Henry George

Neither a borrower nor a lender be...

Jock — Fri, 10 Oct 2008 08:53:06 +0100

We've seen much over recent weeks about how awful the City has been. How banks have made rash dodgy loans. Short sellers, overpaid executives and whatever else...

But I'll let you into a little secret: for every loan there is both a lender, perhaps a dodgy spiv with too high a bonus to be sure, but just as importantly there has also to be a borrower.

We have seen a little po-faced political bemoaning of the culture of consumer debt, but this unsecured credit - spending money - does not appear to be the primary debt that has caused this collapse. With few exceptions, when the banks talk about the sub-prime loans lying like a half-dead half-back at the base of a maul, they are talking about mortgages. Are not these borrowers to be condemned in equal proportion? Did the bankers force them to borrow? Are not they just as greedy, in their own way, as the bankers making themselves rich on those borrowers' seeming insatiable demands for more money? Maybe these are the real "sub-prime loons" that are really responsible for bringing our economies near to systemic collapse?

Of course it would be electoral suicide to lay so much blame on the ordinary "Joe Sixpack, the hockey mom". And indeed it would be quite wrong to do so. For most of those mortgage borrowers, perhaps especially what has become known, horribly disparagingly, as the "sub-prime" borrowers, were being completely rational. Rational, that is, in an utterly irrational system. And the results of that rational behaviour are now serving to highlight just how irrational the system is.

Indeed, it is so utterly irrational a system that those borrowers we might want instinctively accuse of being the least rational - those whose chances of paying off the large loans were the smallest - are in fact the most rational. Because in that mad upward spiral of house prices, those still left renting would be the worst hit. The urgency of getting out of renting and fixing your future housing costs at today's rates is all the more pressing.

Because here's the second little secret for tonight: we all rent.

This may seem counter-intuitive in a world where 70% of folk "own" their home and most of the rest want to. If you are, or can recall when you were, on the point of making the transition from renting to buying the first time, this will be easier to understand. One of the factors in your decision to stop renting and to buy instead will have been whether the mortgage payments, as compared with your current rent payments, are reasonable value, over the length of time you expect to be needing to use that property.

Of course there are many other factors as well. Some in favour of ownership, such as being able to improve, redecorate or even trash the property, and having the prospect of capital growth. Some in favour of renting, such as not being responsible for all the maintenance, or not being stuck with a mill stone if you can't sell it when you need to move. And of course the supreme benefits: a. you don't need to charge yourself rent - after all you are paying for it anyway and b. if you get to the end of your payments okay, you get it rent free for as long as you like and still get to sell the rights to it hopefully at a tidy profit.

But as tradable assets, our properties are valued on the basis of the yield it could achieve to an investment buyer now, and their view of how that is going to change over the time they expect to hold the investment. And when we buy a home, what we are actually buying is the right to collect the rent on that property for several years ahead at a "fixed" price today that we think will benefit us. Few owner occupier buyers will probably think about it that clinically. They might instead look at local comparisons to assess what they ought to be willing to pay. But so long as there is a rental market, and since there are some disbenefits to ownership as noted above it is likely that there will always remain a rental market, the money-value to the market is going to be based on its current and future rental potential and the overall yield over the time an investor would expect to hold that property investment.

So, what rising house prices indicate is that investors believe that there are going to be higher returns in terms of future rent potential. And if you are still a tenant, higher returns to the landlord mean higher costs to you. So if it is economic to freeze the rent payments at or near today's levels for the foreseeable future, you definitely want to do so. This becomes a bubble because the effect of future expectations compounds itself. Throw in relatively cheap loans and people can afford more in the present to secure those expected future gains.

Okay, now having, I hope, got you thinking in terms of "rent" I want to get you thinking about the different components of this "rent".

Take two identical, some might call them identikit, homes. Two same model "Barratt boxes". Only one is in Kensington & Chelsea, the other in Blaenau Gwent. I choose them because they are the highest and the lowest respectively local authorities by "land value" in England and Wales. Three bedroom, 100 sq m and with a rebuild cost of £1500 per sq m. On the face of it, they ought to cost about the same to buy, somewhere around £150,000, but of course they don't, do they.

