United Kingdom shows that Austerity does not grow the economy
from Dean Baker
The Federal Reserve Board issued new projections for the economy last week, and they are not pretty. It projects the unemployment rate will still be 8.2 percent at the end of this year, 7.4 percent at the end of 2013, and 6.7 percent at the end of 2014. To put this in context, the unemployment rate peaked at 7.6 percent in the 1990-91 recession and never got above 6.3 percent in the 2001 recession. The Fed is projecting that seven years after the onset of the current recession, the unemployment rate will still be higher than at any point in the last recession.
This should have people alarmed and angry since it means that millions of lives will be ruined. Workers who are unable to find jobs will not be able to support families, contributing to stress and breakups.
The reason the economy is not creating jobs is simply that there is no source of demand to replace the demand created by the housing bubble. With nothing to replace this lost demand, companies see little reason to expand production and hiring.
Government spending is an obvious source of demand. However this spigot has been closed due to concerns over deficits. We have thousands of people in Washington who seem convinced that if the government would just stop spending money and lay off more employees then the private sector would respond with increased output and hiring.
While this might seem implausible on its face (what business hires people because the government has laid off school teachers or firefighters?), we no longer have to speculate about the impact of budget cuts and government layoffs, the United Kingdom is showing us.
The government elected last spring in the United Kingdom committed itself to rapidly reducing the size of its deficit. This government austerity was supposed to give a big boost to the private sector. It actually did the opposite. Growth has fallen to a near standstill. The IMF projects that the U.K. economy will grow by just 0.6 percent this year and an only slighter better 1.6 percent in 2013. This pace is not even fast enough to keep up with the growth of the U.K.’s labor market.
It would be good if the politicians in Washington could learn these basic facts about the British economy. They might then realize that deficit reduction destroys jobs, it doesn’t create them. There are times when we should be worried about the size of the deficit, but this is not one of them.
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This is not to defend British government policy but the “job creationist/perpetual growth” model of the economy is both mistaken and unsustainable.
“Jobs” and “demand” do not need to be “created”. There is no natural limit to demand since human desires are unlimited. Moreover, demand comes from supply. People start working naturally and exchange their goods and services. That is how it has been since the dawn of human history. If there are institutional structures that get in the way of this process, then there will appear to be “lack of demand” and a shortage of “jobs”. But underneath this are problems of a more fundamental nature that need to be addressed.
Dear Henry,
this view of an economy as essentially a barter economy is wrong. Believe it or not – before money, barter barely existed. Hunters did not ‘trade’ their catch – as it wasn’t private property in the first place.
Living in a monetary economy with centralized creation of the medium exchange means that ‘lack of demand’ is possible, either because people are hoarding money or, as in the case of Greece, because money is leaving the country (presently at a 17% a year rate – a figure rather insensitive to the definition of money used).
People were specialising in the stone age. Artefacts such as stone arrows are the product of skilled craftsmen. Items such as bone harpoons could only have been made by people with a degree of short-sight so that they could see what they were doing. They would not have been able to go out hunting as they would have got eaten by a sabre-toothed tiger. So they must have exchanged their work.
It is also the case that items such as beads are found hundreds of miles from their place of origin.
So what would the anthropologists say about your theory? You may want to read Debt by David Graeber. His explanation and the data he cites is more compelling than your theorizing. He notes that your theory is popular from Adam Smith on but it is not supported by research.
“So what would the anthropologists say about your theory? You may want to read Debt by David Graeber. His explanation and the data he cites is more compelling than your theorizing. He notes that your theory is popular from Adam Smith on but it is not supported by research.”
It is not anthropology but archaeology. There are remains of ancient workshops eg the flint mine at Cissbury Hill in Sussex. Excavations of a barrow in Hove, in the south of England, include a finely wrought ceremonial stone axe from Jutland in Denmark. These things were obviously produced by specialists, so they must have traded by barter or received payment in kind in some way.
But to fix on this question is to miss the fundamental point, that without free access to the raw materials ie “land” in economics, nothing would get produced, and if people have nothing to bring to the market, then they cannot exercise demand.
Demand begins with human desire which is unlimited. Effective demand arises when production has taken place that would satisfy demand. Production can only take place when three factors are present – land, labour and capital. Labour is willing and available. There is no limit to the supply of capital other than how quickly labour can produce it. But without access to land ie the surface of the earth and its resources, the process can not begin.
“Lack of demand” is ultimately due to land enclosure. That is an uncomfortable conclusion since it challenges all accepted conceptions about how things ought to be, so it is not surprising that it is resisted.
Again you make assumptions through our modern so-called market lenses about how these artifacts got there. We do not know. The archeologists dig them up but anthropologists analyse relationships in and between societies. Two alternate explanations from what you speculated on that come to mind are that they were taken from the maker (or the person carrying it in a battle) or it was a gift. I just thought of a third explanation. Tribute. Ancients often had elaborate customs with respect to gifts as well as what they owed to people above or below them in the hierarchy of their society.
While you are correct with your comments about a barter economy, you may be wrong about the causes of a “lack of demand” being “either because people are hoarding money or, … money is leaving the country.” You refer to the definition of money but seem to be at the same time defining it as currency. In modern economies currency is often less than 5% of the money supply in total. It seems to me another possible reason for “lack of demand” is high interest rates causing unemployment (NAIRU) and/or austerity measures themselves.
I encourage you both to read the books Animal Spirits and Debt.
Here’s a list of what the classical view of business cycles from Ricardo and Mill through Marshall, Mises and Hayek, rooted in the law of markets (aka “Say’s Law”) provides in terms of ideas and understanding:
#1. The only source of real demand for goods must ultimately be the supply of goods which other people. You must first create something of value and sell it at a cost-covering price before you demand other things.
#2. In other words, goods ultimately buy goods. Yes, money is used as a medium of exchange, and yes, short-run changes in the demand for money have real effects on economic activity because money is non-neutral, but the source of value is goods produced.
#3. Because production takes time and the future is uncertain, there is always the opportunity of production plans to fail and for the value of final goods to be below the cost of production.
#4. Aggregate supply thus IS “aggregate demand” in terms of nominal value. Value is subjective, and so it only reveals itself in exchange, where supply of a particular good meets demand for that good at the margin, revealed in a nominal price. The sum of all nominal exchanges must, then, be a representation of a summary of exchange values. There is not nominal value of “aggregate supply” that can be separated from demand for the goods. Without the demand and exchange, there’d be no price of the supply. No value. So… there is no “aggregate supply curve” or “aggregate demand curve” which intersect The AS/AD model misrepresents the fundamental process going on.
#5. Economic growth emerges out of the process of increased value creation. That is an entrepreneurial process of innovation, increasing productivity and groping into an uncertain future for what people will value at cost-covering prices. Healthy economies have a structure of production that delivers goods and services in coordination with the composition of demands. It’s all about the structure and composition. The summary, or level of supply and demand is immaterial as a matter of macroeconomic coordination. Rather, the level of activity and output is a RESULT of successful coordination and innovation. Put simply, demand does not create growth. Effective increases in productivity for creating valuable goods does.
#7. Recessions represent production failures and coordination failures between the structure of production and the composition of demand. Usually, a particular sector of the economy for various reasons from real shocks (wars, government policy blunders) to problems in the system of money and credit (central bank mischief, financial crisis) will find that what they have produced does not match what people demand at cost-covering prices. This can indeed be driven in part by business confidence, aka “animal spirits”. Keynes coined the term but by no means originated the role of confidence or uncertainty in economic coordination and the trade cycle. In this regard, his views are merely classical economics.
There is misallocation and excess, then losses. Those losses ripple out to the other trading partners of said malinvested industry, depressing economic activity as a whole while entrepreneurs attempt to re-tool and re-calibrate. Temporary involuntary unemployment is the result of this coordination failure. Pessimism in the face of failures, crisis or war can motivate cash hoarding, which makes matters worse. The classicals understood this. Hayek refers to it as “secondary deflation” and was writing in the 20s and 30s that it’s a bad thing.
#8. Yes, liquidity matters. Money demand matters. Money demand shocks can depress economic activity. Once can find recognition of this throughout the classical writing. Again, Keynes was merely being a classical economist in his focus on short run “liquidity preference”. However, where Keynes and Keynesians proclaim that this is the ONLY thing that matters and not WHY there are changes, classicals look to the causes. Here’s Hayek on this point:
“In view of the apparently widespread impression that the influence of liquidity considerations on the rate of interest is a new discovery, the present author may perhaps be excused for pointing out that more than ten years ago he described cyclical fluctuations as largely due to the fact that the rate of interest is in the short term ‘determined by considerations of banking liquidity‘ (Hayek, Geldtheorie and Konjunkturtheorie (Vienna: Holder-Pichler-Tempsky, 1929, p. 103).
– F. A. Hayek, The Pure Theory of Capital, 1941/2007, p. 326.
#9 The solution to increase demand for money… is increased supply of money. Free banking tends to provide this in a way that does produce problematic injection effects. Central banking efforts are a second best, but here Hayek and the classicals seem to line up with something akin to market monetarism.
This in no way provides for addition consumption of savings and REAL resources by governments in the name of so-called “fiscal stimulus”… unless said stimulus is capable of producing real value at cost-covering prices. In other words, unless the government engages in successful market entrepreneurship, “stimulus” will likely do more to harm the structure of production than good and waste real resources along the way, making society poorer and growth potential lower. Stimulus that props up unsound firms whose output is not valued by others only prolongs the stagnation.
Is government a good entrepreneur? If so, why doesn’t socialism produce better outcomes?
Unproductive consumption reduces the supply of wealth. Productive investment increases it. We want more of the latter than the former. Government does the former more than the latter by a mile.
#10. Mill was on to something when he wrote “the demand for commodities is not the demand for labor”. Increased demand for existing goods can be met with increased derived demand for new capital equipment or rising prices. The decision to hire additional people is not automatic with increased demand, but is a decision made by entrepreneurs based on the relative costs of alternatives (like capital or increased prices).
Full employment is possible at any given “level” of production/demand. There is no strong relationship between the level of production/demand and the degree of involuntary unemployment. Rather, one should look towards the composition of skills and wage demands compared to the needs of profitable businesses. Are there policies keeping wage demands for certain workers above the price firms who can use their skills are willing to pay?
Related to both of these points is the fact that we don’t live in a static world of simple widgets to be demanded. At all times there are new innovations being created for which there is no “demand”. Demand for the iPod in 2009 is NOT demand for the iPad 2010. As Henry Ford put it, “If I’d asked my customers what they wanted, they’d have said a faster horse.”. Steve Jobs, the Henry Ford of our generation liked to put it this way: “I skate to where the puck is going to be, not where it has been.”
So…
All of this is consistent with the law of markets. None of it requires the assumption of full employment or some notion that all incomes must be “spent”. More importantly, none of this is well represented by the fake-version of the law of markets: “Supply creates it’s own demand”. This is a nonsensical phrasing that is made all the more impenetrable by modern macro aggregate thinking that disregards the compositions and obese with the levels.
@John Papola
Dear John,
Dirk Bezemer has pointed out that Say assumed (which was right, in his days) that suppliers, when faced with inadequate demand, provided even more credit to their customers than usual, literally creating new means of payment. Just like car manufacturers do today, at least in Europe and especially since the last three year very low interest loan of the ECB to the banks (car manufactureres often have a banking license and provide 5 year 0% interest loans at the moment). Other companies, however, don’t do this. They are still dependend on the banks. They have outsourced ‘providing credit’, which used to be part of ‘business as usual’, to the banks. And at this moment these European banks are very underfunded, according to the new (still quite lax) rules,and very reluctant to provide new credit (e.g. the data of the ECB as well as some talks with soccer dads and neighbours who work at banks): a deflationary attitude. The results are clear: just compare USA ‘new order’ data with European ‘new order’ data. A deflationary situation, with rapidly increasing involuntary unemployment and at the moment a system with positive feed back when unemployment rises: curb spending when unemployment increases, crush credit when it’s needed. The opposite of what companies did in the days of Say. The only way out of this is when ECB policies increase the monetary quality of the collatoral of the banks, e.c. when it starts to buy Greek and Potuguese debt. As this will bring down interest rate on these debts, it will by the way also decrease default risks of these governments, much to the chagrin of the German government.
The way out of this is a significant dose of land value tax which will unlock the passive factor of production. Otherwise the UK is stuffed.
Yes,dear Henry,perpetual growth is unsustainable but try telling that to the fools who are in thrall to the growth at any cost ideology.That includes a lot of economists.
But,given a sensible attitude to population levels,perpetual job creation is sustainable and necessary. That is provided the matter is addressed on a national level with a sovereign fiat currency.There is always work available for all who want it.The barrier to this is in the minds of the powers that be.There are various terms to describe this barrier.I would nominate stupidity,ignorance,arrogance and greed.
@Podargus. “…given a sensible attitude to population levels” – that is a big given. The key to population stabilisation is a more equal distribution of wealth.
The barrier is not just in the mind. Even a street beggar needs a patch of land in the right place.
“There is always work available for all who want it.” That’s a bit of a claim, in my humble opinion. Tell that to those people:
There is always work available to those who want it, but only if land and natural resources are freely available at the margin. When they are not, due to land enclosure, then there will be unemployment. The unemployed will have nothing to bring to the marketplace and the result will be an apparent shortage of demand.
Re population levels, why not kill two birds with one stone? Create a “Civilian Conservation Corps” to address many aspects of the population issue and pay them with Treasury Notes, thereby avoiding and increase of the deficit and debt?
The problem is that those who call themselves “Keynesians” and simply advocate a “stimulus” policy to solve all our ills — have never studied Keynes and what he said about an open economy. In the global economy of the 21 century, a US stimulus policy merely creates multiplier jobs overseas — and hence the conservatives can poo-poo the results of the Obama stimulus plan of 2009! [I have noted in my 2009 book THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY that Paul Samuelson, in his own quoted words, found THE GENERAL THEOPRY ” unpalatable” and imcomprehensible and so he simply assumed it was a Warasian system with non flexible wages. No wonder those who learned their “Keynreianism” from Damuelson and the american Keynesians don’t know what they are talking about. By the way ,in this same book, I quotye Sir John Hixks words indicating that his IS_LM system is not Keynes — and further quoting a letter to me, indicating that I got Keynes correct!!
In my book I point out and explain why this American Keynesianism or the ISLN is NOT Keynes — and does not help understand the financial and liquidity problems facing a depresssed economy.
Believe it or not, Keynes also wrote asbout the problem of outsourcing — as the English textile industry in the 1920s outsourced jobs to India. In my THE KEYNES SOLUTION book , I put the correct Keynes into action to solve the Great Recession that began in 2007 — and deal with not only domestic unemployment, but also outsourcing, deficits (and question of overleverage) , inflation, countries such as the USA that have run perpetual balance of payments deficit. The latter requires an updated version of the “Keynes Plan” which Keynes presented at Bretton Woods.
Come on Keynesians get the message right and then maybe politicians will pay attention
Paul Davidson, Editor of the Journal of Post Keynesian Economics
Paul:
Lots of people get the message right. Whether it’s the PERI -SCHWARTZ CENTER proposal from the winter of 2009, the proposals by Joe Stiglitz in his book, your proposal, etc.
The problem is those in power don’t want to hear it. It sounds too “socialistic” and it will interrupt the upward flow of income to those at the top of the heap.
Until the average citizen stops being brainwashed by the deficit hawks who tout the “confidence fairy” as the solution to our economic wills, we will be stuck with what we have — which to be fair is better than what the British are going through.
Mike:
Unfortunately people like Joe Stiglirz do not get the message correct– and even more imoprtantly they base their policy proposals on a theory which is merely an ad hoc constraint on dynamic general equilobrium theory.
for example assymetric information theory assumes that the correct information about the future economy exists today so that some intelligent people “know” with actuarial certainty what the future will bring — [for exmple, the “quants” on Wall Street who developed sophisticated models of “risk” exposure for the managers who aree brilliant investment bankers.]
But others are damn fools who either do not have access to the existing correct information about the future –or are so stupid they can not correctly statistically analyze the data base to get this correct statistical information about the future– and having wrong “assymetric” information about the future these damn fools make bad decisions. Hence the free market is between the intelligent elites and the damn fools who since they msunderstand the future make stupid decisions which cause the damaging shocks to the economy.
Hey if you believe that nonsense about the only reason the macroeconomy does not operate, in the short run, as efficiently as classical theory claims it does, then the answer is Social Darwinism — let the markets alone and the damn fools will go the way of the dinosaurs and only the smart people who , even today, are making socially desireable, optimal decisions will, in the long run, take the rest of us to the land of milk and honey for all. [Especially if the damn fools are government officials who do not know about balanced budgets– and that deficits cause crashes! Once we get the damn fools out of the way, entreprenurs will get renewed confidence in the operation of our laissez faire general equilibrium economic system! —) ]
The problem is, as I point out in my book THE KEYNES SOLUTION, that the economic future is not predetermined and can not be predicted from an probability analysis of past market data. If the future was merely governed by the same probability distribution that governed the past economic outcomes, then there is no role for government since it cannot change the predetermined path of the economy — anymore that astronomers can change the predetermined paths of the heavenly bodies moving around ther sun.
To predict ther future one should draw a sample from the future population and then calculate the mean, standard deviation, etc. Since it is impossible to draw a sample from the future– then classical economics and even New Keynesians such as Stiglitz have, as an underlying fundamental axiom, the egodic axiom — so that samples from the past are equivalent to samples from the future– which is the definition of an ergodic stochastic system.
Instead, Keynes’s concept of uncertainty requires the rejection of the ergodic axiom and the recognition that the economic system is nonergodic . [This is implicit in Keynes’s criticism of Tinbergen’s method [1937] when Keynes argued that economic data was not homogenous over time. Non homogoemity is the equivalent of nonstationary — and nonstationary is a sufficient condition (but not a necessary one) for nonergodicity.—- Soros’s concept of reeflexivity also requires the overthrow of the ergoic axiom ]
in that case the future is created by decisions and actions made by players today — and there is a need for institutions to (1) prevent decision makers from making decisions that may create a disasterous crash (similar to rules for the road to reduce traffic crashes) plus institutions to offset damages if crashes occur even if there are rules (regulations) of the road that are the best that thoughful people can create.
Ceremonial stone axes could well be tributes or possibly dowry gifts but at Cissbury there is to be found the remains of what is obviously a flint mine and large scale operation where stone tools were manufactured. Of course we do not know how the economics of this worked – it could have been through slavery – but whoever was engaged in it needed access to the site and the finished items were not traded through monetary transactions and so must have been bartered in some way.
Possible but probably not barter based on the studies of David Graeber in Debt. Several other options. Tribute, gifts, slave labour, etc. Barter was not used in normal transactions between people were were part of the same society as I understand his research. Barter might occur between hostile tribes. Very elaborate systems of transactions were used in the absence of money but not barter. We are not dissimilar in our world. A neighbour offered me the use of his ramp for a summer and I thanked him with a bottle of special wine and card purchased for the occasion. It looks like barter but the courtesies extended by each of us were not equivalent in value.
Very valuable comment, Herb. May I interpret your “etc” to include hitch-hiking? This brings out the point that such gifts are from a “have” to a “have not”. They do not involve exchange with another individual but generate good will and an inclination to keep it going (one might say, to “broadcast” generosity).
merijnkni,
My comment is about the law of markets, NOT about what J B Say said or saw. The concepts that constitute the law of markets are employed by economists throughout the early 20th century before Keynes popularized the incorrect “supply creates its own demand” interpretation and shifted the paradigm of thought to an aggregationist approach that seems sometimes completely incapable of seeing that there is a structure of production or composition of demand below the surface at all. Supply does not create “its own” demand. That is the point I try to make above. I strongly recommend Steven Kates “Say’s Law and the Keynesian Revolution” if you want one-stop-shopping on the sheer extent and development of the law of markets straight through to the 1930s. Here’s just a few economists whose writing on the business cycle relied on the law of markets: Jevons, Bagehot, Marshall, Egeworth, Beveridge, Robertson, Pigou, Hawtrey as well as Henry Clay, Lavington, Röpke, Haberler, Mises, Hayek and more.
Only the Austrian business cycle theory manages to retain an understanding of the law of markets in the time since the Keynesian revolution sandblasted away the mechanics of market coordination and change from “macro”economics. They are the last classicals left standing.
My point is simply that this understanding in no way requires us to live in a world where bank credit isn’t important to business activity. Quite the contrary. The classical view actually became ROOTED in the CENTRAL role of bank credit and liquidity in driving the business cycle. Again, see Hayek’s quote above. Hayek called money the “loose joint” in the economy, seeing the keynesian view as a “broken joint” approach, and the neoclassical view / real business cycle view as a rigid joint. You can see the evidence of “broken joint” thinking with Samuelson and others’ dismissal of the role of monetary policy in creating inflation, which smacks monetary-crank talk to this day.
