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The LVTC blog, by Henry Law

The comments in the LVTC Blog are a personal view of our Hon. Secretary Henry Law and do not necessarily reflect the official policy of the Campaign.

This is a place for personal observations and comments on politics, economics, current affairs, on-going discussions on the potential for LVT to remedy some of the current ills, and the impact on Society of any of the above. 

Please read and enjoy, and feel free to respond to Henry if you have any thing you would like to add.

We predicted right five years ago

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We have been warning about inflation since 2008. We argued then that the policies that were being put into place would not work. And they haven't. Like a gambling addict on a fruit machine, those in charge of policy keep on feeding money in, hoping that the jackpot will arrive. Only there is no jackpot.

Fiscal emergency declared in Detroit

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An article in the FT today reports that "The governor of Michigan declared a fiscal emergency in Detroit on Friday, clearing the way for the appointment of an outside manager with broad powers to oversee the finances of the debt-ridden city. The emergency manager could recommend a bankruptcy filing if he or she found the city's fiscal problems were insurmountable. If Detroit took such a step, it would be the largest municipal bankruptcy in US history."

The article is illustrated by the photograph above, with vacant derelict land and skyscrapers behind. It tells its own story.

Helicopter money and the supply-side blockage

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Jessops, Central Milton Keynes

The camera retailing chain Jessops is one of a list of big name retailers which has closed in recent months. 187 stores have shut, with over 1300 people losing their jobs. What is left of the company will now become a mail order firm operating from a warehouse in Leicester, which takes the company back to its starting point. Jessops big expansion took place in the 1970s and it is, like many other of the big casualties, a victim of technical change. Digital cameras are now much of a muchness. People buy their cameras and share their pictures on the internet and view them on-screen. These changes have meant that Jessops has become an irrelevancy.

None of this would matter very much if the vacant premises were quickly recycled and put to a new use. Re-letting would give work for shopfitters even before the first customer came through the doors. But as we know, most of the vacant premises will not be brought into use quickly.

VAT cut boosted eating out

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It is unusual for economics experiments to be carried out, from which firm conclusions can be drawn. A recent one in Sweden involved the reduction of Value Added Tax for restaurants from 25% to 12% on 1 January 2012. Analysis of the results by the national statistical bureau SCB show that the monthly sales volumes for November 2012 were 7.2% higher than in November 2011. Café sales were up by 11.3%, and restaurants serving lunch and evening meals saw an increase of 10.2%. Adjusted for calendar differences and general price increases, the increase amounts to a 6.5% growth, against the general trend in the Swedish economy with a growth rate of just 1%.

Commenting on these figures, the local Metro newspaper reported that the number of employees in the restaurant sector had risen by 5,000 over the 12 month period. Interestingly, the tax cut had not led to immediate price cuts, though prices had stabilised. This suggests that restaurants had been able to charge the same prices as their customers were accustomed to paying but had been able to absorb rising costs due to inflation and other causes.

The EU commission has, unsurprisingly, questioned the effectiveness of the tax cuts in creating jobs but it takes no penetrating analysis to work out that tax cuts will eventually result in lower prices and that, consequently, more people will eat out in restaurants. Which these figures only go to confirm.

There will be knock-on effects too. Restaurants will become more profitable, and this will feed through into rents. In due course, some of this can be recaptured through the property tax. If the property tax was an LVT, at a substantial rate, most of the extra value would be recaptured as public revenue, demonstrating the general principle that since all taxes are at the expense of land rental value, a tax on the rental value of land could replace all existing taxes.

Banking the rotten heart of capitalism?

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Will Hutton writes in the Observer about banking scandals as lying at the rotten heart of capitalism. That was two years ago but other commentators keep on saying much the same thing. We disagree. The rotten heart of capitalism is the private appropriation of the rent of land, something which Hutton and most other commentators never talk about. Without it, the banking scandals could not happen.

The standard banking model is the creation of money at no cost, for land purchase. The banks use this created money to purchase land which is then leased back to the "borrowers" for the duration of the loan. The "interest" paid by the borrowers is, mostly, nothing other then rent of land.

It is a smoke-and-mirrors business which makes it hard to see what is going on. But if the preconditions are not removed, no amount of bank regulation will prevent repeat performances.


The free market fallacy

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I came across this the other day.

"It is really very simple. Capital can be allocated by markets or by central planning committees. Despite the booms and busts, markets do it better. It may be that that the booms and busts are just inevitable."

 alt Why is there a refusal to recognise that there is more to it than this?

New Swedish commuter train to boost land values

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The new commuter train service between Göteborg, Sweden's second city, and Älvängen commenced last week. With new stations serving a suburban area which has previously had to rely on bus services, it will make commuting more attractive and open up new development opportunities. The scheme is part of a big infrastructure project which has involved the rebuilding of the route to Trollhättan, on the route to Oslo, as a high speed, double track main line.

Since the Swedish tax system includes a small element of land value taxation, some of the additional land value created by this investment will return to the community. But most of Sweden's taxes are raised through punitive levies on productive activity, resulting in a high level of unemployment especially within the 16 to 25 age group, and chronically short staffing in the shops and services where they could usefully be working. It could be so different if the punitive taxes were phased out and the land value tax was put on a proper rental basis. The regular revaluation would quickly sort things out, giving the government a more reliable source of revenue and reducing the cost of employment so that more people were working and less had to be paid out to keep the unemployed in welfare.

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