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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.


Incidence of property taxes

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I regularly get into arguments with people who think that property taxes are paid by tenants. Now it is true that tenants in the UK are nominally responsible for paying the property tax, be it Council Tax or business rate. But the tax cuts into the amount a landlord can charge in rent. In other words, the incidence of the tax is on the landlord. Yet so many people refuse to believe this and do not understand it. Thus we are constantly hearing about the need to "help business" by cutting the business rate. Now it may be that the business rate, on top of all other taxes, may mean that no business is viable in some locations, and this would help to explain why so many of the UK's high streets are lined with charity shops and boarded-up windows, but cutting the business rate will not help business.

If there are any doubts on this point, this "study of studies" should dispel them once and for all.

 

Economic effects of immigration

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Concern about immigration was one of the reasons why the Brexit camp won. In the post-referendum recriminations, it has led to the Brexiters being denounced as xenophobes. The Campaign as such does not have a view on anything other than LVT, and certainly not something as sensitive and controversial as immigration. However, migration certainly has economic consequences. These underpin the whole question of how rent arises in the first place
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Begging according to Georgist principles - update

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Abour twenty years ago there was a man in Brighton who would go up to people in the street and ask them for ten pee. He cannot have been very successful as he later reduced his request to a pee. Perhaps he did not generate sufficient sympathy, being big, sturdy and obviously well-fed. Other beggars adopted different strategies. A popular one was to ask for the bus fare to Eastbourne as they had lost their return ticket, or, more daringly, the train fare to Southampton to see a dying mother. New Cross station in south London was a popular haunt. One beggar needed the fare to go to London Bridge for an appointment at Guy's Hospital; another lurked around the entrance, and, following a pace behind women with children in prams, ask people coming in the opposite direction for money to feed the child.

That sort of begging seems to have taken hold in the 1980s as the social fabric started to fray. In more recent times there has been a huge increase in beggars from Bulgaria and Romania, following their entry to the EU. This has brought begging into countries where it was unknown in modern times, including Germany and Scandinavia, where comprehensive welfare states had made it unnecessary.

People find it an irritation and embarrassment, and there is constant talk of doing something about it. But what? If people didn’t give, the beggars would go away, but obviously enough people are happy to drop a coin in their direction, for whatever reason. There are more who will buy them a sandwich or coffee. They can even perform a useful service, collecting empty bottles and claiming the deposits, or taking unwanted food sold as 3-for-the-price-of-2 offers. Others are a nuisance, when they come up to people in the street. There are rumours that they can act even more aggressively, for example, by escorting people to cashpointss and forcing them to take out money and hand it over.


PITCH WARS
There are claims that they operate as organised gangs. There is indeed evidence that some kind of mafia is in operation. Homeless people in Sweden who sell a magazine called Faktum (equivalent of The Big Issue), have been complaining that they have been forced off their regular pitches, sometimes at knifepoint, by heavies from Rumania and Bulgaria. There is certainly collaboration between the beggars – for example, in organising transport, and probably accommodation as well. There is talk about banning begging altogether in Sweden, but the fact that the best pitches - at the entrances to railway stations, shopping malls or next to busy bus stops, are now coming under control by protection rackets taking a cut of the taking points to a potential and constructive solution. The mafias are collecting a rental value which could be collected by the local authority instead, thereby applying Georgist principles to bring the whole activity under control?

All beggars within the city area would be required to purchase a license, valid for a month or two. They would get a badge with a photograph, registration number and expiry date, which they would have to display when at "work". There would be conditions which they would have to comply with – for example, they should not be allowed to approach people. If they broke the rules they would lose their licence.

What about those rental values? These arise in the busiest areas of the city. It would be necessary to designate zones where it was only permitted to beg at particular marked pitches. To use these sites, between, say, 8 am and 8 pm, an additional session permit would have to be purchased; these could be for an hour or two. Initially, the charges could be set as a rough-and-ready flat fee, but they would have to be reviewed regularly so that the charges more closely reflected the values of the different sites. Obviously a balance would have to be struck between optimising the charges and keeping the system as simple as possible. The permits might allow limited trading or other activities such as playing music.

In effect, the community would take over the role of protection currently provided by the criminal gangs, who would be forced out of business. This would be to the advantage of the beggars themselves. Given that the criminals obviously find it is worth the effort, the revenue should at least be sufficient to pay for a team of inspectors, and possibly a profit on top for the city’s coffers.

 

LVT in the wider context

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It is nearly two months since anything new has been added to the Campaign website. There has been little in the news that it would have been appropriate to respond to. Bigger events have moved onto centre stage, including the takeover of large areas of Iraq by Islamists, the associated massacres that have accompanied that, the war in Gaza and unfolding events in Ukraine. Our supporters will have divergent views on  these conflicts, but all of them are, amongst other things, battles for control of land and natural resources. The Iraq conflict is in and around the area of the oil fields, whilst Ukraine is a source of valuable coal which is exported to, amongst other places, the UK.

Gaza and Palestine generally are another matter. Proposals have been put forward from time to time for solutions which would involve rent-sharing, for example by Fred Foldvary. Land ownership in Israel/Palestine is a complex topic in itself. At the end of the Ottoman period, the major landowners were the Greek Orthodox Church and absentees, letting to rack-rented tenants. The GOC has retained its land holdings and even the Israeli parliament building is on leased land. The absentees sold to the Jewish National Fund which then leased it to Jewish settlers, though until the Nazis came to power in the 1930s their numbers were small, the influx was a trickle and it seemed unlikely that there would ever be enough Jews to make it possible to establish a Jewish state. Most of the absentee landlowners lost their property in the 1948 war.