Everyone is a “supplier”. There is no group called “suppliers” that is separate from “demanders” in a classical macro sense. In order to be able to consume, you must first produce or be provided with funds from another person who produces and give you the money. We’re all suppliers/producers. The only way in which demand becomes peeled away from supply in the short run is through increased demand for money that goes unmet with increased supply. I know you get to that later in your comment, but my point here is a methodological one. The policy question must be to answer WHY people are hoarding cash or why the banking system is soaking up cash as if to hoard it even as people save their money in banks instead of mattresses. The root cause is not the symptom. What appears as “demand deficiency” is the symptom, not the cause.
So, admitting vast ignorance of the particulars in Europe, what my classical perspective tells me just from your description of the situation is that if the banks have become insolvent and are effectively hoarding cash and building up reserves in a deflationary way, that will lead to trouble with debt deflation and other issues. Again, those are classically consistent with the Law of markets too.
One morally repugnant answer is to bail out the banks. What this is REALLY about is attempting to inflate away the debts, transferring purchasing power from Euro holders at large to the very people who made bad bets. It’s not just moral hazard inducing. It’s moral tragedy. Another “solution” is temporarily take over the insolvent banks, fire all of the top management, freeze bonuses, and restructure the debts. This sounds an awful lot like “bankruptcy” to me, which is fine, because that’s the right thing. So another approach is to let insolvent debtors default, let their creditors take the haircut they are contractually subject to taking, and have the ECB do it’s best to provide liquidity to solvent banks at a real penalty rate while letting insolvent banks go away. That’s Bagehot’s “lender of last resort”. The fear in all of these cases is a general contraction in credit and then nominal GDP, leading to even more credit stress as nominal income shrinks and burden on debtors and balance sheets with debt grows. I quickly lose track of this problem, though, because for every debtor there is a creditor. For every jilted creditor, there is a debtor who’s position has improved. So, really, the macro seems to be in preventing what Hayek called “secondary deflation”.
The solution to all this, however, is not “more spending” where any “spending” will help including “fiscal stimulus”. Japan’s post “stimulus” stagnation should have ended this debate once and for all. Wasting money to pave the country with bridges to no-where makes society poorer. It doesn’t create real growth or opportunity. And the political process it unleashes tends to centralize economic power in the hands of the national government, just as Buchanan’s Democracy in Deficit lays out.
Again, the notion that there is a tradeoff between “austerity” and real growth is false. Government spending is mostly unproductive consumption and will tend to make society poorer to the extent that real resources are consumed without increasing the productive capacity of the economy to create more value in the future. Again, the bank insolvency is due to production failures. The failed production is waste and lost wealth. There’s no getting that back. Greece is POORER for having gone utterly NUTS with a massive circular flow of unproductive consumption spending. They didn’t build their productive capacity with all of that easy money. They bought vacation homes, massively swelled the public sector payrolls with value-free busy work and dug themselves into a hole. Nobody forced them to do that. Artificially low interest rates don’t absolve reckless behavior, even as they help explain why it systemically occurs.
So Greece is now poorer. Period. That doesn’t mean that they can’t achieve full employment at this lower level of wealth. One must look to the labor market as well as try to find a way to restore some macro certainty about the rules of the game. Full employment is ultimately about coordinating the sustainable needs of businesses with the skills and wage demands of job seekers. There’s no direct connection between the level of NGDP or interest rates with employment except for nominal (or statutory) stickiness of wages. Remember “Eurosclerosis” or the 1970s “Stagflation”? You can have reasonable real growth or excessive nominal growth with higher unemployment whether rates are high or low.
Demand deficiency is not the problem. Flagging nominal demand is a symptom of the problem: reduce value of production and monetary disequilibrium. Deficit financed ditch digging won’t solve that. Monetary stability and plain old entrepreneurship will. None of that is easy. There is no silver bullet.
John Papola doesn’t appear to have heard of unproductive investment in banks, stock market prices, property price inflation and insecuritisation (to coin a word for making the world so unsafe and uncertain that people will – perforce – buy unsafe insurance, uncertain to pay out. Nor has he given a thought to maintaining the wealth that you already have, including wealth of property and infrastructure that (despite what the legal paperwork says) is communally owned by those who have used it and paid for it many times over. Nor has he heard of advertising to ensure “supply creates its own demand” (for profitable sales, that is, and only incidentally worthy purchases). Nor has he heard of saturated markets, and Nature giving mankind time off in the winter to enjoy what they have helped produce in the summer. No wonder economics is called the dismal science. Time to “scrap the lot and start again.”
People make mistakes all the time, Dave. And no question the banking system dumped trillions into unproductive housing. Of course, they were given every conceivable incentive to do it by policy makers ranging from nudges to pushes. Funny, credit card debt has been securitized for years and hasn’t gone through any crisis on insolvency. It’s not remotely reasonable or compatible with the facts to act as if the housing boom and bust was a purely private phenomena.
That doesn’t absolve the cronies who knowingly sold ticking time bomb financial securities (and then immediately bet against them). But then… why are they still doing business? Oh yeah, the government bailed them out. And then Barney GSE Frank and Chris Lets-Censor-the-net-like-China-does Dodd were put in charge of “re-regulating” the banks and simply raised the barriers to competition with the big guys even higher (surprise, surprise).
My posts above are all about a simple idea. Growth and increasing prosperity comes from the creation of value for other people, while consumption fundamentally uses up that value. One can be outraged about the Wall Street / DC crooked power nexus AND find keynesian macroeconomics to be deeply, fundamentally misguided at the same time.
As for “saturated markets”, add yourself to the long list of monetary cranks decrying “over-production” for the past 200 years. Again, you missed the point. It’s not about how much is produced. It’s about WHAT gets produced. Clearly the composition of production was too heavy on housing and unproductive asset speculation instead of, you know, letting capital and people flow into healthcare were demand exceeds the supply (hence the rising prices). But then, there’s reasons for those supply constraints too that have little to do with voluntary choices…
The nature of mankind is to seek a better life for himself and his kids. Are you honestly asserting that we’ve achieved the end of scarcity? I don’t think the bottom billion on this planet living in abject poverty are sitting it out in some rhetorical winter to enjoy what they have produced. Our desires are unlimited. There is no shortage of desire. There is a shortage of resources to service our multitude of needs at any given time.
The dismal science isn’t dismal at all. It’s just not a science.
“Clearly the composition of production was too heavy on housing and unproductive asset speculation…”
Surely housing was the main asset being speculated. There may have been overproduction in some areas but that was certainly not true of the UK where there is still believed to be a lack of supply.
Carol,
I actually had the US in mind when I was writing that, since Dean is clearly trying to connect the policy dots to us here. Are housing prices rising in the UK? That would be the indicator of supply constraint, no?
No, UK house prices are not rising. Our stats show that the end 2007 peak was so far away from trend that real house prices will continue to decline for many years to come. My point was that the UK house price bubble was nothing to do with demand/supply which is how economists here were characterising it (see Barker Review).
The vast majority of property transactions are in the secondhand market. What other secondhand product grows in value over time? Land is the prime speculative asset and the one which has the most impact on the economy because you can’t do anything at all without access to land.
Carol,
I’m curious, then, what you meant by “there is still believed to be a lack of supply”? If housing prices are fall in the UK, that doesn’t sound like a lack of supply. That sounds like excess remains. Land surely is highly speculative. From a classical/hayekian perspective, that comports well with the focus on excessively easy credit driving up prices for higher-order more interest rate responsive goods.
So easy money drives down rates, making housing look more attractive. The money that flows into housing pushing up prices. So long as the monetary spigots are pouring the bubble can inflate. The structure of production becomes over-capitalized in interest-sensitive “investments” which aren’t able to generate a cost-covering return. The run up in residential real estate is even more destructive because it is fundamentally unproductive (does not contribute to increased ability to create value). The misallocation from easy money produces a giant destruction on value that’s only realized when the losses start to mount and the boom turns.
For fiscal demand-stimulus to be useful here, it would need to be able to anticipate what the real composition of demands for various goods and services is becoming/ will become and put funds into those areas. That’s entrepreneurial calculation. If it succeeds, the structure of production which emerges out of the new spending will be sustainable. If it fails and the money goes into even more unproductive consumption, crony boondoggles, and, well, gets politically allocated, then it’s all a waste and the structure will be even more waste and the jobs created will be temporary.
As for land being the crucial resource, I beg to differ. It’s surely human creativity which is the greatest resource. Some of the most interesting things happening right now can be done from your rental flat. The most land-intensive production, farming, is almost fully automated. Land is speculative just like other commodities like gold, oil, grains, etc, because of its broad utility to be sure. But it’s not everything.
“I’m curious, then, what you meant by “there is still believed to be a lack of supply”? If housing prices are fall in the UK, that doesn’t sound like a lack of supply.”
We have a lack of supply of affordable homes. The house market is predicated on the land market. The land market is dysfunctional. It does not allocate to best use. We should ask ourselves why this is.
“As for land being the crucial resource, I beg to differ. It’s surely human creativity which is the greatest resource. … The most land-intensive production, farming, is almost fully automated. Land is speculative just like other commodities like gold, oil, grains, etc, because of its broad utility to be sure. But it’s not everything.”
At the simplest level the economy consists of labour and land. Capital is produced from labour on land. And land is not like other commodities. It cannot be consumed. It is immobile. It has no substitute.
“Some of the most interesting things happening right now can be done from your rental flat.”
Your flat is built on land. You can’t produce anything without it.
And he misrepresents everything I say. I said nothing about people making mistakes and purely private phenomena, I was talking about coordinated money-lending fraud clever enough to hide within and behind the label of elected Government.
You say security hasn’t been a problem with credit card debt? With the interest charged, you bet it hasn’t been to the lenders, but try telling that to naive and otherwise unfortunate borrowers.
Of course our prosperity (and our self-respect too) comes from the creation of value for other people, but if we didn’t consume value, what would be left for our children to do?
Keynes died trying to make the best of a bad job, successfully controlling unemployment before control theory had been worked out; but doubtless you learned your Keynesianism from his enemies and mis-interpreters.
You add me to the monetary cranks crying “over-production”, when my point was that Nature reproduces itself diversely and generously and the problem of scarcity is due to an anti-Keynesian failure to harmonise our work with its cycles of consumption and reproduction, together with the blocking of generous distribution (not least of the education, technical training and enskilling necessary to make the best of each other in cooperating appreciatively with Nature), by endemic resource theft, wage slavery, economic indoctrination, over-specialisation and growth of monetarised accumulation.
It is the impoverishment of much of mankind, not its nature, that drives the tradition of seeking a better life for ourselves and our kids. When we have more than enough and are able to do what it takes to keep it that way, most of us are happy enough as we are without “growing” the cancers of monetary globalisation, deskilling mass production, fashionable trade and belligerent destabilisation. Mainstream economics may no longer be a science, but its fruits sure have been and are becoming again dismal. Read Walter Greenwood’s 1950 portrait of Lancashire: the industrially ravaged, post-Slump/World War II county of my childhood, where folk still laughed because if they didn’t, they’d cry.
“The government elected last spring in the United Kingdom committed itself to rapidly reducing the size of its deficit. This government austerity was supposed to give a big boost to the private sector. It actually did the opposite”
The UK deficit in 2011 was 8.8% of GDP- right behind Greece and Egypt. It’s not austerity. The real cause appears to be the rise in the VAT from 15% to 20%.
The reason for Britain being in an economic “cleft stick” will be found by referring to the McKinsey Institute’s 1998 “Driving Productivity and Growth in the UK Economy”; and the work of Alan W. Evans of the University of Reading; and also the work of the Spatial Economics Research Centre at the London School of Economics.
Britain’s economy has been slowly strangled for 60 years by an early version of “Smart Growth”. The 1947 “Town and Country Planning Act”.
Reforms of any sector of the economy are now useless until Britain addresses its grossly anti-competitive urban land prices and development permission processes. Furthermore, the social disparities that result from these processes are far worse than income disparities that exist in the first place.
Susan Boyle was an exemplar of Britain today, particularly the cities outside London which do not have international capital flows and taxpayer money flows into local bureacracy keeping their local economies going. Britain is MOSTLY “rust belt” but without the redeeming feature of the USA’s rust belt, that land prices fall far enough to aid recovery. Susan Boyle’s region and home and status of employment and prospects in life apart from becoming a singing phenomenon, are typical of what “smart growth” will do for MOST people in MOST cities.
Wodehouselee, I’ve commented elsewhere on post-war Britain’s use of compulsory purchase to hold down land prices. I agree with what you say about our needing to re-address land prices and the corruption-prone development permission process, but not your assumption that we should be able to simply “grow” cities that have already become far too big, London and Channel Tunnel focussed already. With the wealth that had been our rail infrastructure destroyed under the “scorched-earth” policy of a road-building Transport minister, access to much of the surrounding countryside that once kept industrial life worth living is now buried under and polluted by tarmac, bulk carriers, dormitory housing, and the cars of individuals commuting to businesses drawn towards London and the Channel Tunnel for reasonably efficient access to their markets. The Town and Country Planning Act needs strengthening, not abandoning to uncaring cosmopolitan traders.
Henry Law @ #5. (Hi, Henry. I wonder if you can remember our exchanging letters on Land Tax about twenty years ago)! I agree with you on the root problem being Land Enclosure, but feel Merijn and Herb have a point. Within families and Christian communities people don’t barter, they simply have access to pooled resources if they are judged to be pulling their weight. Indeed, hunter-gathers don’t produce for barter, they rely on Nature doing the producing. In a Welsh church near us, so tiny it escaped the Reformation, there is some wonderful medieval woodwork I’m told was carved by an Italian as a thank-you for hospitality received. Genuine free trade, I suggest, is of surplus and good-will.
Dave Taylor @#34
Glad you’re engaging in this discussion. I have responded on the thread you refer to. You also need to read what Phil Hayward said about the relationship between automobility and the capturing of “planning gain” on all non-automobility-dependent development, by well-connected ologopolies.
It is Britain’s funeral if it thinks it needs to preserve the long-standing racket in wealth transfers to land bankers, at costs in social inequity (wealth transfers away from the young), social immobility, demographics (young people delaying marriage and child bearing), social exclusion, anti-competitive effects, reduced productivity and income growth, entrenched priviledge, constrained household discretionary spending, poor health outcomes, and psychological outcomes that increase the underclass effect and crime. Cheshire and Sheppard estimate the effect of Britain’s planning system on its economy, to be equivalent to a 4% tax on incomes – and this compounds over the years. The McKinsey Institute in their 1998 paper on Productivity and Growth in the UK economy, estimates Britain’s economy to be 20% to 40% less productive than it could have been after 5 decades of growth containment. Google Alan W. Evans “Building Jerusalem in the Green and Pleasant Land”, which was his submission to the Barker inquiry.
Of course the four “London Dukes” descendants are very pleased that their land holdings have reaped London-style capital gains rather than Houston-style capital gains. By the way, guess why the British govt is the world’s staunchest opponent of Tobin taxes. Flows of money through London’s trading desks is all that keeps London going in spite of the Green belt choker round the neck of its REAL economy. “Smart Growth” will turn MOST cities that adopt it, not into London, but into equivalents of Britain’s rust belt cities.
By the way I am all for Green space, but “democratic” (and economically efficient) green space. Dallas is 20% parks and the distance between every citizen and a bit of green space is roughly similar. ENCLAVES of green space do very little to the level and stability of prices in an urban land market. But a BOUNDARY is economic lunacy, which “cause” is possibly boosted by fiendishly clever investors in centrally located properties who know which side their bread is buttered on. The “save our green and pleasant land” mob are useful idiots of the biggest capital gainers.
Dear Wodehouselee
Have you ever lived in England? I think not.
I have read what Phil Hayward says, and I too want a way of life in which people live in much smaller towns, but Phil is very much mistaken if he thinks that market forces are ever going to effect this. Mondragon type self-supporting communities can rejuvenate small towns, but it seems to me the only thing that could relocate people from the larger cities would be the replacement of money by local credit cards and a self-maintenance credit allowance, treating all the 1% possess as debt to the community much greater than the rest of us run up. The reward for working or allowance for special circumstances is then the writing down of debt. Otherwise people will continue to be enticed (or even forced) to go where the money is.
“It is Britain’s funeral if it thinks it needs to preserve the long-standing racket in wealth transfers to land bankers”.
Britain doesn’t. It may well be Britain’s people’s funeral if those who run things here continue to think like that and Britain’s funeral if they think like you. The citizens of Dallas are lucky. Our cities have never had 20% green spaces, and developers are now not only seeking to build on the 20% Green Belt between one city and the next, they are already building on every park and school playing field their pawns in cash-strapped city councils can be persuaded to sell.
Dave Taylor@#36
“……Phil is very much mistaken if he thinks that market forces are ever going to effect this…..”
I wasn’t talking about people living in smaller towns, I was talking about the affordability of housing and living space IN CITIES.
Then you say: “……The citizens of Dallas are lucky. Our cities have never had 20% green spaces, and developers are now not only seeking to build on the 20% Green Belt between one city and the next, they are already building on every park and school playing field their pawns in cash-strapped city councils can be persuaded to sell…..”
I have discussed these problems further on the other thread. I say:
On your problem of vanishing green space and local enjoyment of nature, what good do “green belts” possibly do to help? The best of all worlds, is plenty of “reserves” of modest size spread throughout the urban area as it grows. These have no land price cyclical destabilising or inflatory effect as green belts and UGB’s do, AND they maximise the enjoyment of nature by everyone, not just the people who can afford the best located property. Furthermore, there is not a high opportunity cost involved in preserving “reserves”, unlike where urban land prices have been rendered high and volatile by boundaries. This is why, as you say, all that “planning” has ultimately NOT preserved local amenity at all. One reason why Dallas has one of the world’s greatest proportions of “Green Space” in any city, is that urban land prices have been kept LOW and there are plenty of EASY options for developers. When ALL the options, including “the fringe”, involve an expensive and protracted fight, of course developers are going to focus on locations where the fight is “most worthwhile”. That will be the bits of Green space still remaining inside the city.
You probably agree with me when I also say:
Here is how I frame the issue of urban growth containment. If it is necessary, then compulsory acquisition of land for development, is also necessary. Without this, real estate markets ensure that the regulatory restrictions merely maximise “planning gains” for a fortunate few, maximise wealth transfers to incumbent property owners, increase inequality, and so on, as I have already described; along with minimal actual beneficial change in urban form.
If the issue was framed in this way, then most of the support for urban growth containment would miraculously vanish. I say urban growth containment has always been driven by the vested interests who stand to gain. The environmentalist excuses are pretexts, nothing more; unless the issue is framed as one requiring compulsory acquisition.
Where I will agree that Britain does not have the same options as cities in the USA, is that if Britain did need to feed itself in wartime, cut off from overseas suppliers by U-Boats, then it might need every bit of farmland it currently has. I highly recommend “Land Use and Living Space” by Robin Best, as an authoritative discussion of Britain’s situation. But note that there is tens of times as much rural land as there is urban, and the amount of land for a decade of urban GROWTH is a small fraction of existing urban area. So the erosion of Britain’s food production capacity would be small even if a lot more rapid consumption of land for urban use, was allowed.
It is highly ironic that Britain is so obsessive about “preserving farmland” when 1) there is so much food available on world markets pretty much “at cost” – this is why Japanese are so wealthy even though they import most of their food – and 2) Britain’s elites are obsessed with “trans-national” sovereignty and complete trust of utopian transnational arrangements allegedly with one objective being “world peace”. So it is somewhat conflicted, to have land use policy driven by assumptions of “food security” at the same time.
Many years ago we gave a country town holiday to two little girls from Manchester. They were amazed when we introduced them to lambs frolicking on the hills. To them lamb had been just a type of meat in the butchers.
The point is that people are not just cogs in an economic machine, they are intelligent beings worthy of an education which enables them to appreciate the wonders and drama of nature, not just to take for granted the art of mankind.
Dave Taylor,
That is a typical tragic outcome of Britain’s planning system, whereby children are brought up in a high density concrete jungle hell with minimal democratic mobility and access to green space.
In total contrast, there is no lack at all of affordable exurban and peri-urban and fringe living, for those who want it, and with jobs and amenities a brief trip away; in the low-regulation cities of the USA – but of course these cities are evil, according to our planning utopians.
And did you note my comparisons of the cost of land under the 2 alternative scenarios? The people crammed into concrete jungle hell in Britain are paying several times as much for the “privelege” of being “planned” to death, as their counterparts in most US cities pay to live in a McMansion on half an acre. So much for the evil exploitation that “lassez-faire” is alleged to lead to.
I fully agree with you about the dignity of human beings. I regard “planning” people into land rent slavery and concrete jungle hell as a despicable denial of that humanity. I deeply respect the consequences of “freedom to build” for human dignity. Those ignorant hick redneck Southern US and bible belt citizens actually have the rest of humanity beaten hands down for intelligent intuitions re freedom and small government and so on. They are now in the process of leaving the rest of the world for dead economically, having not had any urban land price bubble and crash, and population and business is flocking there to take advantage of “opportunity” and its consequences.