If you managed to find the same little plot in K&C as in Blaenau on which to place your "Barratt box" you'd probably find that in Blaenau it would cost next to nothing - probably a couple of thousand pound per plot, for the trouble of clearing it! But in K&C it would cost several million and probably wouldn't be worth your while putting that Barratt box on it! In fact, in the recent purchase of Chelsea Barracks by the Candy brothers, which was reported as £959m for 12.8 acres, your average tenth of an acre plot would set you back a cool £7.3 million.

In fact, the Chelsea Barracks site is a good one to look at, since it will not involve criticizing the "poor widow" for not developing her prime land, but the government! What did the government, the Ministry of Defence do to make that barracks land so valuable? It certainly wasn't its former use as a barracks! It's not because it was a barracks that makes it an in demand site. But because of all the economic and social activity that goes on around the site. In fact, once upon a time, as a barracks, no doubt the site would have attracted the usual motley collection of military hangers on - whore-houses, bars and so on - it may even have depressed local land values initially, but certainly for the past few decades holding it out of its more productive use has meant other local prices have been pushed higher than they would be if all that land had been used productively.

In fact, the proportion of the "rent" due to the value of the building, the same sort of building as in Blaenau, is a tiny fraction of the overall rent. The rest is due to the location. The popularity of a location which is made up of dozens of factors, but centres around the fact that there are hundreds, thousands, of people who could beneficially make use of that location to be nearer work, social and other opportunities created by the surrounding community.

Now, here's the easy part to remember. What Land Value Taxers want to see, from David Ricardo, Adam Smith, J S Mill, Henry George to Lloyd-George, Churchill, Asquith and many others to the present day, is that the portion of the rent a property yields due to its location, and not the building on it, should be collected by the community and redistributed amongst the community instead of privatised by the highest bidder (or in some cases still the person with the most brutal land grabbing ancestor!), shored up by cheap bank loans. It is rent due to its monopoly as a good location that many people could make use of rather than any effort of the landowner.

In an LVT based tax system, when you "buy" your home, you'd be buying the right to collect the rent for the building alone. This is something you as an owner can affect, through your diligence or negligence in maintaining it or in building something of higher density on the same site. In the language that a typical home buyer will understand better, we want you to pay the £150,000 for the Barratt box to Barratt or the previous occupier, but you pay the remainder, the rent caused by its location, in annually assessed chunks, to the state instead of paying taxes on the earnings from your economically productive labour.

You can already, I hope, see the advantages. This bubble we have lived through over the past decade, the angst of people priced out of the market stressing about if they ever will get out of renting, the ballooning of borrowing that now threatens the very system that created it, will be things of the past. For as long as you can justify paying the location rent given the benefits that particular location gives you nobody can shift you. If that rent rises it is a sign that more and more people are being excluded from land that they might make more productive use of than you. Why should you be able to exclude them for as long as you like and then also reap a massive profit from having cost so many others much money "avoiding" your plot?

Instead of that home in Kensington & Chelsea costing you £7.35 million up front, it'll cost you £150,000 or so up front, which you can borrow to pay for if you need to, and a hefty annual location rent bill instead of both the remaining £7.2 m mortgage it would have cost you to buy the location up front and your income and other taxes on productive labour. Your disposable income is likely to be maybe 30% higher just for losing those income taxes. You can save in a wider range of productive assets for your future than just the monopolistic endeavour of owning a popular, or up and coming location. You may even choose to save so you can continue to pay the location rent when you stop earning for whatever reason - though most would probably find it just as good to save for an income in retirement and to downsize or move so that someone else can have the benefit of the local school you no longer use, the local rail station you no longer commute from and whatever other factors have made your location a popular one and for the proximity of which you would continue to pay even after you have stopped using them.

In the lingo, this is called creating "free land". Returning it to common ownership and paying as you go to occupy the bit that most suits you at any particular time of your life.

Even apart from the source of government revenue this would provide (though some of us would prefer to see the rent collected and simply doled out to all citizens in that community as a community dividend, a basic universal non-withdrawable income in place of most cash benefits) it fundamentally shifts the burden away from working and producing and onto inefficient use of scarce resources.

It is essential in an environmentally responsible regime, because it makes the choice of whether to live close and not pollute by commuting or to live far and spend a fortune in travel costs, more available to more people.