It is interesting to speculate what might happen if the Israelis were suddenly to depart, leaving the country vacant but in good order. The grandchildren of the pre-1948 owners might emerge; on what basis could they make their claims? Documents would have to be produced, not only relating to land titles but also to inheritance. Courts would have to be set up to deal with it all. What assumptions would or could they make regarding the inheritance over two generations of property which had been thought lost for all time?

 

 

Economics is a science

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One point of view that has surfaced widely since the boom-bust of 2008-2010 is the assertion that economics is is not a science. In the light of the failure of mainstream economists to predict the course of events, it is understandable that a lot of people should come to this conclusion. The view was summed up by a commentator thus: It is not a science because of the steps of the "Scientific Method... To say there "seem" certain laws at work doesn't prove that there "are" certain laws at work. That is it in a nutshell. You can chose to end reading there.

The arrogant tone of the comment is unfortunately a feature of contemporary discourse. Even a cursory observation sugggests that there are regularities. This can be seen in any street market. The prices of things do not fluctuate wildly and inexplicably. Wages seem to find their level. Real interest rates seem to find their level too. Land prices and the associated economic cycle seem to be subject to a remarkably consistent and regular 18 year periodicity which can be traced back for a couple of hundred years. Land vaues follow a coherent pattern which can be correlated with factors such as the presence or otherwise of transport infrastructure. It is reasonable to infer that causality operates. It is further possible to test hypotheses, for example by collecting further data and also by studying the effects of different fiscal policies and the construction of new transport infrastructure. Similar relationships can be discovered in relation to other interventions or the absence of interventions.

Relationships and regularities do not of course imply causality, nor do they make it possible to establish which is cause, which is effect, or whether there are common causes or other causes which lie behind what is observed. One might, for example, note that there is a correlation between the styles of hats that people are wearing, and how prosperous they are. At that point it is necessary to put forward hypothesis and test them.

Over the centuries and in different societies there have been economies so different that careful examination of how they functioned will yield the kind of information that in the physical sciences would come from laboratory experiments in controlled conditions - the most notorious of these being the Marxist economies on the one hand and the strange faux-libertarian economies that are currently emerging around the world.

All tihis indicates that, taking the economy overall, there are guiding laws in operation which are, in principle, discoverable, even though precision is lacking. Most phenomena in the sciences are not repeated with a reliability of 1%, which is in any case often more than the method of observation makes possible. Admittedly, too, people have different motivations and preferences,  but on the large scale,  their actions add up to a coherent picture. In practice, too, individuals and organisations have a more or less realistic understanding of the way the system operates. Thus, any street beggar knows that they will get more if they sit outside a busy shop than if they put themselves in the middle of a quiet park where they will have only the birds for company. In that respect, economics is not so very different from the biological sciences.

The alternative view implies an absence of regularity and causality. From this, it would follow that

  • That nothing is knowable about the subject
  • That any interventions eg through legislative and fiscal policy, are pointless, because their effects are completely unpredictable.
  • The same pointlessness applies to any commercial decisions.

If there were no regularities in economics, people would have no idea whether they were paying, or being paid, the right price for anything. Manufacturers could not plan their production. Businesses would not know what how much, and what stock to order, and what to charge for it. We all work on the assumption that there world of economics is rational. It isn't always, but in the world of economics people do not knowingly give away things for less than they know, from previous experience, that they are worth. The assertion that economics is too complex to be a science is analogous to saying that it is not worth trying to learn to swim in the sea because the sea is too chaotic for the mind to apprehend.

 

Piketty has got it wrong

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“Capital in the Twenty-First Century” by the French economist Thomas Piketty, is now coming to wider public attention following its publication last year. According to Wikipedia, “The central thesis of the book is that inequality is not an accident, but rather a feature of capitalism and that these excesses of capitalism can only be reversed through state intervention.

The book thus warns that unless capitalism is reformed, the very democratic order will be threatened. The trend towards higher inequality was reversed between 1930 and 1975 due to the two world wars, the Great Depression and a debt-fueled recession, which destroyed much wealth, particularly that owned by the elite. These events prompted the governments to undertake steps towards redistributing income and the fast economic growth meant that inherited wealth had its importance reduced.

Picketty suggests that the world is returning towards ‘patrimonial capitalism’, in which much of the economy is dominated by inherited wealth and that their power is increasing, creating an oligarchy.” To reverse the trend, Piketty proposes a global wealth tax and a top rate of income tax of 80%. From our own perspective, rooted in the ideas of Henry George, we recognise the trend but do not accept either the analysis nor the proposed remedy.

The deficiencies with Piketty’s analysis begin with definitions. What exactly are Capital and Capitalism? Which features of Capitalism are causing the problems that he is concerned about? And if wealth is to be the subject of a tax, how is it even to be defined?

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A long sorry tale - UK economy since 1945

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Article in FT by Samuel Brittan. A potted history that reflects no credit on the politicians involved, nor on the officials who advise them, nor on the academic world that propagates the theories on which their policies are founded and justified.
 


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