You might not have picked this yet, and you may hate it, but it is going to become starkly obvious over the next few years. Remember you read me saying it first.
People were being crammed into cities in the eighteenth century following the English land enclosures and the Scottish clearances.
The phenomenon you are talking about existed centuries before planning was ever dreamed of. The USA is also not free of overcrowded urban slums, despite its wide open spaces.
The analysis you are applying does not match real-life observations.
No, Phil. This is a typically tragic outcome of laissez-faire, dog-eat-dog economics and government by city economists brought up on traditions of filling their own purse by forcing or conning others to do the work they should be doing (as the US has done with China), and by legally enforcing monopoly prices. Okay, we started it, but with the US’s history you should know better.
I am surprised at the intemperance of your response here. It is not worthy of you.
Cities tend both to generate wealth (good) and suck in wealth generate by other people (bad). But that is why land values can be extraordinarily high rather than the alleged niggardliness of planners.
http://www.guardian.co.uk/commentisfree/2012/feb/26/will-hutton-london-cities-economy
Henry Law, what I was saying on the next thread over from this one, is that “automobility” changed everything – where it has been allowed to. Please read my full argument there.
The USA’s urban slums natural trend for decades now, has been to empty out into “trickle down” housing in the suburbs – when this is affordable due to lack of urban growth constraints etc. Nicole Garnett of Notre Dame University says it is “unseemly” that this process of trickle-down has been curtailed in so many cities by planning that forces the price of all housing up. “Trickle down” houses are $40,000 in Atlanta and $400,000 in Vancouver – the difference being urban form compelled by “planning”.
Dave, I agree that “capitalists” are one of the parties to the “planning” that delivers them capital gains at the expense of everyone else. But it is completely wrong to call this “lassez faire”. Henry Law is wrong to say that real world examples do not support my argument. 200 out of 260 cities in the annual Demographia surveys have never had a housing affordability problem, and have minimal “planning gain” precisely BECAUSE of a situation re housing development, that is closer to “lassez faire”.
My argument was fully developed on the other thread – automobility and freedom to build, means it is impossible for oligopolies to capture “all” urban development. There is no other method that I know of so far other than compulsory acquisition of land for development, like the Dutch do.
Dear Phil,
I just checked out this site:
http://www.atlantapros.com/atlanta-homes/atlanta.html
The search option of this site (houses for sale) starts with a minimum price of 100.000,–, it does not get any lower. That’s a little bit more than your 40.000,–.
There is a difference between the “City of Atlanta” MUNICIPALITY, and the “city of Atlanta” which is several dozen contiguous urban and suburban municipalities. Just like the “City of New York” municipality, does not include a whole lot of contiguous low-cost-housing suburban municipalities.
FRINGE McMansions in the “city of Atlanta” overall are only $120,000 NEW, and townhouses can be as low as $85,000.
As for the “trickle down” housing I refer to, the extremely low prices available in Atlanta are common knowledge:
http://www.lewrockwell.com/north/north627.html
That’s “The $10,000 Atlanta Houses” by Gary North.
Am I discovering that this blog is followed by British pundits who are unaware of the existence of truly fair-price housing markets anywhere in the world (and due to “free markets” at that)? I have had this argument more than once with Ian Abley of “AudaCity” – give him my regards if you know him.
Oh, so it is “Automobility” that is the key to this.
“Automobility” imposes huge costs, both on the individual who must pay for his automobility, and on the community at large which must provide the infrastructure. There are wider costs still in that automobility is one of the most inefficient uses of energy in the entire history of the planet. Illich calculated that it takes about 15 years of a working life earning the wherewithall to keep a vehicle on the road, to say nothing of the time wasted sitting in and driving vehicles, which cannot be used in any constructive way, and the further time wasted in ferrying around those who do not have or want automobility. Having chosen to opt out of automobility, I am well aware that my friends who have not are chronically short of cash as a result of their expensive habit.
Worse still, at the national scale, the vast energy consumption involved in automobility means that the country has to spend a huge proportion of its budget on defending its energy supply. The geopolitical implications are extremely unpleasant, not least for those who are living on top of those energy supplies. This is mining the planet to war and environmental destruction.
“Automobility” is not an option for a small densely populated country like Britain. The infrastructure takes up too much space.
Sure, I’ve commented at length on the partly-valid reasons why Britain has condemned itself to “sunset nation” status.
All the common advocacy about the “cost of automobility” that you subscribe to falls flat when you consider that “auto dependent” US cities with low urban land prices and relatively high petrol consumption, still have the highest levels of “discretionary income” in the modern world. The reason they still buy so many SUV’s and V8’s, and use so much petrol, is that they have the spare money to do so.
By the way, petrol is a fraction of the total cost of automobility and crude oil price is a fraction of the total cost of petrol. The real cost of automobility has roughly level-pegged real income levels for decades. Except where governments have imposed gouging taxes on petrol, but even then people have bought more fuel efficient vehicles in response.
There are some more in-depth comments from others as well as myself on the adjacent thread that I recommended you visit, i.e. “Reverberations between immoderate land-price cycles and banking cycles”.
It is in fact public transport that is far more heavily subsidised than motorists already, and tipping the playing field further only has even more “unintended consequences”.
“Automobility” and genuinely competitive “automobile based development” is indeed a key to the growth of the modern economy. I predict that every economy that does not get itself this secret advantage, will never catch the USA or the remaining parts of it that do retain this advantage. Japan hit its limit in the 1980’s (Japan is of course quite a bit more densely populated than Britain). China is about to do the same. (And China is populated far LESS densely than Europe let alone Britain – fact).
Urban development based on strict adherence to “plans” and rail routes, unless it includes compulsory acquisition of land, is the very factor that enables the land-owning oligopoly to maximise its racket at the expense of non property owners/first home buyers/new business startups. And indeed at the ultimate expense of the whole economy. This is why land-rich countries and regions can still engineer themselves Property rackets like Britain’s with misguided regulations.
As for the “strategic” nature of fossil fuel supplies, someone, somewhere, would buy it if the USA didn’t – and it happens to still be the most cost-effective energy source for many uses. Letting economic rivals have it would merely be to export jobs to the economic rivals economies. BTW it is an absurd suggestion that the USA would invade countries to “get their oil” – it’s far cheaper to just stay friendly with the dictators concerned and buy the stuff off them even if you do have to outbid the Chinese to get it.
And in so far as military policing of world supply lanes etc goes, the rest of the 1st world free-loads disgracefully on US efforts and expenditure. Good luck to the rest of the world if there was ever an isolationist US administration again (Ron Paul, perhaps?) Was the world nice and safe in 1939 when the US was isolationist?
Phil @ #42: “Dave, I agree that “capitalists” are one of the parties to the “planning” that delivers them capital gains at the expense of everyone else. But it is completely wrong to call this “lassez faire”.
As I understand it, laissez-faire goes back to Malthus arguing it is no good feeding the poor because they will multiply faster than the food supply and thus make a bad situation worse. That was an excuse for our government to do nothing during the Irish potato famine, but that allowed the landowners to continue doing what they had been doing: export other food. One law for the have-nots, another for the haves, who can continue to create and profit from oppressive laws.
Re the 1947 act, it is interesting that Malvern Hills Conservators here were formed as long ago as 1884 to protect an area of natural beauty where encroachment on common land was threatening the goose which laid the golden egg: a recreational area much favoured, of course, by the well-to-do, but also within easy rail access of industrial Birmingham.
There were indeed periods in the evolution of modern civilisation, where “lassez faire” had harsh results – but so did every other system of economics. The rate of growth of “the economic cake” and the lifting of populations out of ABSOLUTE (rather than relative) poverty has always correlated quite strongly with the FREEDOM of markets. Is anyone saying today that Bangadesh only needs to introduce “living wage” laws and a system of welfare entitlements as sound as Sweden’s, so to become as wealthy as Sweden? I suggest that centuries of accumulated social capital and economic path dependence count somewhat. But Sweden could do far better with freer markets than what it has. Ethnic Swedes in the USA earn far higher incomes than those in Sweden. Every identifiable same-source immigrant group that exists in both Sweden and the USA, has higher incomes in the USA than Sweden.
The real costs of automobility are the external ones that are dumped on the unfortunates who happen to be in the way: city residents who find their neighbourhoods cut up by motorways and polluted by noise and exhausts; those living close to oil fields who find their environments industrialised and pollluted, at no gain to them; those who live in the firing line when the west has to protect its energy sources by military means; and the automobilists themselves who spend time uselessly sitting behind a driving wheel and end up with the diseases of inactivity.
Public transport gives rise to external benefits that tend to turn up in land values. So long as those land values are collected through a land value tax, there is no subsidy.
Automobility is not a viable option for the young or elderly, nor for those who do not want to waste their time sitting behind a driving wheel.
Henry, I do not believe that public transport spending results in anything like commensurate increases in value in land. There is simply too much deadweight loss in the system.
The value of road spending is highly dispersed, but if it was totaled up, its ratio of land value uplift to cost would far exceed the costs of public transport; or perhaps it would be more accurate to say, the costs of unionised monopoly mass public transport. I am all for jitneys and private para transport and priced express lanes on roads which favour buses.
But fixed-route public transport’s extremely limited “adjacent land” coverage, means that real estate markets will “ration” those locations far more acutely by price, than the locations benefited by road network spending. IF locations on public transport routes ARE subjected to heightened demand, then those locations will be priced out of reach of 95% of people by the time the first 5% have “moved in”. The same applies to businesses and their locations.
Would increased networks of rails not cut communities up? Why are railway lines securely fenced and roads not?
You are a cyclist? Don’t you just love riding over rails and tramlines, especially the ones that are at an acute angle to your line of travel? I have been there, done that. Scratched elbows, bent rims.
There’s none so deaf as those who don’t want to hear. “Grow” the economic cake until it is bigger than our planet can sustain, and you no longer have a life worth living. Where did the ABSOLUTE poverty of “Merrie England” come from? From the theft of other people’s resources in order to make such a cake! You think cars and automobility wonderful. I think life even in my own back yard much more wonderful, and the REAL challenging automobility of a bicycle open to life far more joyous and mentally enriching than being locked up in the prison of a steel shuttle-cock bouncing to and from unnecessary and soul-destroying work. Live a life, Phil.
Incidentally, if you think America so wonderful, watch the BBC Panorama programme of the 13th February and see how the Americans of some of your very recently proud cities are already reduced to living in tents.
Wow, you live in England and you have a backyard? You must be in the “lucky” bracket of society.
I agree that “absolute” poverty in pre modern times was contributed to by the lack of democratisation of opportunity and property ownership. But I don’t see why think this is an argument against free markets rather than an argument against privelege, which always requires 2 parties, one of which is government in some form.
I completely fail to see why you regard planning that results in 1/10 of an acre costing a city’s inhabitants several times as much as half an acre would absent such regulations, as somehow justifying the argument against freer markets.
On what the planet can sustain, I am with Julian Simon, Matt Ridley, Colin Clark, Bjorn Lomborg, George Reisman, etc etc.
Hey, I like cycling too. I just grew out of the obsession that I should enforce my preferences on everyone else in society shortly after I ended my teen years.
If most people saw it as “….being locked up in the prison of a steel shuttle-cock bouncing to and from unnecessary and soul-destroying work….”, then people’s choices and voting patterns would be very different to what they are.
Tent cities and skid rows in the USA correlate quite closely to the factor of urban growth containment and unaffordable housing. I am surprised if Britain does not have far worse problems, given that 100% of their cities are severely unaffordable, compared to around 25% of US cities. Of course your authorities throw “squatters” in jail. Same in Sweden.
Phil, where do you get your picture of Britain from? (and Sweden for that matter).
80% of Britain’s population lives in one third of the country’s land area ie south of Leeds and west of Bristol. The remainder is concentrated into two outliers, the Scottish lowland belt, and Tyne and Wear. Yes, get a map out.
Within that area, people are on the whole dispersed to the point that they cannot be served efficiently by public transport. Yes, Britain has automobility too – or car dependence. Your idea of a population mostly crammed into urban slums is a figment of your imagination. Where people choose to live in cities it tends to be for social reasons such as to be within easy reach of relatives, friends and work.
The automobility of those who live in the dispersed development is not easily accommodated in a country where many others are living, mostly out of choice, in cities built to a high density where people can carry out their daily business using public transport, or no wheeled transport at all. The result has been that cities such as Oxford, which in the 1950s still felt close to their surrounding countryside, are now hemmed in by roads, the villages have grown into sprawl and the whole area suffers from disgusting air quality.
Automobility take up huge amounts of space, both for roads and storage both in the home and destination location. Four cars take up as much road space as a bus that can and usually does carry 70 or more people, whilst six cars take up as much space as a tram that will carry around 200, keeps to a defined path and creates no pollution at the point of use.
There are 700,000 empty homes and another 300,000 planning consents which have not resulted in any building taking place. Huge tracts of potential development land has been bought up by building companies and is held in land banks. If planning consent is obtained, the companies pocket the capital gains and build very slowly to trickle the completed houses on to the market so as to maximise the price they get. In the absence of LVT, this is rational behaviour. The idea that British planning restrictions are forcing people to live in urban slums does not square with the facts.
The situation is radically different in Sweden, where planning policy in the 1960s was to create satellite towns linked to city centres by public transport. This has created particular problems of ghettoisation in the last 20 years due to an influx of refugee immigrants many of whom then fail to settle. But there is a very low level of homlessness, mostly associated with substance abuse.
Sweden is a big empty country, and the majority of Swedes tend to live in flats in the three main cities which are well provided with green places for all to enjoy during the summer season. In the winter people tend to stay or use indoor facilities. However, there is a very high rate of ownership of second homes in the country, for use at weekends and during holiday periods. Like the US, Sweden has high automobility but because people do not want their cities bunged up with cars, there is a consensus of opinion that public transport should be used for city transport, to the advantage of all.
Europeans who want to life the automobilian lifestyle you are advocating should perhaps be encouraged to emigrate to the paradise you are describing.
Henry Law, Where I have learned about urban economics as it plays out in Britain, is from a couple of dozen papers (and books) – from Alan W. Evans and colleagues (University of Reading and “Policy Exchange”), and from Paul Cheshire and colleagues (London School of Economics). Britain is a cautionary example for regions that actually don’t have any “land shortage” excuses, of what urban growth constraints do to society and the economy. I have said enough about these effects already, on this thread and the adjacent one.
But the British have less average housing floor space per person than anyone else in the OECD, and this is shared extremely unequally. Because the attributes of housing are rationed by income, the more the wealthy “buy their way out” of constraints on their space, the more crowding is concentrated among the lower income population. But the average is for British to have housing and lots as small as one tenth the typical size in undistorted markets, at two to three times the “unit” price. (Making the cost per square foot something like 16 times as much).
Of course Britain has slums as well as classy urban renewal. But as urban areas evolve, I believe that the rationing of the “location” attribute of housing by income, results in the clustering of the lowest income people at the least unaffordable, REMOTE locations instead of the inner city. Inner city slums without exception predate automobility and if they still exist, they are a “holdover”.
I understand what you are saying about “land banking”, but suggest that the only places in the world where this does not happen (or little is gained out of doing it) are the “close to lassez-faire” land market cities of the USA, especially in the South and the bible belt. IF (this is hypothetical) the British govt was prepared to just abolish growth boundaries, grant “freedom to build”, and let the country fill up with low density urbanisation, the land bankers returns would be decimated overnight and Britain’s housing affordability would rapidly reach “par” with Southern USA. This situation would last centuries, until Britain had a population of around 400 million and had genuinely run out of any more land to build cities on.
Do you honestly not “get it”, that the land bankers absolutely require the granting of semi monopoly powers via anti growth regulations, to run their racket? There is no evidence anywhere that LVT’s would stop the wealth transfer; the government would merely gain a share of the wealth transfer, but those from whom the wealth is transferred would be just as much out of pocket. There are varying levels of land taxes in cities and States in the USA, and there is simply no correlation between these and housing price stability. The correlation is with the ease of development and the minimisation of planning gain via genuinely competitive development processes. The best analysis in the world on this, is “A Housing Whodunnit” by “The Unconventional Economist” – Australia’s Leith Van Onselen. Australia does not lack land, yet the same problems as we are discussing re Britain, are mounting in Australia precisely because of enviro-religion based growth constraint “planning”. This is classic “Baptists and Bootleggers” syndrome, with the Greens as the Baptists and the land bankers as the bootleggers.
Alan W. Evans discusses in his 2 excellent books published in 2004, how “planning gain” in Britain is shared by way of years of explicit negotiations between incumbent land owners (often rural estate holders), developers, consultants, lawyers, local special interest groups, and all levels of government. This stuff simply does not go on in Texas. Someone wants to build houses, they buy land off a farmer and build houses. I caution you that LVT’s would act as a perverse incentive to government to MAXIMISE planning gain and inflationary distortions in urban land markets, and hence maximise their revenue at the expense of the classes of people being expropriated in the wealth transfers that occur (first home buyers, business start-ups, and those expanding).
Many people have trouble grasping the fact that empty homes accompanied by prices that refuse to fall to the point where potential buyers could afford the empty homes, is evidence of market distortion and abuse of quasi monopoly power by property owners. There are thousands of empty apartment buildings in China and millions of slum dwellers who cannot afford to live in them. Meanwhile, well connected CCP officials have pocketed massive capital gains and planning gains, and the apartments are mostly owned by “greater sucker” investors who will have to take a massive haircut to actually fill them. But empty houses in distorted, overpriced markets like Britain, California, Ireland, Australia and New Zealand are exactly the SAME phenomenon.
The average age of a first home buyer rises and more and more young people are still with their parents or flatting at higher and higher densities. By the way, the rising average age of the NON home owner is a more acute statistic still, if anyone worked this out.
The same apartments as are empty in China, had they been built in Houston or Atlanta, would be a fraction of the price in absolute terms let alone income-related real terms. The same houses as are empty in Britain, would be a fraction of the price in 200 US cities, and would be occupied by young couples raising families. This has consequences for demographics. Steve Sailer of the Human Biodiversity Institute has done a lot of analysis of this phenomenon in the different States of the USA. (Check out “Affordable Family Formation – the Neglected Key to GOP’s Future”).
Sweden illustrates how climate and culture has an effect. I am very interested in what you say about them. They seem to be having a serious price bubble right now. According to the OECD, there has never been so many house price bubbles clustered around the same few year period in so many countries simultaneously. I agree partly with those who say that financial innovation has fueled this, but argue that the fashion everywhere for “carbon footprint” reduction has a lot to do with it too. The 200 cities of the US with low, stable urban land prices had exactly the same conditions of “easy credit” as the 60 or so that bubbled.
Sweden’s experiment with mass immigration and multiculturalism is a disaster. This is the main cause of their new ghetto phenomenon.
I agree that people in countries with unaffordable urban land and hence a dying economic future, should move to land-rich countries with maximum opportunity. In fact this is about the only rational response for people lacking opportunity in the “old country”. I continue to stand by my prediction that the big economic winners in the next 20 odd years, will be the low-land-price cities of the USA. I am spotting report after report of businesses locating there instead of China or California or wherever.
What you have read in text books about both Britain and Sweden bears only a passing resemblance to the situation on the ground.
For cultural reasons, many people want to live in proximity to city centre amenities, possibly more so in Europe than in the US. The typical dense city in continental Europe offers the opportunity to go to a restaurant after work before going to the theatre, have a drink in a pub afterwards and then walk home. Dense cities can be serviced by an efficient public transport system with frequent services. That adds up to a lot of expensive infrastructure of course, but it makes the city desirable and sustains high land values. It is possible to live perfectly well without automobility, which means that people can avoid the huge drain on their finances that automobility involves.
This in turn leads to a second phenomenon. From the 1920s onwards, people started to spread out in low density suburbs, around 10 houses to the acre. These were serviced by electric railways which were built to open up the land for development,. In some cases the railway companies purchased the land first. However, that density is too low to put everyone within walking distance of a viable railway station or even bus stop or shopping parade. So as soon as automobility arrived, they bought cars, eventually one car for each member of the household old enough to drive. These put an enormous pressure on household budgets but people were prepared to pay the price.
They then found that it was more convenient to drive everywhere, causing chronic congestion on the road and especially in city centres, thereby externalising the costs. Governments have attempted to deal with this by road construction but never get on top of the problem.
From the 1960s onwards, automobility brought about a new pattern of development at a much lower density, on the assumption that everyone would have automobility. This development is impossible to service by any form of public transport and further increases the pressure to build more and more roads.
Most development in Britain is now of this type – the housing estate in the middle of nowhere. However, because the development is in the hands of land bankers who trickle it onto the market, it still consists of cramped little houses on cramped little sites. But the overall density is still insufficient to enable it to be serviced by public transport and people are still obliged to drive to the shops.
The land use problem in Britain is, first, the non-functioning market that you have referred to, but which has little to do with planning restrictions. But there is a further issue in the toxic mix – the regional imbalance that I mentioned earlier, which has led to an excessive concentration in the south-east corner.
