..

But let Fred Harrison explain Ricardo's Law of Rent, he is far better at it than I and has a much better line in suits and ties.

Wildlife charities promoting child poverty part II

My response to a chap helping to organised a anti development petition

Any house building would help poor people, it is a national disgrace that we are building so few homes in the UK. But as you say there are no real planning proposals to redress this, and the Tory planning changes are a travesty that will maximise income to landowners and city spivs while minimising the social benefit that home building brings.

I still doubt it will have any real structural difference to biodiversity in the UK, changes in agriculture are at least 100 times more important than house building. I still think that this is not well understood by the general population and most people operate on a completely false set of assumptions that house building is a major factor in wildlife loss. Simplistic campaigns and some of the  rhetoric on the 38 degrees site play into this popular misconception.

I have grave concerns that the popularity whipped up by all sections of the media are more do to with present day home owners pulling up their ladder of privilege  to protect their capital value. I have been very guilty of using house building as a bogyman in my own past campaigns and deeply regret it, I used this for one of my most popular marketing campaigns while at Kent Wildlife Trust. Unfortunately this diverted attention from the real wildlife calamity that was befalling the county due to the changes  in farming and land use such as drainage and flood defences.

This proposal, just like the forestry proposal, shows just how much private interests have wholly captured public policy formation, and on that front I am a huge supporter of the work of 38degrees in being the biggest facilitator of poplar opinion to counter this trend.

David Cameron has shown he is just a PR man in the American mould of politics, he has farmed out policy formation to the lobby groups of the city’s largest finical institutions and in return for political donation is bringing them to parliament when he thinks it expedient to do so. Both the public forest sale and now these planning changes have come straight from the officers of one of the banks or hedge funds and have been written deliberately to allow our plutocrats to maximise their unearned income, further extending tax avoidance and furthering the terrifying wealth gap that is the unfolding calamity of our society

How Wildlife Charities are Causing Child Poverty...

A lot of wildlife charities are mobilising their supporters to sign petitions against the new Tory plans to relax planning permissions on new developments. These new proposal are obviously just political payback to  David Cameron's Landowning Chums in the Countryside Landowners Association and house building political donors.

But I have a big problem with wildlife organisations getting on the anti-house building NIMBY bandwagon as the issue is far more complex and we end being part of a system that is responsible for horrendous squalor and social inequality.

It is a terrible thing to pit the many people paying large rents, or have taken out mortgages they cannot repay or the many families living in appalling squalor against those of us trying to save wildlife. The reality is that there could be a massive house building programme in the UK, which would have very little direct impact on wildlife. With the right mitigations measures,  such as the construction of wildlife corridors and associated wildlife reserves we could easily triple house building in this country and make a huge wildlife gain at the same time.

In the majority of cases houses built on farmers’ fields will actually increase biodiversity as even the tiny back gardens of modern houses hold within them far more wildlife than a modern arable field. English Nature, just before its demise conducted a study which concluded the same; much to the outrage of many a rampant NIMBY whose only interest in nature conservation was to protect the property value of their overpriced three bedroomed semi on the edge of a farmer’s field.

The real scandal is the terrible planning system, or should I say lack of planning system, that allows the massive profits derived from the granting of planning permission, to the tune of many billions of pounds, to go untaxed into the pockets of landowners and banks without any real effort at compensating for the environmental and social problems that are created through the development.

My view is that wildlife campaigners should be fighting for the unearned income, the portion of land value ascribed to the granting of planning permission for house building, to be used to mitigate the environmental affects and enhance wildlife. Far better the community is enhanced by this community derived wealth than for it to go untaxed into the offshore accounts held by members of the countryside landowners association and their bank owning chums.