And it is essential in a liberal regime, as it gives people a choice in the "taxes" they pay - the tax savvy will soon work out that if they can spot an up and coming area that still meets their needs early they will pay less tax and watch the services there get better as others catch on, until it reaches some kind of equilibrium again. And it stop people making monopoly profits out of excluding others from what we all need access to - a location to base ourselves at.

This would be so much more than just a "tax switch" though - it would so fundamentally change the fairness, equit, economic justice for millions of people who, knowingly or not, are trapped in a system that takes money from them to line the pockets of landowners, the ranks of whom are getting ever more distant for many people all the time. read more »

Systemic Fiscal Reform (Neale Upstone)

Jock — Thu, 17 Jul 2008 23:10:18 +0100

Neale Upstone over there in "Tabs" joins the Lib Dem LVT supporting section of the blogosphere...welcome Neale!

Glasgow East: Blasted by the past?

Jock — Tue, 08 Jul 2008 01:23:56 +0100

They've been talking about poverty in Glasgow for a long time. They've been into land reform as well. Not just the work of Mary Barbour and the Glasgow Women's Housing Association and rent strikes during the first war, but at the turn of the twentieth century Glasgow was also the de facto HQ in Britain of the Single Tax movement, those followers of Henry George's idea of taxing land values. The poverty in the city was legendary, and it was it seems often used as an example by either side in the land tax debates almost exactly a century ago.

Here's a response from Winston Churchill in the House of Commons to the leader of the opposition, Arthur Balfour's attempts to rubbish the idea:

The Glasgow Example - I do not think the Leader of the Opposition could
have chosen a more unfortunate example than Glasgow. He said that the
demand of that great community for land was for not more than forty
acres a year. Is that the only demand of the people of Glasgow for
land? Does that really represent the complete economic and natural
demand for the amount of land a population of that size requires to
live on? I will admit that at present prices it may be all that they
can afford to purchase in the course of a year. But there are one
hundred and twenty thousand persons in Glasgow who are living in
one-room tenements; and we are told that the utmost land those people
can absorb economically and naturally is forty acres a year.

What is the explanation? Because the population is congested in the
city the price of land is high upon the suburbs, and because the price
of land is high upon the suburbs the population must remain congested
within the city. That is the position which we are complacently assured
is in accordance with the principles which have hitherto dominated
civilised society.

The "Poor Widow" Bogey - But when we seek to rectify this system, to
break down this unnatural and vicious circle, to interrupt this
sequence of unsatisfactory reactions, what happens? We are not
confronted with any great argument on behalf of the owner. Something
else is put forward, and it is always put forward in these cases to
shield the actual landowner or the actual capitalist from the logic of
the argument or from the force of a Parliamentary movement.

Sometimes it is the widow. But that personality has been used to
exhaustion. It would be sweating in the cruellest sense of the word,
overtime of the grossest description, to bring the widow out again so
soon. She must have a rest for a bit; so instead of the widow we have
the market-gardener - the market-gardener liable to be disturbed on the
outskirts of great cities, if the population of those cities expands,
if the area which they require for their health and daily life should
become larger than it is at present.

What is the position disclosed by the argument? On the one hand, we
have one hundred and twenty thousand persons in Glasgow occupying
one-room tenements; on the other, the land of Scotland. Between the two
stands the market-gardener, and we are solemnly invited, for the sake
of the market-gardener, to keep that great population congested within
limits that are unnatural and restricted to an annual supply of land
which can bear no relation whatever to their physical, social, and
economic needs - and all for the sake of the market-gardener, who can
perfectly well move farther out as the city spreads and who would not
really be in the least injured.

One hundred years ago, the Liberal Party could have begun to eradicate Glasgow's poverty once and for all. How sad that a hundred years later Glasgow East continues to shine mostly as an example of those same problems we could have solved all those years ago. What benefit has the political game been to them in all those years? What good the franchise? What good socialism? Or the vested interests of the Tories' friends? BBC News tonight suggested that this might be the most important by-election in thirty years. Maybe for the first time in a century someone could once again explain how they are going to make life really better for the constituency's long suffering inhabitants. And then make it happen. read more »

Henry George

Protection or Free Trade - Tories debate

Jock — Tue, 25 Mar 2008 02:18:23 +0000

There's this extraordinary debate going on (well actually the comments are closed) on ConservativeHome about a piece by a chappie called Tony Makara who is advocating a protectionist trade policy the likes of which has not been seen in the UK for a generation:

Anthony Makara: Britain imports too much

Over the last weeks I've read much about the subject of welfare reform. The arguments about incapacity benefit and workfare. However all these strategies for welfare reform fail to answer one fundamental question. How are we going to get people into work? I believe all the proposed plans for welfare reform will fail because they do not tell us how we are to create the one million plus jobs needed to end welfare dependency. This is because the British economy no longer produces the jobs that the unemployed need. Lets face it, a person is either in work or they are on benefit, it really is that simple, the answer to unemployment is to create jobs. [From ConservativeHome's Platform: Anthony Makara: Britain imports too much]

The outrage in the comments is interesting. We all know the Tories made a seismic shift in the mid-late seventies in embracing what they liked to call "free trade". Of course, without radical tariff eradication and resolute policing of monopoly and cartel, there is no truly free trade. But what is interesting is that this was the debate over which Winston Churchill first left the Tories at the turn of the twentieth century and joined the free trade Liberals.

You see, for forty years, free trade was a policy of the "left" (indeed much longer if we go back to the Radicals and the Corn Laws debates), a key plank of trying to increase the returns to labour and in reducing the cost of necessities to make the average working person better off, either through higher wages or through lower prices (they have the same effects). It was Philip Snowden, the Labour chancellor of the exchequer, who wrote in a foreword to a new edition of Henry George's book of the same name "Protection or Free Trade" that...

"Each new generation has in a large measure to re-learn the truths which its ancestors established by discussion and practical experience. Free Traders have been so confident in the fundamental soundness of their faith and in the security of the system, that they have neglected to keep the rising generation well grounded in the principles of the faith."

He was writing in response to the Tories' re-adoption of a protectionist stance in the face of the beginnings of the Great Depression.

I have no doubt that most Tories today believe in something called "free trade". I don't believe that most of them actually realise how far away we are from it and what steps will be necessary to get there. But I am sure myself that if we get there, we will all benefit. As Snowden also wrote, "Protection is the foster-mother of monopoly, and monopoly in all its forms...is the robbery of the community for the benefit of private interests" (you can see why Tories would like the idea!).

It is worth mentioning that the Lib Dems have a consultation paper out on the UK Response to Globalization. Go respond - we must resist any attempts at introducing protectionist policies.

Is the Starving Man Free?

Jock — Mon, 03 Mar 2008 02:46:53 +0000

Over on the Ludwig von Mises Economics blog last week, Ben O'Neill, an Australian libertarian and academic, wrote a piece against the welfare state in Is the Starving Man Free? and the full article is here:

'Modern "liberals" who advocate the view that government should provide us with the necessities or alleged necessities of life rarely appreciate that this assistance rests on a system of mass robbery and enslavement that is highly inimical to their professed belief in liberty. In fact, the advocates of such policies present them in quite the opposite light, as enhancing our liberty.'

Now, much as I hesitate to go up against an article at the great Mises Institute, this issue goes to the heart of differences between some liberals and some libertarians, though not this liberal libertarian. Indeed it is one of the core messages of the "Liberal Alternative" book we are compiling under the auspices of ALTER, and, to give it a plug, what I will be talking about in the ALTER fringe next Saturday evening in Liverpool, alongside James Graham, Tony Vickers and Vince Cable.

I also believe it gives some libertarians a "bad rap"; seeming to leave the "safety net" to the possible vicissitudes of private charity gives them a "beggar thy neighbour" reputation. Yet Liberals, and before the Ayn Rand/Ludwig von Mises school of libertarianism the mutualists and individualist anarchists like Lysander Spooner, had a neat response. For the record, I tend to agree that if we take from people what they earn with their own labour and resourcefulness it is coercion and even theft, but there is a source of value that properly belongs to us all, and not, as in the current predominant model, to the occupier - rent.

Benjamin Franklin wrote:

But notwithstanding this increase (of population), so vast is the territory of North America, that it will require many ages to settle it fully; and, till it is fully settled, labor will never be cheap here, where no man continues long a laborer for others, but gets a plantation of his own; no man continues long a journeyman to a trade, but goes among these new settlers, and sets up for himself.