LVT would solve both of Britain’s land use problems. Under an LVT system governments might be tempted to maximise planning gain but that surely addresses your objection that there is an alleged shortage of planning consents? But given that under the present system there are more consents than developments actually taking place, and that under LVT, land with consent will be subject to LVT on the assumption that the development had actually taken place, nobody will apply for consents where there is no demand for the completed development.
I am no enthusiast for what passes for land use planning in Britain today, but without introducing a hefty LVT at the same time, US-style abolition of planning controls would do nothing to solve either problem. It would make Britain an even more unpleasant place to live than it already is.
Henry, a central point I am making all along that you seem to miss, is that planned “strong centres” to cities and growth restrictions force property prices up artificially well beyond legitimate “amenity” effect. This results in greatly increased “sorting” of all attributes of “housing”, by INCOME. So all the benefits you are pointing out, are captured by the highest income earners, while lower incomes get less and less space at less and less efficient and well served locations.
There was never a utopian past when everybody enjoyed this existence, when lower income people lived in the city, they lived in slums that were a grief to social conscience at the time.
I agree with your thumbnail history of urban development – it fits with my own thumbnail history. I am not sure yet whether you have grasped the tremendous reduction in housing costs relative to incomes, that eventuated in the USA and other countries where “planning gain” was minimised by automobile dependent development. This did not occur in Britain, which may be why you don’t follow. Or else you do follow, and argue that Britain has greater need of conserving its farmland – I accept this argument, only adding the Britons fail to grasp that they are thereby condemning themselves to “sunset nation” status because of the effects I have already described.
The inflated housing costs related to British-style “planning” are far greater burdens to society and the economy than the costs of automobility. I have already pointed out that household discretionary income is far higher in cities in the US with “freedom to build” and low land costs, even though the allegation is that they need to drive more. Actually, even this is simply no longer true, as congestion has mounted in cities with higher density and fewer road lane miles per car. Your comments on London in your next comment, are entirely illustrative of the DISADVANTAGE of high density growth contained cities re commute times (and, by the way, transport related pollution).
I agree that it is a disaster for Britain that it has the worst of all worlds. It has had some “sprawl” anyway, without managing at any time to get “planning gain” and housing unaffordability going in any direction other than UP.
I agree with land taxes, but do not believe they would resolve fully the distortions to a planned housing market. A planned housing market will only work with “compulsory acquisition” of land. I get your point that “land banks” would not be held empty if land taxes applied to them, but a large proportion of the problem is that cyclical volatility is so high and permission processes are so lengthy, that it is impossible for developers to syncronise the completion of projects with “up” phases of housing cycles. Did you grasp my “empty apartments in China” point and how it is just the same economic phenomenon with different names and places? The holders of permitted land who are not going ahead, are already “greater suckers” facing a massive haircut in the “down” phase of the housing cycle, even without land taxes to tip them over the edge into bankruptcy and forced sale.
You really should read Alan W Evans’ 2 books from 2004, “Economics and Land Use Planning”, and “Economics, Real Estate, and the Supply of Land”. Then read “The Perils of Urban Consolidation” by Patrick Troy (1996).
Phil @ #52: “Wow, you live in England and you have a backyard? You must be in the “lucky” bracket of society.”
Don’t I know it, though city houses here now mostly have gardens. I got out of the city almost 60 years ago, had the nous to pay off my mortgage early, and benefitted from 25x house price inflation in 20 years when we retired and downsized. But by now a nice country lane has become a highway, and despite strict planning controls the five miles to the edge of the next town have effectively been reduced to three.
“I don’t see why you think this is an argument against free markets rather than an argument against privilege”.
In this thread I don’t seem to have mentioned markets. My position is that you cannot have a free market without both parties can see what they’re getting and have options, which in practice applies only to something like farmers’ markets. Marginal pricing and freedom to enslave, steal ownership, defraud and gamble away other people’s savings are not free to the victims. At the very least the norm against which the margin is measured should be independently and reasonably determined. In the case of house prices the limit of borrowing ought to be set (as pre-Thatcher it was in Britain) at 2 – 3x times the principal buyers’ annual income.
“Tent cities and skid rows in the USA correlate quite closely to the factor of urban growth containment and unaffordable housing.”
Had you watched the Panorama programme I mentioned you might have realised that “unaffordability” can result from CEOs exporting people’s jobs to China, leaving people in your American system with no incomes, dispossessed by the banks, and unable to afford, at prices as low as $2000, once fine houses now standing empty and decrepit.
Dave Taylor, your own experience confirms what I have read about Britain. The generation growing up now has no such luck. That 25X housing appreciation has come out of their future discretionary income.
The problem with “conserving” everything as it is now just so the lucky ones don’t have to move away from new motorways and development to be able to live as they prefer, is that it deprives the young of opportunities now and of an economic future, period. I have already said enough about this on the 2 threads we have been participating on.
My whole point about the free markets I am using as examples, is that they are a SOLUTION to the frauds and wealth transfers we both see as wrong. What I cannot understand is how you can regard the way urban land markets work in approx 200 US cities, as a “cause” of injustice rather than the SOLUTION to the injustice that is occurring to maximum effect in Britain, California, Australia, Ireland, etc precisely because of regulations that hand property owners exploitable power. There was proportionately little money flowing through Wall Street from the mortgage markets in the 200 free-land-market cities, and little “wealth transfer” effects. There are numbers of people who got loans for extremely affordable houses (by any standard), and shouldn’t have because they were welfare beneficiaries of very low income earners. But the GFC was definitely not caused by the total equity lost on these $40,000 to $100,000 mortgages.
The GFC relates very much to the equity lost in “severely unaffordable” markets where even the yuppies are stretched to the limit to buy a basic house. To get an eyeful of the difference between $1,000,000 houses in inflated markets, and genuine mansions (often costing a lot less than $1,000,000) in free-land-market cities, check out the website “Crack Shack or Mansion”.
The America-centric critical position that you have adopted completely misses the fact that economies all over the world are in the same serious position for exactly the same reasons as California’s urban land markets almost on their own caused the Wall Street meltdown. The equity wiped out when distorted housing markets crash, correlates closely with the levels of unaffordability to which prices were driven. Look at Ireland. But when you have no affordability problems (as in 200 US cities) you will have comparatively little equity wipeout even when external shocks cause unemployment etc.
The USA has 3 quite different economic zones within it, just as “the EU” has the PIIGs and Germany and a few other differing zones. The biggest problem zone in the USA is California and a few other areas with Green policy overkill causing urban land markets to replicate Britain’s. The other problem zone is Michigan and Ohio and the Rust belt, where militant unionism has milked the local economy dry. But this zone’s extremely affordable urban land will help it recover (unlike Britain’s rust belt which is preserved in aspic by urban planning obstructions to progress, and still-absurdly-high land prices).
The powerhouse of the US and the world’s economy is now the South and the bible belt, precisely because of small government, low taxes, low regulation, low living costs, high discretionary incomes, “right to work” laws, and maximum opportunity. The only cities in the 1st world that are growing as fast as 3rd world tiger cities, are in Southern USA. And I am seeing report after report that businesses are locating there instead of Asia or California or Michigan or Europe. As I have been saying, the cost of housing and business premises are literally lower in Southern USA than in China (even before accounting for “real” income related differences), and there are numerous other advantages to not locating in China (including a one-party government that might one day be tempted to nationalise your investment).
Notice that Boeing is building their new factory in Northern Carolina, which is a wake up call to Seattle’s unions and urban planners.
Critics point to unimpressive unemployment levels in Southern USA, but without considering that jobs creation has for 2 decades now being running neck and neck with in-migration in the millions.
And we never get told about the Nissan, Toyota and Honda factories in Southern USA exporting cars back to Japan. Odd, considering that Detroit-based car manufacturing gets billions of dollars of taxpayer money thrown at it every 10 years or so. You’d think “liberal” leftwingers would learn to learn from success stories.
I am not sure that I have covered the “density – congestion – pollution” paradigm yet on here or the adjacent thread. By the way, a lot of what I am saying is excerpts from a book/paper I am writing.
There is no foundation to the argument that low urban density is worse for the human environment. The data is totally non-conclusive.
European cities also have “sprawl”, only not to the same extent that the US does; and that data on traffic congestion now tends to show US cities up as better performing than European ones.
http://www.newgeography.com/content/002169-united-states-less-congestion-europe-inrix
A Recent OECD study contained a graph that was published in the New York Times; which has aroused much controversy among those who regard the USA’s cities as the worst possible models of urban form:
http://economix.blogs.nytimes.com/2011/10/14/world-of-commuters/
Bob Poole points out in his newsletter “Surface Transportation Innovations”, October 2011:
“……..The Census Bureau’s American Community Survey data on commuting in 2010 recently appeared. They put the average U.S. commute time at 25.3 minutes. Worst in the nation is the New York urbanized area at 34.6 minutes, with the Washington, DC region second at 33.9 and Chicago fourth at 30.7. The notorious Los Angeles/Orange County urbanized area—with the largest aggregate amount of congestion—didn’t even make the top 10 in commute time, coming in at #17 with 28.1 minutes. It’s worth noting that the longest trip times are in places with traditional central business districts and relatively high transit mode shares……” (emphasis added).
Certain common points of critical comparison between Europe and the USA, such as fuel use, can easily be explained by the difference in the level of taxation of fuels. Specialists in urban and transport economics are overwhelmingly in favour of fuel taxes and road use charges as tools to achieve this result, not arbitrary regulations regarding urban form. The famous urban economist Anthony Downs, in his book “Still Stuck in Traffic”, likened the use of urban form regulations to achieve these objectives, to adjusting the position of a picture on a wall by shifting the wall rather than the picture!
Planners might have hoped that mode shift to public transport would negate the effect of higher density on road congestion, but this has never happened anywhere in the world. The flawed assumption underlying our modern planning fashions is that increases in density might lead to linear reductions in car use. In fact, it perfectly logically leads to increases in car use per square mile/ square kilometer of the urban area, increased congestion, and increased pollution.
http://www.heritage.org/Research/Reports/2011/09/How-Smart-Growth-and-Livability-Intensify-Air-Pollution
Click to access ut-tti2007dens.pdf
Click to access densityconge.pdf
The consequences of Manhattan having very high population density, besides very high proportions and outright numbers of people using rail transit; is record-level outright numbers of vehicles per square km/mile and record-level air pollution.
Recent “World Health Organization” data on air pollution is not flattering to the higher density cities beloved by planners:
http://www.who.int/phe/health_topics/outdoorair/databases/en/index.html
A study from Norway examines whether unaddressed congestion is a valid option as a tool to encourage reduced car use. The conclusions are negative:
https://www.sintef.no/Sok-i-publikasjoner/E/2007/E/Miljomessige-konsekvenser-av-bedre-veier/
The relevant PDF url is:
Click to access A07034_Milj%C3%B8konsekvenser-sluttrapport-ver6.pdf
The “Summary in English” runs from pages 4 to 10 (5 to 11 in the PDF reader).
Even more dramatic, is the findings of a very recent paper by Gilles Duranton and Matthew Turner;
“The Fundamental Law of Road Congestion: Evidence From US Cities”
Like the Norwegian authors, they conclude that only road pricing will control congestion, and specifically (from the abstract), they “……find no evidence that the provision of public transportation affects Vehicle Kilometers Travelled….”
Click to access Law.pdf
The term “dense sprawl” has recently been coined to describe LA.
http://www.uctc.net/access/37/access37_sprawl.shtml
This also is an appropriate description for the cities of Australia and NZ. With all the successful infill development that has taken place, they have ended up with much higher traffic congestion, because their provision of road space has not kept up with the population increase. The catch to “densification” is that although we might avoid providing more road space at and beyond the fringe, we really should have provided extra capacity within the urban area where the growth occurred, instead. As this capacity has generally not been provided, we have congestion externalities that are comparable or worse than those of having had a bit more “sprawl”. If employment sprawls at the same rate as residences, congestion under conditions of “sprawl” tends to be “dispersed”; as well as the fact that the “sprawl”, of necessity would have contained extra road space that we have foregone.
And low density suburbs include exponentially greater amounts of green surfaces and vegetation which acts as local air pollution absorbers and heat sinks. Children get to play in backyards and local parks. And leafy streets in low density suburbs are far preferable to cyclists and joggers excercising, than high density congested city streets, especially when cul-de-sac streets have walkway – cycleway connections (as they often do).
If you are going to cover this subject, one of the authorities worth studying is Tim Pharoah. I think it was he who noted that in the absence of road pricing, congestion increases to the point that journey times drop to the equivalent public transport transit time. So if you want to cut road congestion, you build a railway, in the right place of course! Experience in London is that this gives rise to a land value uplift of around 3 times construction cost, which makes it a good investment however it is looked at.
The costs of sprawl are: time, compulsory automobility, pollution, congestion and disturbance and social isolation. The latter tends to get ignored in calculations. The price is paid in things like mental health. Sprawl can lead to actual physical isolation as well if the systems break down eg due to weather conditions.
I am suprised at the low journey-to-work times you report. In the London area these are typically 2 hours a day. This figure has not changed for about 150 years. Where safe walking or cycling is possible, travel to work time can be discounted as it turns into recreation. The same is true of rail travel – if the train is comfortable and not overcrowded, travel time can be used for work or recreation and is not “lost”. Time behind the wheel of a car is utterly lost except to the handful of petrolheads who actually enjoy driving.
Leafy streets in high density cities are the typical continental European pattern. British planning is much more car-orientated and British cities tend to lack the well-developed systems of walking and cycling routes to be found on mainland Europe.
The fundamental problem with automobility is that the vehicles take up too much space both for running and for storage, and use too much fuel. They are also a huge waste of resources – they represent a vast amount of capital tied up, slowly decaying in a parking space for at least 20 hours out of 24. What business would tolerate this kind of waste? Taxis and hire cars get round the latter problem but they do not overcome the problem of space on the road, when one bus carrying 80 people takes up no more room than four cars and is busy at least 10 hours a day. Much of the waste associated with public transport is due to poor operating practices, where large vehicles and full-length trains are deployed at quiet times.
Road congestion charges have not been a success in London. There is too much travel within the congestion zone and costs of operation are high in relation to the income. This is partly a matter of the design of the scheme and are an inherent drawback of cordon-type congestion zones. There was a proposal for a different system of congestion charging in Cambridge in 1991 using a real time congestion metering system but it failed due to the technology at the time.
Attempts to control urban form by planning constraints had been proved to fail by the mid-1950s when development simply leap-frogged the Green Belts around London. My own view is that the planning system could be largely dismantled if a high rate of LVT were in place, but in the absence of LVT, the land market suffers from chronic constipation and this, rather than the niggardliness of the planners, is the reason for the problems experienced in the UK.
The Swedish experience is different in that there is no shortage of space, nor reluctance to develop it, but people still want the advantage of physical proximity to the activities they are involved in, so they still want to live in city centres. The Swedish residential property market is also heavily distorted by rent controls but that is another subject.
There is no city in the USA where commute times by road have risen to anywhere near as high as those by public transport. This requires a definite commital by the authorities, to under-provide roads.
It is impossible to “build a railway in the right place” for the users of a congested road route. These users come from far and wide over suburban road networks. The only useful “public transport” system in modern cities now, is busways on which private sector small buses can speed into the city after each of them has made pickups in highly specific suburban areas. GPS and internet “booking” bring this potential closer.
To whom is the 3 times property value uplift, “a good investment”? The people who pay taxes to subsidise the system and will not be served by it and furthermore cannot afford the property at the location that is served? This wealth transfer effect is one of myriads causing increases in inequality, with few people understanding this.
I have already pointed out that the externalities of automobility have been costed by various authorities who are as pro-public transport as you could wish; but the evidence is that the costs NOT covered by motorists are nowhere NEAR as great as the costs NOT covered by public transport riders.
The high class public transport you describe, where people work on laptops etc on their way to work, is a symptom of the capture of infrastructure provision by the well off under real estate market price rationing. If “the masses” did patronise public transport to the extent that advocates allege they will/should, the result historically was “standing room only”.
Few motorists seem to regard their drive as lost time, otherwise there would be far greater political pressure for road expenditure. I suggest that in-car entertainment has a lot to do with this.
Certainly most cars “park” for most of the day, but why is this worse than taxpayers paying to have vehicles driven around for 10 hours when only 2 hours of that use period are cost-recovering? But you seem to be on my side re inefficient public transport operating. Do you like my suggestion re busways and privately operated small buses?
There are far worse social pathologies from people being forced into close proximity to each other. This is why so many people CHOOSE low density privacy when it is affordable.
I am very interested in your comments about London’s cordon charge system. I agree.
The situation in Britain is more nuanced than can be analysed in a discussion group of this type. I am no fan of the British planning system but suffice it to say that it is not the cause of the bottlenecks you are referring to. Until WW2 there was effectively a free-for-all in housing development, just as you are advocating, with a population about 20% smaller than now, but people were still living in slums in city centres. It is the absence of a significant LVT that is the cause of Britain’s intractable land use problems.
Large scale road construction has all sorts of deleterious effects in a country with Britain’s pattern of settlement. Here is not the place to spell them out but the environmental degradation due to increasing automobility and road construction in and around the cities where I have lived over the past 50 years is one of several factors which made me relocate out of the country altogether. It is also recognised as a serious problem in the city I have moved to, which has been dissected by roads and traffic intersections to the point that it seriously impairs its functioning. Matters would be very much worse but for the fact that a decision was made to retain and upgrade a nineteenth century tramway system which pulls the place together, and incidentally also makes the city centre a pleasant place to walk around in, replacing an industrial manufacturing economy with one based on tourism and cultural activities.
As regards public transport, London and other major cities would simply grind to a standstill without high capacity systems, which is a measure of their external value. The value is largely captured by landowners, but that is a political choice of the British electorate. Even the well-off commuters sitting in comfortable trains are paying landowners for this privilege. The benefit does not rest with them.
Henry,
“…..Until WW2 there was effectively a free-for-all in housing development, just as you are advocating, with a population about 20% smaller than now, but people were still living in slums in city centres…..”
One of my central points is that prior to automobility, there was little scope for people to use their “freedom to build” to escape incumbent land owner capture of semi monopoly rent.
“…….The value is largely captured by landowners, but that is a political choice of the British electorate. Even the well-off commuters sitting in comfortable trains are paying landowners for this privilege……”
I do not believe that “the electorate” has a clue about this effect. I also believe that there is so much dead weight loss in public transport systems, that the land owners are reaping something like 80 cents out of the $1 worth of benefit, and paying 40 cents of the $10 cost. They are still gaining, but everybody else is losing big time, not just transferring value dollar for dollar to property owners.
You yourself see the options as distasteful “city” conditions versus a move right out into the country. But low density suburbanisation as per 250 US cities, is in fact a happy medium that suits millions of people wherever it is permitted. One irony of 2 extreme choices and nothing in between, is a tendency to very long “leapfog” commutes from the country, combined with the worst city congestion. This is why the data I reference shows British cities to be among the world’s worst on significant indicators, far worse than the “sprawling” US cities that planning advocates condemn.
Between the wars, British cities experienced great suburban expansion on the basis of new transport technology, provided by the private sector and unrestricted by planning control. The Metropolitan Railway captured some of the land value by purchasing in advance of the railway construction and building over terminals such as Baker Street. The same happened south of London.
This was indeed an improvement for many, but people were still living in poverty in slums in the East End.
Those inter-war houses, which, as always, were just-about affordable, are now ferociously expensive.
Britain’s housing and employment problems are due primarily to inefficient and too-low property taxation and excessive taxes on everything else. The planning system, of which I am no great fan, is peripheral to this core issue which is never addressed, and it is not helpful to point to it as the cause of the trouble. And automobility is not viable in a country of 60 million of whom 45 million are concentrated in one-third of a small land area.
Henry,
Still trying to explain my point – using your latest remarks. I KNOW that Britain had massive urban expansion based on rail (and this expansion was even greater than the later automobile based development phase). BUT FIXED RAIL routes can easily have all the adjacent land captured by land owning oligpolists. This is why RAIL based urban expansion has NEVER done anything for housing affordability. As you point out, “……people were still living in poverty in slums in the East End. Those inter-war houses, which, as always, were just-about affordable, are now ferociously expensive……”
Furthermore, there is nowhere for rail based development to “GO” except “further out” along the same radial routes. Or perhaps “up” on existing developed sites. The “location premium” effect on property prices is MARKED.
But the further rail routes radiate out from a centre, the bigger and bigger the “wedges” of land in between the rail routes become. The amount of land within these wedges, accessible by automobile, becomes literally hundreds of times as much as the land accessible along the radial rail routes by train.
The bigger the diameter of an urban fringe gets, the longer the circumference, and within a single extra km of the fringe, there is literally dozens of years supply of land for urban growth accessible by car, and possibly 1 years supply accessible by 4 to 6 radial rail routes.
There is hardly a sovereign territory in the world that is so small that there is no relevance of automobility to competitive land supply. Hong Kong, yes. But Britain? Come ON.