When a new housing development is granted the landowner and to a lesser extent the developer and banks are set to make a huge unearned capital gain. Because of our awful taxation system a lot of this profit from the increase in value of the land will disappear offshore into tax havens never to be seen again above and beyond the huge legal tax loopholes granted to landowners in this position. I understand some of you will doubt this but it really is true, much of the land will be owned and be  passed between a series of companies and hidden behind blind trusts in the Cayman islands as will the profits of the development company that builds the houses and the profits of the banks that loan the money to the developer and then the new home owners.

Many of the new costs associated with that development such as drainage, schools, roads will be paid for by the average hardworking taxpayer. Also the existing infrastructure that made the land so valuable in the first place when planning permissions was granted will have been paid for by those that work hard and pay normal income taxes.

In my opinion, and that of some of the world’s leading economists, the most efficient way to solve this conundrum is the shifting of income tax to a Land Value Tax which would pay for all of our government expenditure and have more than enough left over to fund environmental mitigation of all new development. We could easily afford to build a vast network of National Parks and  wildlife reserves with connecting wildlife corridors on the most marginal economic land which would become cheap to acquire. Thus we would create a UK brimming full of wildlife, with happy families in good quality housing and have all kind of extra benefits such as lower crime and more people in decent jobs etc.

There is a downside for some of  the richest 2% of the UK’s citizens, as they would have to get off their backsides and do a proper days work if they wanted to earn a living instead of enjoying a free lunch at the rest of society’s expense.

LVT Wildlife & The Environment Lib Dems ALTER paper

I wrote this as a discussion for the Lib Dems ALTER group for their next party conference - Power to the elbows!

LVT Wildlife & The Environment

Land Value Tax (LVT) on all land in the UK will not only create jobs and boost the economy, but is the key to protecting our wildlife and conservation of natural resources.

LVT will allow all the citizens of the United Kingdom to share in the natural riches of our country and feel that they have a stake in its future. This will have many benefits for community cohesion and respect for the countryside and private property.

LVT has been recognised as the key economic reform by the academic discipline of ‘Environmental Economics’ as the only policy that will allow us to square the circle of having a growing economy, increasing employment with greater wildlife protection and conservation of natural resources.

Natural Capital

Government revenue should come from Natural Capital; the free gifts that nature gives us: the natural fertility of the soil, the sun, the water and the resources of oil and minerals. At present our tax system allows the monopoly value of these resources to be privatized without tax. This has the long term effect of concentrating unearned income into the hands of a few and reducing economic efficiency.

As society develops and becomes wealthier so natural capital, as a finite limiting resource, comes to constitute an ever increasing proportion of total wealth. But its monopoly value also concentrates in fewer hands, in the guise of corporate landowners and unproductive financial speculators. They capture ‘economic rent’ and make huge capital gains, acting as a massive drain on entrepreneurship and the productive members of our society.

Direct taxation of a fixed resource such as natural capital will have far less impact on our economy than taxation of trade and wages. This will allow jobs and industry to flourish while at the same time acting as a constant force to conserve the use of land and natural resources. The practical effect of this is that we will use our existing developed land far more efficiently; investment capital will flow to poorer areas and derelict land instead of seeking out green fields to exploit. Business and individuals will have a great incentive to conserve oil and minerals stimulating new green industries.

Giving Value to Wildlife

The fundamental problem we have in nature conservation is that when wildlife is destroyed there is no sanction. LVT will provide a positive feedback loop giving cash cost to wildlife destruction for anyone seeking to use natural land or intensify its use as this will have an impact on its unimproved value. Whenever a natural place is destroyed so it’s ‘Land Value’ will increase and thus it will be taxed accordingly.

Conversely marginal land that is of little commercial economic value (that is held in covenant as such) will have no commercial value and be free from such a tax – thus landowners will be encouraged not to use land in uneconomic ways that destroy wildlife promoting the creation of many more areas of high wildlife value that will have little impact on the productive economy.

Creating economically competitive rural, farming and conservation employment

Our present system of taxation vastly favours tax-dodgers, land speculators, large landowners and investment in huge capital infrastructure. This promotes the use of ever more intensive agricultural systems, increasing animal suffering, oil based chemical use and disproportionately  drives jobs out of rural areas.