[From: Observations Concerning for Increase of Mankind (1751), Sec. 8, Works, Vol. II, p. 225]

If we had free land, nobody would starve, unless that is they could not physically lift a spade to grow their own sustenance. The poor could up-sticks, spread out to the next available plot of unoccupied land and cultivate it. It would be a basic existence to be sure, but one that would not depend on another to provide, by state coercion or by reliance on private charity. And in time, one which could provide the most basic means of providing not just sustenance but opportunities to create wealth.

Now the fact is, we are not in that happy situation Franklin described. We do not have "free land". It is all enclosed. And indeed it would not suit modern, sophisticated, "civilized" (in the sense of "urbanized") humanity well if we did have lots of unused land lying around being unproductive. But the corollary of that is that there is no way the landless poor can sustain themselves without recourse to selling their labour to another. And in that state of desperation where one is about to "starve" one is surely more than most liable to coercion by that other. "Will work for food" maybe a simple slogan, but it hides a desperation likely to be seized upon by the unscrupulous.

Ralph Waldo Emerson said:

Then he says: "If I am born into the earth, where is my part? Have the goodness, gentlemen of this world, to show me my wood lot, where I may fell my wood, my field where to plant my corn, my pleasant ground where to build my cabin." ..."Touch any wood or field or house-lot on your peril," cry all the gentlemen of this world; "but you may come and work in ours for us, and we will give you a peice of bread."

[From: The Conservative, A Lecture delivered at the Masonic Temple, Boston, December 9, 1841]

Now what of the other side of O'Neill and the Mises style libertarians' claim that for the state to take anything from everyone to support the "starving man", to give him his basic needs, is "mass robbery and enslavement"? Well, as I said, I tend to agree that taking anything of what someone has made with his own labour or resourcefulness is theft. It is justified by the "liberals" that O'Neill castigates (that's most of us!) on the several grounds that it prevents a greater evil - the starving man, that it pays for the inputs that enable us to make money from our labour - our education and that of others to work for us, and the somewhat vague assertion that those who have much should give more to support those who have less. But it is still an offense against self-ownership; that which John Locke describes as being able to retain the fruits of our own labour.

But there is value in land that the owner does not create for him or herself. It is two hundred years since David Ricardo showed that rent increases to absorb the extra productivity that can be gained from a good piece of land compared with an inferior piece with no effort from the land owner, as owner. There is a perfectly reasonable strand of libertarianism, known as geolibertarianism, that asserts that since this rent is not earned by the landowner, but created by the expenditure of others, in labour and capital, that gives a particular location more social and commercial attractiveness, it is legitimate to collect this value from owners to compensate those who suffer from lack of land. And in a modern, urbanized economy, this would mean cash with which to satisfy their most basic needs, a "Citizen's Income" allowing them then to sell their labour, their bellies full and their body rested, without having to accept a potentially exploitative bargain.

Unlike taking part of what a person earns from his labour, impinging on his or her self-ownership, this can be justified because it is value that the owner does not earn for themselves, that it does not affect their ability to earn from their labour in future, and as a user fee in return for the state's or community's protection of their right to occupy such a location, a user fee in proportion to the potential natural productivity of that location, whether they make use of that potential productivity or not. Location is a monopoly, protected by the state; libertarians are against monopoly and state protection. It forms a neat, virtuous circle, from which those left without access to free land can be supported without the "mass robbery and enslavement" O'Neill rightly denounces. read more »

No "LVT bug" I!

Jock — Mon, 31 Dec 2007 11:48:36 +0000

I caught in my logs the other day someone visiting my blog from Tristan's piece way back in October about his "Essential reads". He was very flattering about my blog, but I do remember now reading it first time and wanting to defend myself against his suggestion that I was possibly the "LibDem version of a gold bug, seeing LVT as a solution to many problems as a gold bug sees a gold standard".

I admit, occasionally (well maybe more than occasionally for some) LVT seems like a religious belief, and as such one can be very zealous about it and make claims that others feel unwarranted. I know that a much more vocal LVT campaigner (yes, there are some!), Labour Land Campaign's Dave Wetzel, managed to put off a member of their NEC who works in my office because she could not believe that something for which so many beneficial claims were made had not been properly tried before now. And it is also true that for many years, the Lib Dem's own campaign group on such subjects, ALTER (Action for Land Taxation and Economic Reform), of which I am secretary, has focussed more or less exclusively on LVT to the exclusion of other "Economic Reforms" - indeed it has been suggested that "Economic Reform" was only included in the name to make a better acronym! read more »