The only way that the massive amounts of land accessible by automobile can be “controlled” by the same oligopolies as what easily control the much smaller amounts accessible by rail routes, is for VERY strict planning and rationing to be introduced. In fact, one is justified in calling this “VERY BAD” planning, because of the sheer immorality of the outcomes as well as the appallingly destructive economic effects (compounding over time).
I’ve done my best to explain my point; I am not convinced that you are making a lot of effort to even read what I am saying. Surely it is comprehendable to anyone that does read it. Do you have interests in rail infrastructure providers or something?
But I must say that you are not the first advocate of land taxes that I have encountered, that simply can not understand the significance of the quantities of “supply of land” accessible by differing transport modes, to the prices of land in urban markets. I strongly support land taxes but I am under no illusions regarding what ills they WILL correct and what ills they WON’T. Mason Gaffney was right to condemn blunt regulatory instruments of urban growth constraint way back in 1964 and advocate land taxes INSTEAD, as capable of the desired results. In fact, he correctly identified blunt regulatory instruments of urban growth constraint as “an instrument of monopoly exploitation”.
Click to access E3Containment_policies.CV.pdf
He did not say in this excellent essay, that the blunt regulatory instruments of urban growth constraint could still be applied and would be negated in their monopoly exploitation effects by land taxes – he advocated for land taxes, period. And he would have been wrong if he had said anything else.
You say “…..The planning system, of which I am no great fan, is peripheral to this core issue which is never addressed……”
That sums up where we disagree. I say the planning system IS “a” core issue – the cause of a multitude of serious problems that land taxes will NOT resolve. I agree that shifting the burden of tax off incomes and expenditure and onto land, is also “a” core issue. But BOTH are “core issues” and addressing either one on its own, will not solve the ALL the problems that would be solved by addressing the other issue AS WELL.
@Phil, please note that Henry has not moved to the country but out of the country!
Carol, Thanks for pointing out my slip-up on that.
Henry is a wise man for getting out of the UK, unless he has got out of the frying pan into the fire somewhere.
I don’t think anywhere in the world now has the economic and indeed civilisational future that Southern USA and the Bible Belt has. It’s just a bit of a pity about so much of it being so far from scenic coastlines and other natural features. But ultimately you have to survive and thrive. By the way, I am not yet practising what I am preaching, I do not live in the USA, but (obviously) would like to.
Phil – Sweden would give you apoplexy. It is the antithesis of the US Bible Belt. It is diverse, tolerant, self-critical, there is a respect for the public realm, being competitive is seen as out-of-order and capitalism is looked at distinctly iffy – a relic of the Catholic/Lutheran tradition. And nice scenery. There isn’t cradle-to-grave welfare any more but the system is still working reasonably well, in fact, most things work at least reasonably well and are thought through.
It isn’t paradise but one can say that things are generally around 10% better than the US.
But what is to be said for Bible Belt Christianity? There is a contradiction if ever there was one – a group of people who follow a Catholic book without being Catholics, and interpret it, very selectively, in a way that it was never meant to be interpreted. A textbook case of cognitive dissonance.
Dear Henry,
We are getting off the subject onto theology here. The best book on the questions you raise, is “The Theme is Freedom” by M Stanton Evans.
I personally go further than Evans, and hold the Papal church responsible for centuries of deception of mankind re Christian truth – burning people at the stake for actually reading the Bible for themselves, for example. The Reformation is actually responsible for the progress enjoyed by Christendom, not “the enlightment” at all.
Evans convincingly contrasts two philosophical threads – one running from Plato, Aristotle and Greco-Roman figures, to Rousseau, Hobbes, and Neitsche, the Jacobins, the Bolsheviks and the Nazis. The other runs from Moses and the Israelite prophets, through the Gospels and St Paul’s epistles, through Augustine and other church fathers, through Magna Carta, through forgotten medieval English philosophers like Coke and Buchanan, through the Puritans and Calvinists, TO Locke, and Jefferson and the other Founding Fathers of the USA. Not to mention the British classical liberals and the abolitionists.
Only the Christian thread supports the rights of the individual against unbridled State power. The other thread always tends to unbridled State power precisely because it lacks the Judeo-christian basis (a higher power above rulers) for anything else.
Another significant point made by Evans, is the the Founding Fathers were reactionaries against the trend in Britain at the time, for parliament to assume unbridled power (the British parliament at that time being similar in this regard to the later Jacobins “National Assemblies”). The Founding Fathers regarded the 14 Colonies as possessing their own “parliaments” (or equivalents) under the British monarch, levying their own taxes for the purposes of the government of their own people. Years were spent appealing to the British on the basis that monarch and parliament were meant to represent checks on each others power. It was the British parliamentarians who were the real “revolutionaries” of this era, not the Founding Fathers who tended to be at least tinged “Royalist” until the Declaration of Independence.
Evans convincingly demonstrates that the retention of political freedom versus unbridled State power, depends to this day on the Judeo-christian philosophical basis. His book is full of quotable points, such as that to whatever extent “secular” philosophers try and provide justification for limited State power and individual rights, they are merely trying to preserve vestiges of our Judeo-christian heritage.
Where I would differ slightly from Evans, is that I think critics of the centuries of Roman Catholic monopoly on “Christianity” are right, but Evans sort of brushes over this. But contra that, is Evans’ suggestion that all forms of “government” in paganism tend to be “theocratic” in nature, the “king” or whatever, being regarded as the representative of divinities and spirits, and the mediator between them and man. Evans suggests that the Roman Catholic church was really a significant separate institution that acted as a balance to absolute “kingly” power. Furthermore, the prophets in ancient Israel acted in a similar capacity.
I also think Evans has failed to account for John Locke’s explicitly theological writings such as “The Reasonableness of Christianity” and his expositions of St Paul’s epistles. Evans sets out to make the point, and makes it convincingly, that Locke was not in the least “original” with his theories of “social contract” etc and furthermore, this was not a “secular enlightenment” thesis at all. Evans could make the point even more strongly than he does, that Locke was an inheritor of a Christian tradition in these matters, if he discussed Locke as a significant “Reformation” theologian rather than as merely “a professing Christian” who has been falsely co-opted by the “secular enlightenment” narrative on the basis of his political-philosophical writings.
But as it is, Evans shows convincingly that Locke’s writings on social contract, etc, were heavily influenced by Puritan and other early dissenting Christian writers. This includes significant Dutch and other Calvinist writers that Evans convincingly quotes at length. Locke spent many years in exile in already-sympathetic Holland prior to writing his significant works.
And the classic comeback to the “secular enlightenment” narrative that Evans points out, is so obvious that one wonders how on earth the secular enlightenment narrative ever got off the ground. If the “dark ages” in Christendom were evidence of such dreadful entrenched backwardness, what on earth was Magna Carta, when did it happen, and where in any cultures in the world other than Christian ones, has there ever been any historical equivalent?
Evans also briefly covers the issue of scientific progress. I have been collecting snippets on this myself. For example, both Galileo and the puritan Increase Mather condemned the Catholic church for perpetuating ancient Greek nonsense re “the Cosmos”, when the observable facts supported scripture. The Greeks were actually no help to science, and Christian values finally caused a breakthrough. One of the best essays ever written on this is the environmentalist Lynn White’s “The Historical Foundations of the Ecological Crisis”, which convincingly BLAMES Christianity for all the progress that has brought humanity to what environmentalists regard as an “ecological crisis”.
Notwithstanding that atheistic regimes have been both backward re progress and far worse destroyers of the environment than free-market Christendom.
The Lutheran tradition was not inimical to free market capitalism at all. Weber’s book, “The Protestant Ethic and the Spirit of Capitalism” is a classic. Evans’ book discusses this too. So does Dennis Hollinger’s “The Ethics of Individualism: an Evangelical Syncretism”.
I regard Sweden as slowly squandering the accumulated social capital of centuries of Lutheranism – Calvinism. Other more multicultural nations that adopt the same policies reach the point of unsustainability far more rapidly. For example, New Zealand in the 1970’s adopted Solo Mothers benefits as an “entitlement”, because there was “little evidence”, from Sweden, that this acted as a perverse incentive. In just 3 years, New Zealand had as high a proportion of the population as solo mothers, as Sweden took 30 years to reach after introducing the incentive.
Swedes in the USA earn far more than Swedes in Sweden. Immigrants to the USA earn far more than the same cultural groups of immigrants to Sweden do. I believe Sweden to be in terminal decline precisely because of their descent into “post Christianity”. Only time will tell which of us is right.
John 11:35
There is far too much there to discuss there but just a few points.
Magna Carta was wrung out of a weak king and allowed the nobles to oppress everyone else beneath them, not least through land enclosure.
Locke is of course the originator of the mischievous and false theory of land ownership which is used by contemporary libertarians such as Rothbard and Bennett.
If Sweden is in terminal decline, then just about everywhere in the world must be a long way further down the road. The roads are looking a bit mucky and broken at the moment but that happens when the temperature gets down to minus 15. But everything else is working nicely. Calvinism never had much of a hold in Scandinavia. The prevailing strain of Lutheranism was effectively Catholicism minus the Pope. It took a powerful king to deal with the Swedish nobility by taking back their stolen land and redistributing it. The British monarch was never so powerful. James I was the victim of a massive fraud and that is why the most valuable areas of central London are still owned by a handful of aristocratic families. It is property that by rights belongs to the Crown Estate and the revenues should go to the taxpayers. As it is, every business in central London pays tax to some duke who claims to “own” the land, and then they have to pay tax all over again to the government to pay for public services.
Henry, I am really enjoying your erudition.
I see nothing mischievous about the concept of land ownership per se. The problems I have, are with 1) the absence or weakness of land taxes – which concern you share.
2) regulations which distort land markets in favour of incumbent owners.
I would have no problem with the 4 London Dukes if they had paid land taxes all along AND London had undistorted land rent curves that sloped up gradually from genuine rural rents at the fringe, to a level around 5 to 15 times that at its peaks. This is the norm in some 200 U.S. cities. Land rents in London peak at literally hundred of times rural rent levels, and the single biggest “discontinuity” in the curve occurs at the urban fringe. ALL the land within the tightly regulated urban fringe, is grossly inflated in price.
I do not agree with suggestions from anyone, that land taxes alone would solve this problem. Either there needs to be “freedom to build” at and beyond the fringe – which I accept Britain has reasons not to accept – or development at the FRINGE needs to be the subject of “compulsory acquisition” of land with the express purpose of eliminating “planning gain”. The Dutch prove that THIS, along with compulsory acquisition of “brownfields” land, keeps the price of ALL land in their urban areas competitive, in spite of them having even less land than Britain. (By the way, the THREAT of compulsory acquisition keeps Dutch land sellers from being too greedy most of the time, and the powers of compulsory acquisition are therefore seldom exercised…!)
Focusing on ways to disinherit CBD property owners, gets this issue back to front. The problem is with the serious inflation of land rents at the urban fringe, which lifts the entire urban land rent curve. There is no lack of real world experience to support this thesis.
Sweden right now is like Australia – both think they are immune, and both have massive property bubbles that any sane observer can see will turn them into something like Ireland or California or Japan sooner or later. I expect Sweden’s collapse to “snowball” from there, wheras Australia is not so socialist (yet) and may “come back” one day. Especially if it learns anything from Southern USA – maybe I should say “depending” on its learning from Southern USA. Sweden will never learn from Southern USA and probably no apostate European country will.
You make the mistake of viewing history through the lens of perfection. The British barons at the time of Magna Carta were just participants in a long, broad process that brought about Anglo-world leadership of civilisation. In fact, these barons represented dispersion of powers and “competition”, much as competition between municipalities keeps them honest today. Look at every other culture – they still haven’t had a Magna Carta and would probably be thankful to get to live under feuding barons rather than a centralised tyranny.
I agree somewhat with your point about the Established Lutheran Church in Sweden. I would argue that economic success and scientific progress and so on, correlate somewhat to the “COMPETITION” between religions that is allowed in a nation. “Established” churches in Protestantism tend to be the “next worst thing” after the Papacy.
I think it is no accident that Britain took such a lead in humanity at the time when Methodism and other evangelical movements flourished in contrast to Anglicanism. The historian Ely Halevy credits this with allowing Britain to have an industrial revolution and all its accompanying social upheavals, without having a murderous socialist revolution as well as so many countries did under similar conditions. All of those countries had an established church with a monopoly on religious activity.
Then it is no accident that the USA has been so prosperous, when it has no established church at all, and has by far the most Christians who refuse to profess membership of ANY denomination at all, and whose places of worship do not even have a “clergy”, and have maximum “lay” participation. Academics like Barro, McCleary, Stark, Iannoccone, Finke, Guiso and Sapienza continually come out with interesting findings in this regard.
John 11 v 35, indeed. Who really interprets God’s word correctly these days? “Long March Through the Institutions” neo-marxist activists who have been admitted to the right Seminary, passed the right exams, and have gained a pulpit by which to advance their ideas, which could have come from anywhere? The USA has the largest number of Christians among their population, who are wise to this ploy of Hades.
Henry, you might also be interested in the following “unintended consequence” type factors from urban planning, that help explain why you get “sprawl” regardless as well as unaffordable housing and long commutes.
An especially pernicious outcome of urban growth containment policies that erodes system-wide efficiency is identified by Patrick Troy in “The Perils of Urban Consolidation”:
“……..The present policy has had the perverse result of increasing density of dwellings at the fringe……”
And later in the book:
“…….A high proportion of the new high density housing is now occurring on the fringes of the city. This is a direct outcome of government policy and produces the perverse doughnut effect of an annulus of high density housing ringing the lower density middle suburbs. The greater accessibility claimed for inner suburban consolidation does not occur….”
Whatever the cumulative reasons for it, the graph of Portland’s “Spatial Distribution of Density” on page 12 in this paper by Alain Bertaud, should have “planners” asking what result they really want? Increased density at the fringe but NOT nearer the CBD?
http://alain- bertaud.com/ images/AB_ The%20Costs% 20of%20Utopia_ BJM4b.pdf
This is because lower income households have been forced by higher land values, to accept smaller homes further away from the CBD; as Bertaud says:
“…….instead of being able to make a trade-off between distance and land consumption. …….”
“……..the practical outcome of a positive density gradient is longer trips for more people…..”
“…… As predicted, land prices are going up because of the supply constraint imposed by the UGB, developers respond by developing higher density housing in the vacant areas between the limits of the current built-up area and the UGB. This of course has a tendency to reverse the slope of the gradient…. …..In the long run, the higher density which will built-up on the vacant land along the UGB will increase the accessibility of suburban shopping malls at the expense of the relative accessibility of the CBD. This is not the outcome that the planners intended…. …”
Another useful quote on the same subject, is from Jan Breuckner, “Urban Growth Boundaries: An Effective Second-Best Remedy For Unpriced Traffic Congestion?”
“…….failure of the Urban Growth Boundary to appreciably raise densities near employment centers is the main reason for its poor performance, and this failure will persist regardless of whether the city has one or many such centers….. .”
http://www.socsci. uci.edu/~ jkbrueck/ course%20reading s/ugb.pdf
This is additional to the already commonly understood phenomenon of “leapfrog” commutes from remote rural towns, and indeed development in those areas, due to the “metropolis” itself being unaffordable. Even if the planners are granted “regional” powers to prohibit rural “leapfrog” development, the effects observed by Troy, Bertaud and Breuckner, mean a reduction of efficiency of the operation of the metropolis itself.
The findings of Anthony Downs and the other authors of the “Costs of Sprawl 2000” Report, quoted earlier in this essay, are directly relevant here. That is, the more expensive houses are relative to incomes, the more incentive there is for households, especially first home buyers, to locate further away from CBD’s, because the savings on housing costs are greater than the additional cost of travel (assuming employment is in the CBD). Therefore, planners should start with policies that minimize the basic price of urban land, consequent on which other elements of “smart growth” strategies will be a lot more successful.
THE PYRRHIC VICTORY
Ironically, now that property prices have crashed in many cities, and interest rates set by central banks have been lowered to record levels to “stimulate” economies, there has been a temporary increase in the number of areas where “the exception to the rule” applies and savings may be made in “housing plus transport costs” by moving closer to one’s CBD job. Advocates of urban growth containment of course completely misinterpret the underlying mechanisms that have led to this phenomenon. Policies that require economic disaster to make them work (and indeed lead to the economic disaster in the first place) should not be popular options.
It is also distasteful to have to note that having forced lower income earners and first home buyers into remote “least unaffordable” locations, planners then start advocating cordon charges that will impact those already harmed, the most. Generally, even travel by rail will not be an option for those who are priced out of the most favourable locations.
That is not a consequence of planning, it is a consequence of bad planning. The policy was not thought through. In my experience, the planning profession does not attract individuals capable of rigorous thought when needed. On the contrary, it was drawing in the scrapings of the academic barrel.
I’ll agree with that. Glad you seem to understand my point.
But central to my point is that planners need to be “enablers” of “competitive land supply”, to use Anthony Downs’ term. ANY plan that is anti-competitive in its effects is a BAD plan.
I despise Communism, but admit that the Netherlands manages to keep their economy far more competitive than Britain’s in spite of having even less land, by using powers of compulsory acquisition to overcome the consequences of rationing land in “plans”.
For the effects of pure Communism, read Alain Bertaud’s “Cities Without Land Markets”. Urban planning in the former USSR was undoubtedly BAD planning in spite of the total power of the planners. What makes you think any “planners” will ever get it right? The evidence is pretty limited. You are dead right about the kind of people the profession attracts; this was one of Hayek’s chief insights.
Actually, I believe that “competition enabling” or “market-following” planning is what is making Southern and Bible Belt USA the world’s most economically competitive region now that most of civilisation has reneged on the concept that “growth is good” and the 3rd world never has got out of the mess that is the inevitable result of corruption. Whether it is explicitly corrupt officials in the 3rd world or explicitly anti-growth religionists in the 1st world, the consequences for the urban land markets involved is roughly the same.
Having reflected on the Oxford study, there is another factor which neither of us has mentioned.
Even if there are no planning constraints at all, cities cannot grow without restriction if the infrastructure in not present to service the new development. This means the provision of roads, railways or tramways, utility services, schools, etc. If they are not present and accessible, nobody will want to live there. So that will account for a sharp fall in land values in city edge locations without invoking planning control as a cause.
I have noticed that there is no great demand to live on the outskirts of Gothenberg in places where you have to dig yourself out of the snow if you want to drive to the shops in the winter. Nice in the summer though, but that is the reason why people prefer a flat in town and a simple hut by some lake just for when the weather is warm.
That is what I mean when I differentiate between “planning” (and infrastructure provision) that is market enabling versus market forestalling.
The process in Texas and in fact most US cities, is “market enabling”, and has been since the era of the GI Bill. Providing affordable housing for the younger generation (who at the time had served in the military and suffered the horrors of war) was the right thing to do, morally. This meant the elimination of “planning gain”. The Leavitts and numerous other developers rose to the occasion.
The easing of credit at the same time was accompanied not by inflation in the price of urban development, but by the most competitive, “planning gain eliminating” development processes in human history up till that time. There has probably never been a generation that has been able to pay off its first homes as rapidly, as credit was low cost AND housing low cost.
But these conditions have largely continued in US cities with the exception of those that have introduced “market forestalling” fringe growth planning processes, with the clear and undeniable consequences that we are discussing – unaffordable housing, wealth transfers, and bubble volatility. The cities that remain “market enabling”, have not participated in bubble and bust wipeouts of equity, and because of low central bank interest rates, their ever-affordable property can be paid off quicker than ever by first home buyers.
By “market enabling”, I mean that infrastructure providing authorities do NOT dictate anything to the developer, they are there to PROVIDE the needed infrastructure, NOT to ration it (and hence enable a kind of racket among those favoured). Financing the needed infrastructure with development-specific bond issues is also a common sense norm.
I find it deeply ironic that so much mockery and despisal is levelled at American “rednecks” and “bible bashers” by “sophisticated” “progressives” all over the world, when in fact the areas these rednecks and bible bashers live in have achieved socio-economic conditions that SHOULD be the envy of the rest of the world. In fact, these areas are the only ones in which “REASON” or rationality actually exists at all any more, as a basis of actual policy making.
Just a further comment for Henry, the thread is getting quite skinny up there.
I think there is a problem with “property rights” as they are often taken to mean, that fails to distinguish when the opposite effect to “regulatory takings” is at work.
“Planning gain” is “regulatory GIVINGS”. Eliminating this, is NOT a “taking”.
It is a perversion of the concept of “property rights”, to hold that the owner of a parcel of land has a “right” to a capital gain of hundreds or even thousands of percent BECAUSE of a regulatory action in his favour. This same regulatory action is the flip side of a regulatory action AGAINST the owners of property NOT so favoured i.e. outside an official “urban growth boundary” (or proxy for it). There IS a “taking” from these people, but it is of moderate amount dispersed over a considerable amount of land. If the regulations creating the “taking” (from the owners of the great bulk of the otherwise-available land, along with the massive “giving” to the owners of a miniscule proportion of it) were abolished, the amount of the “taking” that would be restored to the land owners, would be small precisely because the amount of land de-regulated would be so great that oligopoly powers for rent extraction would cease to exist.