Huge tax breaks exist for the purchase of large machines and capital infrastructure. Fuel, fertilisers and agricultural chemicals all have huge subsidies and do not reflect their true cost to society or the environment.

Taxation removed from wages and trade allows the creation of rural and urban jobs. In rural areas this would be further enhanced as it would allow less intensive systems of agriculture, that coexist with native wildlife, to become economically competitive, when compared with our most damaging forms of industrial agriculture. Opportunities would arise in our leisure and wildlife conservation businesses offering benefits for the rural economy in recreation and tourism.

Intensive livestock farming inputs like palm oil husks and soya, which are grown at the expensive of tropical rainforest, would also become less economically competitive, helping to save areas of high biodiversity elsewhere on our planet.

Why other systems have failed

There has been a series of attempts by government to enhance wildlife and protect our natural resources at a huge cost to the taxpayer. Many of these efforts have meant little benefit for wildlife yet have increased the land prices and enriched only a few landowners

Grants to landowners, agricultural subsidies and land use policy have been a disaster for British wildlife.

Just like the disaster of housing policy over the last 30 years, so we have created a system whereby the taxpayer ‘rents’ wildlife from private landlords. This is hugely costly and a massively inefficient way of protecting wildlife. A general LVT will achieve a much greater level of wildlife protection with a much reduced cost to the taxpayer and reduce the need for DEFRA to administer and police current grant systems.

The greatest Liberal politicians of the last 100 years have supported LVT as the key economic reform that will bring economic growth, employment, balance of payments, social cohesion & crime reduction. The new academic movement of ‘Environmental Economics’ has now recognised LVT as key to the protection of our wildlife and conservation of the natural resources of the planet. 

Bullingdon Dave - will he save us from the violent young men smashing up local businesses in our cities and Towns?

I had an e-mail exchange with a David Cameron apologist in a discussion about the role Wildlife conservation has in preventing riots,  my response to the Bullingdon Club apologist (who had the temerity to say that the poor and underclass relied on these people to create wealth) is copied below, :

The members of the Bullingdon club represent mostly landowners who derive their wealth by charging others a rent for land usage. The banking system, which many of the young Landowners find themselves working for these days works on a similar system of charging ‘economic rent’ by the private ownership of the supply of money, where only a tiny fraction is actually put into the productive economy and most goes into third world exploitation and the creation of massive asset bubbles, such as the frightening housing bubble that is crippling the economy of this country.

Our Bullingdon Club friends create virtually no wealth, so do not confuse them with entrepreneurs and the productive members of our society who drive innovation and wealth creation. These leaches are nothing but a drain on the productive, wealth creating parts of our economy, robbing hard working people of the fruits of their labour.

They also represent a system of privilege that enshrines the disenfranchisement of the youth who were involved in the riots. To understand is not to condone. And Both our Prime Minister displayed the same temperament in his involvement in smashing up the restaurant as did the vast majority of those involved in the riots. To both of them it was nothing more than hi-jinks. Obviously this does not include the very serious crimes committed by some very disturbed and violent individuals.

Of course every individual should be held responsible for their own actions but we must understand the factors that bring about trigger events and put policies in place that reduce the thuggish tendencies that lies in the hearts of young men. But when a 11-year-old boy is handed an 18-month youth rehabilitation order for stealing a bin and a 22 year old gets 4 years for posting something on facebook yet David Cameron can get away with hiding his involvement in the smashing up someone else’s restaurant then there is a fundamental problem in this society, one that eats away at the heart of any young man trying to establish his role in society and form a moral compass

The Nature Conservation movement has an important role in re-engaging all people with the nature of Britain as in that process we will give them a stake in this country. By far the biggest part of that process will be in allowing a disaffected young man in London to have just as much say in how the countryside is governed, and how its natural bounty is distributed, than a young man from the Bullingdon Club.