The owners of land outside a regulatory boundary all want the boundary to be moved only JUST far enough to hand them monopoly powers; they will be vigorously opposed to the ABOLITION of the growth boundary altogether. They will of course cloak their financially self-interested indignation in the language of environmental concern…….!
Planning control is both a restriction and an enhancement of a right. That is why NIMBYs exist. The value of my land is enhanced by your inability to do something on your land that will adversely affect the value of mine. And conversely.
Planning consent does not create land value. It unlocks a latent value that already exists.
Incidentally, how do Bible-believing Christians deal with the awkward passages in Leviticus 25? The ones that Catholics have ignored for the past couple of hundred years, the last time the subject being mentioned was in the Encyclical Vix Pervenit of 1745.
Definitely very interesting. Bible believing Christians, I think, generally regard the Old Testament as full of instruction, but details and observances of the Israelite Law were said by St Paul to have been set aside in the death of Christ. It is the “spirit” that matters.
Clearly the system of Leviticus 21, and the rest of the “Law”, was for the blessing and distinction of the people among whom the Messiah was eventually to be born. Leviticus 25 certainly does not support “communal” property, but rather seems to entrench the principle of private property.
It would certainly not eliminate the problems we already have, such as people like the London Dukes benefiting from accidents of history re the location of their family inheritance. I stick to the point I made earlier, that planning makes all the difference re just how much uplift there is in urban land rent relative to rural land rent.
That is, whether or not there is a significant “discontinuity” between rural values and urban fringe values, and also just how centralised or dispersed the city’s employment and amenities are. I will not repeat my analysis of this, except to repeat that the “multiple” between rural rents and the most expensive land in Houston or Atlanta, is in single figures, but in many cities with strict growth boundaries and a “centre first” planning policy, the multiple is in the hundreds.
You say:
“……Planning consent does not create land value. It unlocks a latent value that already exists……”
So you think that land in Britain beyond the fringe of a city, would suddenly become worth hundreds of times as much as it was worth as rural land, when someone develops it, EVEN IF there was no strict urban planning and restrictions on development?
And you think that land surrounding a city like Portland, would have started going up in price anyway, regardless of the enactment of a new urban growth boundary?
Same in Toronto recently? And in South Korea in the 1980’s?
This is a curious way for any economist to think. I know some do, hence wiser heads like Alan W Evans having to argue for years before Govt Commissions of Inquiry, that this allegedly “Ricardian” economic theory is simply wrong. There is nothing so perversely successful as a wrong theory that provides a smokescreen for an elite class’s deleterious objectives.
What you say confirms my impression that bible-believing Christians take a pick-and-mix approach to their interpretation. “In the spirit” is an excuse for bending things any way anyone fancies and forgetting about the bits that do not fit in with some other model. Which they are bound to do because some things in the OT do not make sense without interpretation, and if there is no accepted authority and agreed body of interpretation then there is no alternative but to make things up as they go along. Most of the OT was written down relatively late, probably after the return from the Babylonian captivity, being a codification of an oral tradition which itself was not completely set in written form until the Talmudic period. Worse still, the Hebrew texts have been heavily edited and important sections excised, including the whole of the Apocrypha, and because of the way Hebrew is written without vowels, there is a profusion of ambiguities which means that the text cannot be interpreted if taken as a free-standing entity. So logically, Bible-believing Christians should follow the Talmudic interpretation of the OT except in so far as it diverges from contemporary ie early Christian teaching. Which is an inconsistent and ultimately untenable intellectual position as one could never reconstruct such a thing.
This explains why bible-believers, both Protestants and Jews, have fragmented into so many different groups, as is bound to happen in the absence of any authority whose interpretation is accepted as the last word in the matter. Jesus foresaw this when he spoke the words in Matthew 16:18, and it was for the same reason that the church was wary of allowing the text of the bible to be translated into the vernacular, though a Catholic translation was published as early as 1582 (NT) and 1610 (OT). This was made from the Latin Vulgate; there has always been a difficulty about establishing what ancient texts could be regarded as authoritative. The oldest extant Hebrew texts at that time were the Masoretic version, a sixth century re-working, with the 200BC Septuagint being a more accurate Greek version of the text currently circulating. Incidentally, I am also always puzzled about how bible-believing Christians explain away John 6.
To return to the orginal topic. Land values, discontinuities tend to be due primarily to geographical factors such the presence of a barrier such as a railway, or motorway, or other adverse feature.
Even if there were no restrictions in land was a completely free, AND there was a fully-functioning land market with no speculative withholding, a discontinuity in land values at the edge of a city is to be expected as there is a significant barrier to be overcome before land is worth, and capable, of conversion from agricultural to the next highest alternative use.
Incidentally, land price should never be equated with land value, which is its annual rental value. Land price is the capitalisation of a future annual rental income stream and includes an variable element of hope value. The values that need to be compared at urban fringes are the RENTAL values for agricultural and residential land. But in the absence of substantial LVT, the market would remain far from perfect even if planning consents did not exist. As I pointed out at the start of this discussion, developers obtain planning consents and then do not develop. There is a site in the middle of Brighton which has been vacant since 1985, with planning consent for offices.
This kind of speculative holding then increases the price pressure and hence discontinuities at the boundary.
Finally, the issue of the cost of automobility needs to be addressed. Arguably, the entire US foreign policy and military strategy in the Middle East since 1920 has been driven by the need to maintain security of the vast energy supplies that are needed to sustain it. Watch what happens when the Iranians block the Gulf of Hormuz. Are we about to see the start of World War 3? That is quite a price, I think you will agree.
Henry, that is a nice try; there is nothing wrong with all the various reasons you give for discontinuities in land rent values at the urban fringe, it is just that you do not even begin to debunk my argument that extremely LARGE discontinuities have resulted from regulatory constraints. All the reasons you advance would explain small discontinuities only; bear in mind that I have made it clear already that I am talking about “raw” land values with costs of development and infrastructure “netted out”. I find your position an extremely curious one – you seem to deny that the level of regulatory constraints on urban fringe development will have ANY EFFECT AT ALL on land rents at the urban fringe. Yet you seem too intelligent a person otherwise, to take this curious position.
Are you trying to say, with a straight face, that if Britain abolished all urban growth constraints and let anybody build anything wherever they want to, and allowed infrastructure to be financed by municipalities newly incorporated for the purpose (this is how it works in Texas) there would still be discontinuities in land rents at urban fringes to the order of a factor of several hundred times? (and even more in some parts of Britain).
I agree that there could come a time when a nation is almost completely “built out”, when urban land rents could naturally reach the levels they have in British cities without regulatory distortions being the cause, but I repeat what I said earlier, that this would take centuries of very high population growth to actually cause this position to be reached in Britain.
You are quite right about Christian interpretation, different Christian sects have always said this about each other. I merely observe that a particular form of christian interpretation seems to have been accompanied by economic progress, while other forms have not to the same extent. (The LESS “wordly”, “established”, “monopolistic”, and “clerical”, and the more “participatory”, the better). And different faiths altogether, have been marked by the opposite. Are you familiar with V S Naipaul’s “The True Believers” (on Islam) and/or Pavan K Varma’s “Being Indian” (on Hinduism)?
I personally think the most accurate interpretations of John 6, hold it to be deeply symbolic – “eating and drinking” Christ is paralelled in our own sayings to the effect that someone “eats, drinks, breathes” science or economics or some field of interest. But this appropriation of Christ by Christians is only via Christ having died and risen again. He is not “just a great man” worth copying, “He did not leave us this option”, as C S Lewis put it. St Paul’s epistles include much exposition of this doctrine.
(C S Lewis pointed out that by taking the ground that Christ was “just a great man who said some worthy things”, leaves us on the ground that we are picking and choosing some of the things that a raving lunatic said).
Perhaps you could find a theology/philosophy site to discuss this stuff on. Several renowned theologians have noted that there never was a Christ — the entire story and incidents already existed in Egyptian mythology — . Ancient peoples tried to find a way to control others just like today and the human being’s capacity for irrational, magical beliefs made inventing a religion ideal for that purpose. When we finally evolved a cerebral cortex we didn’t need such myths anymore but the ancient part of the brain still seems to dominate with some.
The claims you make about large sudden drops in land values in city fringe areas are something that cannot even be discussed without a mass of reliable data. There was a valuation study done on the edge of Oxford around 2005 ie at the height of the boom, and of course the residential land values were higher than the agricultural ones, including the pockets of land still in agricultural use.
But the study found a lot of under-developed residential land. I do not know if you understand how the British planning system works but I can assure you that the planners would have been unable to refuse any application for re-development at at a density that brought it up or slightly in excess of that prevailing in the locality. There is, I repeat, no evidence that planning constraints are causing a shortage of residential land in the UK. With 300,000 unbuilt consents and about 700,000 vacant homes, there is substantial evidence that it is not. I would suggest that the principal cause is the dysfunctional property market.
You can look at the study here and make of it what you will
Click to access oxfordshire_study.pdf
As regards economic progress, that is a vague term that is only loosely coincident with human happiness. There was unprecedented economic progress at the start of the Industrial Revolution but it brought misery for most. The IT age has brought economic progress but it was accompanied by the bubble which has ended in a bust. The people are not happy. And one also has to factor in things like environmental quality, health, satisfaction, etc.
John 6 is clearly meant to be taken literally. Why else would it have mentioned that (I paraphrase) the Jews found the idea of eating real flesh and drinking real blood abhorrent? This is evidently meant to make the point that a literal interpretation is intended. As the orthodox streams of Christianity have always done, from the very outset ie before the Gospels were written with the aim of clarifying and emphasising this point.
Henry, I have already answered the points you make. Empty and undeveloped properties in a market with a distorted supply side, is merely evidence that the distortions are creating “exclusion”. There are thousands of empty apartment blocks in China and millions of people still living in slums, who COULD afford to live in the apartments had they been developed under conditions as free-market-competitive as Houston.
The average age of a first home buyer in distorted markets like Britain’s and South Korea’s, is known to be cruelly high. Even demographics suffer from housing being relentlessly overpriced. The distinguishing point with markets where this is not the case, is the extent of “freedom to build”.
You say: “…..There is, I repeat, no evidence that planning constraints are causing a shortage of residential land in the UK…..”
There is abundant evidence. You must have a vested interest in denying it. There is the work of Sir Peter Hall. There is books and papers by Alan W. Evans, some co-authored with Oliver Hartwich. There is Paul Cheshire and several colleagues at the LSE. There is the Barker Review of housing supply. You obviously are unacquainted with any of this work. or perhaps you are one of the chorus of denialists that these people forever have to contend with, for whatever reason.
http://www.performanceurbanplanning.org/academics.html
I might try and post below, something I wrote to a colleague about Alan W. Evans’ works. It is quite long.
You say:
“……The claims you make about large sudden drops in land values in city fringe areas are something that cannot even be discussed without a mass of reliable data……”
I was saying on the authority of basic economics 101, that such drops in land values would occur IF the growth constraint processes were abolished or at least the whole process was changed to be “market enabling” rather than “market forestalling”. The clamour of protest at the faintest suggestion of such reforms is precisely BECAUSE those protesting KNOW that this would be the effect. They all claim that it would not reduce prices, but base their oppostion to reform on quasi-religious environmental grounds.
If reform in the direction of “less restrictive” would not in fact reduce prices, then neither can the regulatory processes actually be restraining growth. So there is no point having them, even on the quasi religious “environmental” grounds argued as the reason for keeping them. It is basic econ 101, that if growth is being restrained, prices are being affected. If prices are not being affected, then growth will not be restrained. Unintended consequences are another matter, but these consequences do not mean that “growth is not being restrained”, per se, it means that growth itself is being distorted, ususally in the form of efficiency-reducing “wrong locations” for that growth.
The ONLY rational basis for the passionate defence of the excessive regulatory barriers that developers are required to negotiate in Britain, is in fact short-term fiscal self interest on the part of incumbent urban property owners. In the long term, the self interest is in fact a suicide pact. Capital gains for some at a point in time, represents “rent” costs for the entire productive sector of the economy thereafter, including the workforce. And then there are the costs of “exclusion”.
I definitely do not believe that John 6 meant the followers of Christ were to cannabalise His body after His death. I have never heard of this theology before, I think you are being mischievous. But one of the other contributors said we should not be using this blog for theology.
I have no vested interests in the British planning system. I am not working and don’t even live in Britain, one reason being that the planning has been so poor that the environment has become steadily more unpleasant with the passing of the years.
I am well aware of Barker, Hall and the others. The Barker report was deficient. Hall is grinding his axes. I am no enthusiast of the British planning system as currently operated. The quality of the staff who do the job is poor- academic rejects, on the whole, and the courses are of a low standard compared to what they were 50 years ago. They argue over small things by small people and cave in when the big boys turn up with big projects. Mostly British planning is about trying to stop people building conservatories and making sure that people do not use bricks of the wrong colour. Development Plans are indeed restrictive but given the overhang of consents it cannot reasonably be argued that they are the bottleneck. They have become more to do with preventing building on flood plains and in places that lack the supporting infrastructure. The prevailing philosophy has long been about accommodating development pressure, which was the rationale behind places such as Milton Keynes. It is not the socialistic control measure that you seem to imagine.
What you are advocating was substantially the situation before 1947. Indeed, before 1932 there was no planning control at all in Britain. Yet all the problems you are talking about were evident from the start of the Industrial Revolution. Britain suffers from a dysfunctional land market. So if planning control were scrapped, little of significance would change. There would still be places where people did not want to live, and for perfectly rational reasons, owners of land which were suitable for building would be trickled on to the market just as happens now when developers are given consent to develop their land banks. So even if there is a good case for other reasons to abolish planning control, it is not helpful to blame planning control for a state of affairs which has other, easily identified, causes.
On the other matter, if I am being mischievous, so was Thomas Aquinas, and that was in the 13th century when the assertion was uncontested.
Henry, the most readable counter argument to that will be found in the submission of Alan W. Evans to the Barker review. I find it wholly convincing, as I also do his other works, and those of Cheshire et al at the LSE. Your insistent denials are somewhat amusing in the face of the facts outlined by Evans.
Click to access barker2_2006_alanevans_48kb.pdf
“……in the 13th century when the assertion was uncontested……”
Yes, because you were dead (agonisingly slowly) if you contested it.
The earliest “church fathers” got most things right. Augustine would have loved the Reformers. The Council of Trent was the ultimate “establishment” going totally apostate. It could have gone either way at that point. But you’re probably well versed in these arguments already. If you are interested to know what I regard as the most advanced point in “Reformation” critique, it is the book “Familiar Conversations on Romanism” by John Nelson Darby, in about 1860.
An interesting finding in our context, is buried in the recent study “Economic Enlightenment in Relation to College-going, Ideology, and other variables” by Zeljka Buturovic and Daniel B. Klein. The primary finding of this study is that people who self-identify with leftwing political ideology, have a very poor grasp of basic economic principles and were unable to correctly answer questions like “Restricting housing development will tend to drive up the price of housing; true or false”? But there are numerous other breakdowns of the statistics; one that is relevant here, is that among “religious groups”, it is atheists AND Protestant “fundamentalists” /”evangelicals” who stand out as having the best grasp of basic economics. Roman Catholics, however, showed up more poorly. As did women generally. (Being strictly dispassionate here…..)
The French historian Elie Halevy, in his influential “History of the English People in the Nineteenth Century” sought to explain how England had avoided the violent social change that had wracked other nations in that era. “If economic facts explain the course taken by the human race,” he wrote, “the England of the nineteenth century was surely, above all other countries, destined to revolution, both politically and religiously.” Neither the British constitution nor the Established Church was strong enough to hold the country together. He found the answer in religious nonconformity: “Methodism was the antidote to Jacobinism.”
This refers of course, to the preaching of the Christian gospel in the open air and public places by un-ordained preachers, involving other non-establishment denominations besides Methodism.
We see this again and again in the disasters that have swept nations in Christendom since the French Revolution. “Established” churches did not prevent nations from succumbing to modern secular totalitarianism. God’s providence has noticeably attended nations in which there is a flourishing work of the Holy Spirit, of which an “Establishment” is no guarantee.
But while RC nations have tended to succumb to socialism, the particular apostasy that seems to swamp Protestant nations, is the environmentalist one. RC’s seem to be less vulnerable to this. I remember that Robert Nelson has had some interesting things to say about this distinction.
If there was a properly functioning market in land in Britain, then the arguments presented in the paper you cite would be compelling. But there is not. When there is an overhang of 300,000 planning consents, the case that too much planning is restricting economic growth can not possibly be sustained. Britain’s high streets are full of empty premises. There is no doubt that they could be brought into use if the rents were realistic. There are sites in Britain’s city centres which have been vacant for decades, despite full planning consent for development.
My experience is that, for political reasons alone, planners are under presure to promote economic development for the sake of job creation, which is seen as an important goal. In the late 1960s, London’s docks closed. Nothing happened on the north side of the river until the London Docklands Development Corporation was established, to co-ordinate the provision of infrastructure which was necessary to enable the area to be redeveloped and brought into the high intensity commercial use seen today.
On the south side of the river, the situation was more marginal. Public transport connections were poor. The local authority pressed the property owners to redevelop for commercial purposes and there was a major scheme undertaken in conjunction with British Rail Property Board. For the rest, the aim was confounded as residential development was more profitable, partly due to the lower level of tax applied to land in residential rather than commercial use. The planners, for their part, leaned over backwards to try to secure economic development.
Eventually, once the Greater London Authority was formed, a scheme for improved rail access was conceived and opened for traffic from 2010 onwards, with some stages still to come. Under the branding London Overground, this has hugely improved accessibility in London’s inner suburbs and amongst other things brought about significant land value uplift in parts of South London.
The issue of major schemes such as airports is not so much to do with planners as NIMBY-ism. The planners are doing what people want, which is to protect the value of their land. In the absence of significant LVT, this is what will happen.
Your citation of a study purporting to show that left-wingers and Catholics have a poorer grasp of economics than right wingers and Protestants begs an important question – what constitutes a good grasp of economics how did the questioners determine this? In my experience, the grasp of economics is poor right across the political spectrum, the problem beginning with the conflation of land and capital with the former being regarded as a sub-set of the latter and as a species of wealth. There is also a wides
pread failure to acknowledge the moral assumptions behind economics, which means that actions that are regarded as part of the economic process are from a moral perspective outright theft and fall into the category of crime.
Henry, I simply do not believe that the regulatory process that denies people a simple “freedom to build” on legally bought land without imposing plan driven requirements, and that results in literally thousands of percent “planning gain”, can be honestly described as “not distorting housing supply”. I have already addressed the question of empty properties and undeveloped sites. China has this too. The empty properties and uncompeleted developments are all held by people whose position is that of “greater sucker” – someone else has already banked massive capital gains sufficient to drive the price of the property concerned out of reach of a significant percentage of genuinely needy and deserving potential buyers.
There is no lack of examples of properly functioning urban land markets, and typically this results in the minimisation of “planning gain” as land is converted to urban use. This is entirely due to “freedom to build”. There are around 200 cities identified by the annual Demographia Reports, as being in this position. Land taxes are a diversion in this consideration.
If you tried to do exactly what keeps housing affordable in all these cities, anywhere in Britain, the government would bulldoze what you built because it is illegal. Gypsies try it every so often.
I forgot to address your point about the issue of energy security underpinning “automobility”.
Fossil fuels happen to have long been the most economically competitive form of energy at least for vehicles. Fossil fuels exist. An economy that managed to “corner” the supply of fossil fuels by military means would have considerable economic advantages, not least because of the benefits of “automobility” to their own urban economies (and “urban economies” ARE the world economy, at least as far as all new growth in wealth is concerned).
No nation has managed to corner the supply of fossil fuels. The USA has never tried to, merely to keep world MARKETS functioning, whereby the supplies flow to anyone paying for them. No economy has thus far had the option of taking a “fossil fuel free” course, because this would impose such an economic disadvantage on it. As economies develop, their demand for fossil fuels increases, and either world supply rises to meet the new demand, or world oil prices rise, in fact both happen.
Of course economies that develop while oil was cheaper in real terms, are at an advantage over economies that develop later. The USA’s earliest phases of development were of course accompanied by abundant extraction of its OWN supplies of oil. As someone has put it, it is the $10 per barrel oil that runs out first, then the $20 per barrel oil, and so on. As long as someone else has cheaper oil, there is no point in extracting your own higher cost domestic supplies, even if they are abundant. An economy that foregoes the cheaper oil for the sake of utopian “peace” arguments is also putting itself and its people at an economic disadvantage.
If there wasn’t the USA policing oil-rich regions, I certainly do not believe that the world political situation would be any more stable for all that. Think about this for a moment. What other contenders for world power have there been over the last 100 years? Do you fancy world peace without the USA, but with Fascism, Communism, militant Shintoism, militant Islam, and whatever else, struggling with each other for international hegemony? I recall Roger Scruton analysing the various “utopian” fallacies that mark leftists – one was the constant comparing of reality not with alternative reality, but with unattainable perfection.
If anything, the world is far worse off for the end of Colonialism – and the USA is probably more to blame for this than the “international policeman” role it is more often blamed for. Roosevelt and Churchill were polar opposites on this point. Churchill would be the one entitled to be saying “told you so”, now. The British Empire was an incredible landmark in human history, bringing the rule of law, the abolition of slavery, modern infrastructure, education, etc everywhere it spread. The best of the “colonised” people were the most loyal people to “the empire” in history; the “independence” fighters and Marxists (often the same people) have brought nothing but misery on their people. And it’s a bit of a stretch to argue this late in history, that colonialism left a negative legacy that indigenous peoples have been unable to surmount since it ended. The classic assessment of this is “Western Guilt and Third World Poverty” by Lord Peter Bauer.
Some fringe nutters will try and argue that oil should have been left in the ground, and whales left in the sea, and trees left standing; and humanity would have forever existed in “garden of Eden” conditions of peace and tranquility.
Interesting comment, Henry. Leviticus 25 seems to make land acquisition temporary and leasehold only. Tim Atwater says
“In the Biblical view, debt is always the responsibility of creditors as well as debtors. In the ancient Near East, even pagan kings periodically cancelled debts to allow the poor a measure of respite from harsh conditions. The Biblical mandate goes much further, reordering the whole economy around the need for periodic cancellation of debt and restoration of community.
“The Talmud (the oral law teachings collected by the Rabbis) strictly forbids charging interest to either Jews or non-Jews when a loan is made for basic needs rather than profit. The Rabbis held that the testimony of anyone who charged interest on a loan was not acceptable in court. In our global economy built on compound interest–consider the implications!”
http://www.jubileeusa.org/en/get-active/jubilee-congregations/faith-worship-resources/debt-cancellation-the-biblical-norm.html
http://www.chiefrabbi.org/ReadArtical.aspx?id=1843
In 1973 the Trilateralists met and made some statements that might interest you. They said that there was an excess of democracy and people were too well educated. This was a problem because they were concerned that a well-educated populace that was interested in democracy would have expectations that were too high. This would result in the elite losing their privileged place in the hierarchy. As a result, the Frazer Institute (and Roundtables in other countries) were established to act as PR firms disguised as think tanks to discredit governments and thus limit public spending. Central banks were no longer lending to governments as before and the private sector banks ramped up their lending to governments creating huge debts and deficits that were then used to justify austerity or cutbacks. Today’s calls for austerity are a furthering of the campaign to reduce expectations. More and more people are critical of unions and the poor, blaming the victim when they get a chance.
Absolutely right Herb. We have people blaming the victim at every trun and how much of this blame the victim mentatlity comes from Murdocjs shills/ Each day we hear how the innocent working (and tax paying) greek workers are really lazy and now must pay higher taxes and receive severe cuts. They didnt run the economy to let the wealthy tax avoiders go free. They didnt take out the debt. They were not responsible for the conflaagration of international speculation that caused the GFC, yet across the world the innocents are being asked to pay for the haircuts the financial empires wont take on their lousy risky investments. (which they likely plunged themselves into in a second – not the week of productive effort the ordinary greek citizens put in to earn their daily bread and pay their rent).
It is not the fault of unions (it is indeed the fault of not having enough union power that this excess has been allowed to accrue to capital, such that it cannot be spent productively and can only be gambled or paid in huge bonuses). The striping of union power is part of what has allowed the ugly face of inequality to rise and rise in many industrialised nations. It is part of it alomng with the generous tax concessions gven to the wealthy over the past thirty years plus.
It is part of bad policy that has proceeded with the idea that if isn’t working based on statistics,.. then get rid of the very economists who examined past statistics (economic historians). It has proceeded with the idea that if some economic indicator that is important appears to be deteriorating, create a think tank and story to show that the declining variable isnt a concern at all. Turn the deteriorating variable eg rising income inequality into “a hero statement” eg with “equality of opportunity” who needs income equality?…
so that the victims of bad policy remain in eternal self blame.
Oh mi god – I didnt work hard enough!
This is an old game ideed – blame the poor for a badly run economy. Make the poor who are the consequence be the cause and give the mug punter voters a collisseum to bray for blood in – even if its the blood of their own kind they bray for..
Alice, I agree that the “wealth transferring” and “rent seeking” part of the economy has got way out of hand. The following would help:
Abolishing the tax on interest.
A global financial transactions tax or similar – Australia ran an interesting system briefly in the 1970’s.
Shifting some of the taxation burden off incomes, consumption, and capital, and onto land.
Abolishing company tax (Taxing profits not distributed to any particular person as income always was the ultimate spite tax, and with unintended consequences heaping up all round us today, including the financial sector growing out of hand. Of course – productive businesses are deprived of much of the most obvious source of self-finance for growth – their own reinvested profits).
But “wealth redistribution” is peripheral stuff. The total “benefits in kind” everyone gets from the existence of government, is already massive, and unequally contributed to and benefited from. It is really quite arrogant to say that those already paying the most, should pay more so as to enable cash transfers on top of the cost of government itself.
A far smarter system would be to privatise everything and give the money currently spent by govt on their behalf, to the unfortunate to pay their own way for housing, education, health, transport, etc. They could actually live like royalty, because the status quo of govt spending the money on their behalf is so dam inefficient. This money is literally six figures per person per annum; and is provided by the taxes paid by the so called “greedy” people who allegedly “don’t pay enough” yet.
People who grizzle about the lot of the poor, should get smart about the quality of the MASSIVE amounts of spending that already takes place for the equal benefit of all these people as well as everyone else in society. Compared to someone in Sierra Leone, the poorest person in a 1st world country already has the “benefit” of six figures per annum of “spending in kind”. Don’t blame the “greedy rich” people who already pay the most into the govt coffers, if the quality of this spending is so low that the poor are not as much further ahead of the person in Sierra Leone as you think they should be.
A country that tries to play a policeman role is soon going to be perceived as part of the problem. The virulence of communism was largely due to the implausibility of the alternative. It was poverty and inequality that communism fed on and is still feeding on in some countries, and the popularity of Radical Islam has the same cause.
The US just propped up dictatorships unconditionally. If it had applied pressure on the Shah, for instance, to promote policies of social justice and not allow a festering gap between rich and poor to persist, the dynasty would probably have still been in power, likewise Vietnam, Cambodia. Taiwan survives because it cleaned up its own act. Since 1989 communism has been almost entirely discredited but because the underlying problems have not been addressed effectively, the dangers remain. Fascism arose largely as a response to communism.
The clumsiness of the US and its policies has a lot to answer for. Not for nothing has it been called “The world’s leading terror state”. I don’t think many in the US have any idea of the hatred felt for the country even in Western Europe, and not just amongst socialists.
If Americans did realise how much they were hated, they’d probably vote in isolationist govt and the free-loading Europeans would have to learn the hard way all over again. The Americans might as well have just left Europe to Hitler and Stalin.
How much do you actually know about Iran under the Shah – has an Islamist government improved things? Islamism feeds on poverty and inequality, like Communism? Why on earth would anyone regard Islam as a “solution” to these things, going by all the evidence? Islamism is religious fundmentalism that does not care about earthly possessions, other than to condemn them as something “the great Satans” have. And why would anyone be deceived by Communism ever again? Humans forever have to learn the hard way, it seems.
I agree that certain problems re inequality etc in “mixed economy” nations have not been resolved. See what I said to someone else on this thread – the problem is that unequal “PAY-IN” to collective government provision of everything is already massive, yet the critics of financial inequality constantly call for more so as to enable actual cash transfers as well. But it is not the level of cash transfers that acts as a disincentive to enterprise and thrift, it is the exisiting massive levels of pay-in required of the higher earners, so as to support government provisions of everything.
It would be far better to privatise everything so as to eliminate inefficiency and waste in everything that is run by the government, and make redistributing cash the government’s main role. Then it would be a lot clearer where we all stand and who really is paying what share of what. The worst-off people could live a lot higher than they currently do, at probably half the current cost to those “paying in”.
You do not fairly credit the USA with doing exactly as you say – pressuring dictators to reform things. Those dictators often just thumb their nose and threaten to become someone else’s client state, just as Saddam Hussein was the client of Paris, Moscow, and Beijing after about 1978.
These things have always been the subject of dispute in US administrations. There is a “realist” position that holds that the “friendly” dictators are no worse than what the people concerned, due to their culture, are ever going to get. “The Arab Spring” looks like bringing new regimes into being that resemble the Taleban, not modern liberalism. And are Cubans better off because the USA DIDN’T keep Battista in power or instal some other “capitalist puppet”? (I know a lot of leftwing liberals do think this, and also think the Bolsheviks were an improvement on the Czar at the time, the Jacobins were an improvement on King Louis, and the Mullahs were an improvement on the Shah. How stupid do you have to be to be a leftwing liberal? Interesting factoid – the Bolsheviks murdured MORE people EVERY TWO MONTHS – and kept this up for THIRTY YEARS, – than what the Czars had for the entire preceding 90 years.)
Phil Hayward
“iit is the exisiting massive levels of pay-in required of the higher earners, so as to support government provisions of everything.”
Were this the 1960s they would be paying even more to conribute to society and still have their Long Island Estates and staff. Same as it ever was. The trouble is inequality has risen because what you call “massive” is much less than it once was.There have been enormous reductions in the taxes paid by the wealthy and companies since the 1960s. There is a social sense of responsibility almost entirely missing from today’s elite. They want every cent that everyone else has helped them earn and they dont want to contribute fairly. They would rather hire lobby groups to see how much more they can agitate for than to give to the poor.
But the data do not show LESS TOTAL government revenue DOLLARS being paid by “the top 1%” or “the top 10%” or whatever. Raising the tax rates on these people usually ends up reducing the total government dollar revenue. I hate this too, but we have to be realistic and not harm any genuine producers of wealth, even if they get very wealthy in the process of providing genuine value to their customers. I am 100% about trying to reduce the zero-sum rent-seeking and wealth transfers in the economy, and taxing the right things to achieve this. Most of all we should not harm growing small businesses, because this is where most growth, employment, and income level growth comes from.
“Political Calculations” web site has pointed out that there is a very high rate of “dropout” in the “top income earners” category in the USA:
“The Millionaire Decay Function”:
http://politicalcalculations.blogspot.co.nz/2012/01/millionaire-decay-function.html
And the same exercise repeated for the “Top 400”:
http://finance.townhall.com/columnists/politicalcalculations/2012/02/23/the_billionaire_decay_function
The rate of dropout is of course accompanied by a high rate of “churn”.
It is illustrative of the perversity of human nature, that such grief is caused by the fact that a nation might have an outstandingly high rate of “wealth creators”, which results in higher “inequality” ratios. Yet wealth creation is essential for the elimination of absolute poverty. A nation is not “better off” with a ten times lower proportion of millionaires paying taxes, apart from the value that such people frequently create for all. One of the ironies of the notorious term “robber baron” is that most of the people in history to whom that phrase is applied, made their fortunes by lowering the price of something to within reach of more people: think Morgan with rail travel, Rockefeller with petrol, and Ford with cars.
“……There is a social sense of responsibility almost entirely missing from today’s elite……”
On the LEFT, and among the “parasite capitalists”, yes. The social sense of responsibility is not something that is strengthened by increased size and reach of the nanny state. But you are completely unfair to the many wealth-creating conservatives (and a few wealth creating liberals like Bill Gates, although the teachers unions might be turning him into a conservative if they don’t stop their Marxist bloody-mindedness over Gates’ education schemes) who do give liberally to charity, in contrast to their liberal or parasite capitalist counterparts.
The “social sense of responsibility” is not something that the left want to hear anything about, especially regarding the feckless constituencies that produce guaranteed 10% share of the vote for THEM. But the liberal elites with wealth, fund leftwing activism, advocate destructive taxes on “main street” wealth creators and employers, and stash THEIR OWN wealth away in tax havens. Yep, pretty good sense of social responsibility there.
“……They want every cent that everyone else has helped them earn…..”
Here you display a most uncharitable attitude to wealth creators. Nobody forces masses of people to contribute money to someone who actually makes something desirable and that brings more value to people’s lives than the asking price they parted with to get the item. And the wealth creating class, I believe, are generally charitable people at heart, like Bill Gates. It is the zero-sum wealth transferrers and rent seekers who are generally Gordon Gecko types, and whom we need to disempower to a greater degree by changing the tax and regulatory structure.
I seem to recall that the US would have left Europe to Hitler and Stalin were it not for the fact that they were attacked by Japan and got drawn in. All the assistance had to be paid for anyway. And US companies did very nicely supplying war material to the German army from their factories in that country.
The US has a disgraceful record of supporting despots, thereby aggravating discontent and leaving people open to the claims of islamists and communists, who probably would not have got a hearing if the US client regimes had done something about the situation.
It is the heavy-handed clumsiness and questionable altruism of the US efforts to impose its version of democracy that are what makes the country so unpopular.
Henry, that comment shows that there is nothing the USA could do that would satisfy you. You don’t like them trying to impose democracy. And you don’t like them treating with tyrants. You blame them for both things. At least Christopher Hitchens was consistent enough to applaud the switch from Kissingerian realism, to Bushian nation-building.
I personally think Kissinger is right. Nothing the USA does will improve conditions for people in nations with cultures inimical to modern tolerant democracy. A Saddam will merely switch his sponsors. A Shah falling will be replaced by a Taleban. A Battista falling will be replaced by a Castro. (Why DOES the Left celebrate the WORST tyrants in favour of the LESSER?)
“…..US companies did very nicely supplying war material to the German army from their factories in that country….”
Nice myth. What could the owners of factories in Germany under the Nazis, DO? This is barely any more logical than saying that a GM factory in Russia was very helpful to Communism. The only difference between Naziism and Communism, was the “ownership” on paper, of property and business. But a property owner under Naziism was little more a free agent than if he had been located in Russia in 1920.
“…..I seem to recall that the US would have left Europe to Hitler and Stalin were it not for the fact that they were attacked by Japan and got drawn in…..”
Quite. My point was that there is a strain of isolationism in US politics that the critics of US foreign policy had better think about. Be careful what you wish for. Had the USA rattled its sabres at Hitler in good time, the annexation of Sudetenland might not have happened, let alone the invasion of Poland.
“He (Halevy) found the answer in religious nonconformity: “Methodism was the antidote to Jacobinism.”
It’s one intepretation, I suppose. But given that imponant sections of the British working classes were Irish Catholic, there was an important working class Anglo-Catholic movement and a significant Jewish working class presence, this is a strange conclusion. One might as well give all the credit to Cardinal Manning!
I would suggest that a more like reason than any of these was that Britain had an Empire and the more ambitious could go off and make a life for themselves instead of staying and causing trouble.
Having looked at some primary source material in my possession, one possible reason for the aversion of chaos in Britain was the strong patriotism engendered through the schools. A strong sense of King and Country was inculcated, which meant that young men were willing to fight in the First World War even though most of them did not own a single square inch of it. Despite the post-war betrayal of the survivors, this patriotism persisted until the mid-1950s amongst the British working classes, despite strong communist subversion.
Until the UK joined the EU, there were always the Australian/Canadian options, now closed. The only way out now is to emigrate to another EU country, which is not a possibility for most, though it is surprising how many young Britons are moving around to work and perhaps settle elsewhere in countries where they feel they have better prospects of making a life for themselves.
But Henry, Halevy’s whole point is that nations that were MOSTLY Catholic, succumbed to violent revolution – and/or any nations with an “established” church that had a monopoly on religion and did not see any need to “evangelise”. (Evangelical activity would land one in very hot water in these countries). Halevy’s conclusion is not strange at all.
There is something in what you say about institutionalised patriotism per se in England (how tragically this has been lost). But a strong sense of nationalism does not at all prevent a class-based revolution. The various initiators of “the long march through the institutions” (the Fabians, the Frankfurt School, the Gramscians) concluded that the working classes were less likely to revolt where there was a strong sense of Christian morality that gave most people a horror of murdering and overthrowing a so called oppressor class. For some reason, this morality was nowhere near as strong where there was a monolithic “establishment” as where there were preachers out there in the open, and genuine freedom of inquiry into matters of faith.
A man of your erudition would enjoy James Belich’s “Replenishing the Earth: The Settler Revolution and the Rise of the Anglo World” recently published by OUP. There is a wealth of information in it and Belich does not prevent a reader from drawing their own conclusions. Belich under-rates the role of “dissenting” Protestantism in the “settler revolution” but does provide statistics that show that these people were disproportionately represented among the emigrants. They might have been less than 10% of the population in Britain, but represented around half the numbers of emigrants.Even Edmund Burke’s famous speech in parliament defending the American revolutionaries emphasised the “dissenting protestant” point, including about the non-British colonials already moving to America. (Belich’s chapter on these people – mostly Dutch, Germans and Scandinavians – calls them “the Honorary English”. Catholics were regarded with suspicion).
It is interesting that the Spanish and the French had similar opportunities for colonialism, that they did not take up to anything like the same extent as the British did. The Spanish and French tended to migrate to parts of their empires with the object of making a fortune and returning home. The British tended to migrate to stay, and Belich points out that the very high ratio of women among the migrants ensured far greater growth of population in their colonies. Belich asserts that no group of humanity has ever had population growth as rapid as the British colonials from about 1780 to 1930.
The patriotism you refer to, extended at that time to the colonies, with very high proportions of their young men fighting in both world wars on behalf of the mother country. (There were even Australian and NZ contingents in the Boer War).
The colonies expected continual high levels of migration from Britain and invested in infrastructure to suit. This turned out to be over-investment in many cases because the emigration dried up following WW1. A possible reason for this, is that colonial exports raised the standard of living and lowered living costs in Britain, especially following refrigerated shipping. Britain did not get a mania to preserve farmland until after WW2 and the U-boat scare, existing happily until 1939 on low cost food from the colonies and letting much of their own farmland revert to wilderness.
The mania for self-sufficiency following WW2, and later the EEC joining, seriously harmed the colonial economies. But it also reinstated the rationale for higher emigration, because “preserving farmland” meant that Britain never enjoyed the amazing economic growth and stability enjoyed by nations that “grew” their cities with low cost suburbanisation. Even in France, they have a term “Les Trentes Glorieuses” to describe this era.
It is a great pity both for the colonies and for Britain (especially its young opportunity seekers) that the once-high flow was not reinstated with a few more tens of millions emigrating to Australia, New Zealand, Canada, South Africa, and others, during this era. We now have the absurdity that the under-populated colonies do not have economy of scale of population, are disproportionately dependent on exports of agriculture (for which terms of trade have been inexorably declining for 60 years) AND are now practising the same urban growth constraints as Britain in spite of their land-richness, making THEIR cities just as unaffordable. I expect their economies to go into terminal decline much more rapidly than Britain’s as a result of this.
There could hardly be any MORE international evidence than there is, regarding the role of “planning” and regulation in creating unaffordable housing problems and bubble volatility. All this stuff mysteriously coincides with councils everywhere talking it on themselves to “save the planet” by “thinking globally and acting locally”. Britain is merely a fore-runner that provides us with good evidence of where everyone else that adopts the same insanity, is headed. London is not the model, contrary to what the planning classes dream. They will turn their own cities into Liverpool, Newcastle, Manchester, Sheffield, etc. Detroit, Cleveland, and Pittsburgh without the redeeming low density, leafy suburbs and affordability.
“Britain did not get a mania to preserve farmland until after WW2 and the U-boat scare, existing happily until 1939 on low cost food from the colonies and letting much of their own farmland revert to wilderness”.
You must be joking. The mania was NOT preserving farmland and was that not of Britain but of the City of London. “Existing happily” in the 1930’s? Obviously such an erudite American as yourself, Phil, could not be expected to have read Orwell’s “Road to Wigan Pier”, J B Priestley’s “English Journey” or Edwin Muir’s “Scottish Journey”. I don’t suppose you’ve read Bill Bryson’s “Lost Continent”, either, or the history of your own early 1930’s. You ought to be ashamed of yourself, making ignorant comments like those. You ought also to stir your imagination into seeing that terms of trade don’t have to be like they are now.
Dave, you read too much context into my use of the word “happily”. I meant that the people of Britain were “happy” at one time, to buy lower cost food from their colonies rather than produce higher cost food on their own island. Sorry if this was not clear.
You don’t have to belabour the point about “Journey to Wigan Pier” etc. I know about that. The fact remains that Britain, almost alone among the earliest-developing nations, never had a revolt of the proletariat. I know many writers on the Left raged about that – but how clever were revolutions of the proletariat anyway? Did Russians improve their lot by replacing the Czars with the Bolsheviks? Britain’s (mainly Protestant, mainly patriotic) “masses” actually displayed superior intuition by NOT going this route.
You claim Britain does NOT have a mania for preserving farmland? We must be talking about different Britain’s. Of course if you are like Henry Law, you will claim with a straight face that Britain does not constrain urban growth with its regulatory and planning processes, the regulatory and planning processes have nothing to do with it. It is impossible for anyone to take this position once they know anything about the “market enabling” urban planning and infrastructure provision that keeps urban land affordable in most US cities.
I am interested in your assertion that “terms of trade don’t have to be like they are now”. So international food prices should be more expensive, so the poorest populations die out? The prices of food correlate very closely to the rents on rural land, and food production is still heavily subsidised in most first world countries, via transport (and other) infrastructure even if via nothing else. If these subsidies were removed, food prices would indeed go up, but this does not necessarily mean that the international “terms of trade” for food would improve by much. It would put third world food producers who are NOT heavily subsidised, back in the game.
I disagree that planning control is constraining development in Britain simply because the facts have not supported this claim since at least 1990. If there is an overhang of planning consents, and there is a significant volume of vacant land where there is no doubt that planning consent would be granted if applied for, and if the planning authorities themselves are actively trying to secure development, then it cannot seriously be argued that planning policies are blocking development.
In northern cities such as Newcastle and Manchester, for example, large tracts of land stood vacant for decades despite the efforts of the planning authorities to get their owners to develop.
The suggestion that Britain had no revolution because of its Protestant tradition is frankly absurd.
First, it was a close-run thing.
Second, countries which had revolutions had a disaffected and alienated class of “intelligentsia.
Third, much of the working class was “unchurched”.
Fourth, much of that with a church affiliation was Irish Catholic.
Fifth, most countries with a Catholic tradition did not have revolutions either.
Sixth, the most important Catholic country to have a revolution, was France, where the most important factor was the weather and the country had bust itself paying to help the American Revolutionaries – which was very much an affair of the Freemasons, hardly a Catholic business!
Again, I am happy to just leave both of our arguments on the table for readers to digest and make up their own minds. It has been fascinating to have this discussion, I have never encountered anyone quite like “Henry Law” before. Neither are my own arguments ones that are often heard.
By the way, I have never been convinced about any of the conspiracy theories about the Freemasons, or the Illuminati, or the Knights Templars, or the Jewish Cabal for world domination, or whatever. I ascribe the necessary level of “agency” to the devil, not to mere men, particularly when it comes to the politics of utopia and the “one worlders” who infest the UN and the Statist side of politics in the decadent west.
Your post is founded on Halevy’s hypothesis, which is just bad science as there are so many other variables to be able to draw a the conclusion he has. Amongst European countries, violent revolution took place in Protestant England, Catholic France, Orthodox Russia. There were also revolutions in Lutheran Germany, Catholic Austria, Hungary and Portugal, Moslem Turkey, Egypt, Iraq and Iran. There have been significant civil wars in England, Scotland and Spain, Russia, Greece, Yugoslavia and Ireland.
Apart from the removal of imposed communist regimes, significant European countries which have not had revolutions include Poland, Italy (unless you count the unification), Denmark, Norway, Finland, Sweden, Belgium, Netherlands, Rumania, Bulgaria
Halevy should have postulated other possible causes. There is a better correlation with systems of land tenure, or degree of urbanisation than with religion.
Halevy’s thesis relates to a particular historical era, that of “industrial revolution”. It is also fair to note that Britain’s “Methodism”, or open-air religious revivalism, was indeed nearly unique. It is also fair to suggest that this had consequences for social outcomes. Halevy did indeed investigate other causes while coming to his conclusion. I fail to see the correlations with land tenure type or degree of urbanisation. Marx himself and the whole broad sweep of Communist theory and effort (including KGB “fifth column” activity in the West), relates conditions for revolution to increased urbanisation and concentration of land ownership. How was Britain a proof that THIS thesis is wrong?
Italy got Mussolini. Sweden got the Social Democrats (ha, ha, just kidding). Poland, Finland, Rumania, all got periodically over-run anyway and hardly have a long sweep of history that we can draw conclusions from. And the Netherlands had probably the most “free market” Protestanism of the lot, in spite of the existence of a kind of “establishment” in the Reformed Church.
I seldom see much condemnation from the Left, of Sweden’s very profitable arms industry, including supplying both sides in WW2 while remaining uninvolved in the costs of warfare itself. To this day, Sweden’s celebrated benign socialism is at least partly enabled by the handsome “wealth creation” that takes place in a military-industrial complex that proportionately rivals anything in any other more-censured nations.
http://www.thelocal.se/39268/20120222/
I came to this site not knowing anything about it, because Mason Gaffney’s recent BRILLIANT thesis was here as a guest post. (The adjacent thread to this one). I had no idea this site was so “leftish”. I am especially enjoying being able to test my knowledge against someone as erudite as “Henry Law” – most leftish blog participants are slope-brows with whom it is impossible to have a genuinely intelligent discussion. But I admit that unfortunately there are few on the “right” who have much knowledge. The “nationalist Right” is an outright embarrassment (The BNP, Patrick Buchanan, etc).
The christian-fundamentalist economic libertarians (there is little of this outside the USA) generally know little but have the most accurate intuitions of any subset of humanity in the world. Most people in this subset devote their lives to things other than political-historical scholarship, so that this discipline is increasingly dominated by Marxists (whose whole frame of reference requires not knowledge, but a single beautiful theory that “explains everything”). M. Stanton Evans is probably “THE” (little known) intellectual colossus of the christian-fundamentalist economic libertarian genre. But the “references and recommended reading” at the back of his “The Theme is Freedom” could keep a serious student busy for years, starting with the works of Edmund Burke.
I am discovering that, similarly to what C S Lewis said, “the young atheist cannot be too careful what he reads”, the Left which has almost total hegemony over our institutions of education and media today, cannot be too careful to conceal from inquisitive minds, the existence of such works as those of Burke and Tocqueville, and the existence of centuries of Judeo-christian, Calvinist and Puritan philosophy that lay upstream from Locke and Jefferson and the USA’s Founding Fathers. Plus the whole inconvenient fact of the degree of separation of this from the stream that ran from the ancient Greeks to the Jacobins, the Nazis and the Bolsheviks. (Not to mention the contemporary white-ant Fabians, Gramscians, Frankfurt School, deconstructionist, critical theorist, moral relativist, cultural Marxist “long marchers”).
Phil Hayward
re your commeht above wher you suggest abolishing company taxes as a cure for ithe economic ills that currently beset us.
I find this an extraordinary suggestion for a cure. Today when so many “companies” are oligopolistic and making huge profits which simply move around the world to tax havens, and they leak profits not back into production but into their boards and their executives pockets. Come on now – the company tax rate has been reduced and reduced and bonuses and exec pay has risen and risen….
The tax on the wealthy should be raised and company tax rates for companies that earn profits over a certain range of thresholds should be progressively taxed – the uniform company tax rate is part of what is worsening inequality.
No it should not be lowered, or at least it should not be lowered for all companies and it should be raised for many companies across the globe.
As for abolishing the tax on interest, once again thiis may add to wealthy’s stake in inequality.
Why not progressively tax interest as well. The more interest you earn, bring in an income test and yes tax it to the max if income is already high. For pensioners too scared to venture into the share market who live from their savings ie bank interest, lower it.
The key tool here is the progressivity of tax rates not just raising or lowering.
Alice,
You have missed my point about company tax. Company profits are no-ones INCOME until they are paid out TO SOMEONE. If you dislike individuals earning too much, tax the individuals. Tax the executives on their fees and salaries, tax the shareholders on dividend payouts.
But company profits REINVESTED in the company (the company is NO-ONE, it is a structure on paper), are the only real source of growth in an economy. I stand by what I say; taxes on reinvested profits are the ultimate spite tax, levied by politicians playing to a gallery of supporters equally ignorant to themselves regarding how any wealth is created in the first place.
Governments subsidise all sorts of things, like higher education, on the basis that it will be beneficial to the economy. Yet a company reinvesting its profits and growing and taking on more workers, is something we should TAX?
I also pointed out that of course the finance sector is gowing to grow at the expense of the productive sector, when the productive sector gets so much of its profits taken off it before it even tries to re-invest them, that the productive sector has to go begging to the finance sector for the money to make up the shortfall. A growing business always has growing stock and debtors and work in progress. It is destructive and immoral even, to take profits off such a company and require it to get the money it needs from the finance sector. Of course the finance sector loves company taxes.
Far more businesses would not fail in their first few years if it wasn’t for the company tax. The people whose startups fail after only a few years are humans too, believe it or not, with families and mortgages; frequently they drew next to nil income for themselves as they tried to get established with the government taking their best source of “growth self-finance” off them.
It is also highly ironic that governments around the world are now introducing subsidy schemes to try and encourage people to save money again – when all they needed to do, was abolish or reduce tax on interest. Of course politicians never remove a distortion to solve a problem, they just add another layer of distortions.
The government will get extra revenue anyway, only AFTER the money invested has PRODUCED something and then been taken as income by a shareholder. The whole point of saving and investment, is deferred gratification in view of growth. It would be very helpful if government actually learned this principle from its BEST citizens, and taxed economic activity at the places where it is least harmful to growth. I said I want land taxes, you will note.
Phil hayward
You also suggest a smarter way forward is to ” to privatise everything”
I really think this comment rather interesting. Public services provided free or at low cost to the poor and or lower middle and middle was something monetarily sincere in the philosophical outlook of our fairer more considerate, more ethically minded societies of the past (before Milton Friedman’s and his disciple Fama’s rational self interest became a sad excuse not to give a stuff about anyone else in society.
Privatisation is an excuse for some to rob the assets our antecendents paid for with their taxes. Privatisations have been abused and used to enrich the few.
Privatisations are an attack on the government which provides employment when the private sector is on its knees (and when it is not) and public sector employment is often a stable form of employment.
I am not of the opinion that I want to see “mass privatisations”. Ive seen too many and too many have resulted in higher prices for people for what were once free services without any lowering of income taxes to compensate, The much touted view of the economic rationalists /whatever (neoclassicals) was that if you “opened the public sector to private competition then prices would fall”.
Utter Rot.
In too many cases prices went up. Its time Govts and policy makers stopped this nonsense of favouring “mass privatisations” (so very very nineties and look where it led us to) and stripping our infrastructure and public services in the process.
Thank you, Alice, for today’s 3 comments. I haven’t the time to reply to all the rubbish which Phil Hayward has placed on this site.
Sigh. Pearls before swine, evidently. Alice clearly misunderstands my whole point, anyway. In all likelihood, you do too.
Alice, again you partly miss my point. How big was government back in those golden days you refer to? Was it 10% of the economy? 15%? A lot of provision for the unfortunate was of course done via churches. The problem leftists (including the wholly destructive “long marchers”) allegedly have with that, is that it is “demeaning”, it is “charity” rather than “entitlement” by “right”, and churches actually PREACH to people (shock, horror) and try and get them to mend their ways (shock, horror, again).
Do you actually believe the stuff you are implying, that prices do not fall because of competition, and government monopolies are the LOWEST cost means of providing things? I have a nice statue on New York harbour to sell you.
I will try and outline my main point again, more clearly. The steeper that progressive taxes are, the greater the disincentive for enterprise and thrift. The discussion about wealth redistribution always frames it in terms of “greedy rich people” reluctant to just give another $10,000 a year or so to the least fortunate in society. But they are not just already giving $20,000 or whatever is the amount currently being transferred in cash. They are ALREADY paying for everyone’s defence. They are ALREADY paying for everyone’s public safety. They are ALREADY paying for everyone’s education. They are ALREADY paying for everyone’s health services. They are ALREADY paying for everyone’s public infrastructure. They are ALREADY paying for bureaucracies and quangos of all kinds. They are ALREADY paying around $100,000 for each person who is not paying.
Somewhere in the process of government expansion, long BEFORE actual cash transfers of wealth are the main consideration, the burden becomes simply too much of a disincentive and the whole system implodes. (Socialism always runs out of “other people’s money” – Margaret Thatcher). As we are seeing in Europe right now.
What I am proposing, is that government makes actual cash transfers of wealth the FIRST thing, and only LATER, involves itself in the actual provision of services IF it proves necessary. What do you so dislike about this? Redistribute the INCOME, make everyone more equal. Everyone then pays their own way in level playing field free markets for most things. (Defence and law and order are government core duties – the classical economists were not as stupid as the total libertarians today).
But if you believe that government monopolies are a cost effective way of providing services, more so than competition in free markets, then I am from Mars and you are from Venus. I believe the whole point of what I am suggesting, is that so much dead weight loss is eliminated and incentives restored, that everyone is far better off in the long term, especially as economic growth would be several times greater. And we would be a whole lot clearer about who is actually getting what, unlike the status quo where the whole appallingly ignorant argument is about the marginal $10,000 per year that “should be” getting transferred, and not about the dead weight losses and the already serious disincentives that are the effect of the $100,000 or so per person that is ALREADY getting paid “in services” not in cash.
But perhaps it is this clarity that appals you, rather than “justice” per se. Political leftists love political constituencies, not truth and justice.
The issue is not the income of the rich, but the income of the middle class and the poor, and how an increased maldistribution to the top 1% has made the relative income of the poor and middle class fall, and that economic recovery is not possible through the spendiing and investment of the rich in a society where people have no money.
Agree Robert. The economic problem we currently see in so many industrialised nations now, of extreme inequality, is that those at the favoured extreme are apparently unable to see that they bite the hands that have fed them so well over the past three plus decades of wealthy / corporate friendly policies. They want more (apparently what they have already received by way of generous tax reductions over the past three decades isnt enough for them) and they want the middle class and the poor to make ever increasing sacrifices to keep them in the manner to which they have become accustomed. There have been times in history when elites have not been, as expressed by a commenter above, a ‘leech like’ burden on other classes – but one could be reasonably excused for thinking this is not one of those times.
Alice, I am agreeing with you when it comes to “rent seeking” and “wealth transfers”. The kind of rhetoric coming from rabble raisers on the Left really bothers me, because they would kill the cancer victim instead of just removing the cancer. Just as the Bolsheviks did. The George Soros and the contemporary Rockefeller types LOVE the kind of politics that shifts profit making from PRODUCTIVE sectors of the economy, to THEM. All I am doing is suggesting some of the policy areas that have that effect. It is no accident that these people fund enviro organisations, for example. Urban growth constraints deliver them bigger capital gains on their CBD property holdings.
Henry George had a lot of wise things to say about organised labour being turned against the employer class, when BOTH sank or swam together, and the common enemy of them both was the land owner and financier class. The Left has learned little in 150 years.
Robert, I agree with you in so far as anyone in the top 1% have gained their income from wealth transfers and rent seeking. I disagree that someone getting into the top 1% by providing goods and services of fair value to millions of people whose own value is enhanced thereby, is anything whatsoever to be morally concerned about.
I firmly believe that the people in the nations with the worst outright poverty (rather than the relative poverty that the adherents of the politics of envy focus on, hence North Korea is an equality utopia) would be far better off if local political and conditions ALLOWED a J P Morgan or a Henry Ford or a Bill Gates to emerge. The same conditions allow a far greater middle class as well.
I am just as opposed as you to the people like George Soros that do NOT make their wealth by providing goods and services of fair value to millions of people whose own value is enhanced thereby. The same politics that reduces the opportunity for the honest entrepreneur to do this, just happens to play into the hands of the rent-seekers like Soros. Why else do you think he funds enviro organisations, for example?
There are many shades of left, middle and right. I would venture to suggest there is no such thing as the left or the right. These are simplistic extremes about as useful as many simplistic economic models. Categorising the multiplicity of views into one narrow box is divisive and antagonistic and is also the character of many modern media pieces but is far from an adequate mechanism through which to inform. There is, however, such a thing as poor economic policy and poor economic policy does not sit on its hands and idly watch inequality grow to the extent it has in many nations.
Thanks, Alice. I agree on Left – Right distinctions. Personally I prefer terms like “conservative”, “libertarian”, and “statist”. One of the most absurd things about established left-right discourse, is the placing of Adolf Hitler on the “right”, Joe Stalin on the “left”, and Ayn Rand, Winston Churchill, and Ronald Reagan “in between”. This is rubbish – Hitler and Stalin were close to each other at one extreme, presumably the “left”, and Ayn Rand is out there somewhere at the opposite extreme. Perhaps the political spectrum is a circle or a couple of axes at right angles.
The Founding Fathers of the USA could be identified as economically libertarian (as opposed to statist) and socially conservative (as opposed to libertarian or “liberal”). Adolf Hitler was definitely an economic statist, quite the opposite to libertarianism; and socially “progressive” if not exactly libertarian (baby farms, breeding programs, the superseding of the traditional “family” etc).
I am one of those who would say along with the USA’s Founding Fathers, that economic libertarianism combined with strong traditional morality and strong non-state institutions based on Christian morality, is the only real source of sustained increase in prosperity. I believe the correlations are already undeniable. We are seeing the end-game playing out now in Europe, of the consequences of moral social decline and ever deepening statism.
Henry and I have been discussing the kind of leadership in nations around the world, that he holds “the USA” responsible for perpetuating (and even the USA’s attempts to sow democracy are unpalatable to him). What most people in the west fail to realise is just how brief and exceptional in human experience, tolerant democracy is. When it is assumed that Egyptians and Tunisians and Sudanese all just want to be like us, there is a high risk that we will become like THEM. Most of the nations in EUROPE today have had democracy for short periods only so far, and the great EUSSR project won’t leave them with it for much longer. Not to mention that too much statism and wealth redistribution is leading to de facto “being placed in the hands of the recievers” for nations like Greece and Italy.
I personally object 100% to this – I say that investors stupid enough to lend to governments simply deserve to lose their money. Assets should not be sold, budgets should not be painfully balanced and debt paid off. No, the investors should lose their money. And the governments concerned will need to balance their books from then on, because no-one will lend to them any more. I have no problem at all with things happening this way. Stupid peoples like the Venezuelans will descend into total societal breakdown, and wiser peoples will learn from history and re-adopt what actually works.
The “Occupy” protesters are typical of a new destructively ignorant generation of primal screamers that needs to learn the hard way all over again, that Communism, enforced equality, does not work and never will. Fukuyama was wrong to call “the end of history”. He underestimated the power of ignorance (and envy).
“I am persuaded that reason supported by truth is insufficient to dislodge from the human heart, a lie grounded in desire” – David Horowitz, “Roads Not Taken”.
I agree about “poor economic policy”, and would add “poor social policy”, but “iInequality” is simply the wrong indicator to focus on. The focus needs to be on “absolute” comparisons between competing political systems around the world. What is the “absolute” lot of the lowest quintile in society, in which direction is their “absolute” lot evolving, and what are the quantities of people in each quintile or smaller? Martin Luther King helpfully pointed out that African-Americans, if considered as a separate nation, in his time, would have come in at about number 7 in the world (that is the kind of thing a great man says). That was ahead of MOST of the OECD, let alone the rest of the world. If African Americans lot has declined since then, (and I am far from certain that this is so) the biggest contributing factor is family breakdown and fatherlessness among African Americans. No amount of screaming about the “bigotry” and “patriarchy” allegedly implicit in this point of view alters the fact. (I am not alleging that you are one of these screamers).
Who has got into the top 1% by providing goods of fair value ie without some form of rent-seeking, either of the rent of land or through government granted patents and other monopolies?
I am not such a libertarian purist that I would want to do without patents etc altogether.
Maybe someone like Bill Gates has gained some part of his wealth, at the margins, due to patent protections. But the value that has been provided to every one of his customers would certainly total up to far greater than the wealth that Gates himself has accumulated.
But a George Soros who has made MOST of his money in straight out capital gains that did nothing whatsoever for the value of production or utility for anyone? Surely you can see the difference? It is not helpful to the future of western civilisation to have political discourse swamped with class warfare rhetoric that fails to distinguish between the deserving, mutual wealth-creating rich and the undeserving, zero-sum wealth-transferring rich.
I think it makes perfect sense that Soros and the Rockefellers fund conservation activism so liberally, because the resulting policies of “conservation” of land drive up the value of their property investments. Urban land rent curves slope up from fringe to centre, and the biggest capital gains are made in CBD’s even if it is the fringe that is being restricted.
Your “denial” of this effect is absurd. I am quite happy to just leave my arguments and yours “tabled” for readers to follow and make up their own minds.
It also makes perfect sense to me that the financiers and rentiers love “big government” and ANY regulations that create economic distortions that are to their benefit (at the expense of the productive, wealth CREATING sector). This includes, for example, such a simple thing as high company taxes.
Arguably, the way that Microsoft effectively corned the market in operating systems has hindered the addition of value. The product itself is awful. Due to its complexity it has to be maintained by specialists as the information on how to do it is inaccessible except to people who have been on accredited courses run by guess who? It is also demanding in terms of hardware specification and energy consumption. It is a good example of the worst of Corporate America.
As regards the effect of planning at the urban fringe, did you study the figures of a valuation at an actual urban fringe in the UK, ie Oxford? Do they indicated a dramatic fall off in value. Pleae bear in mind that there is land in that study area which could not be developed for other reasons eg liability to flooding.
I was reminded of Dave Taylor’s reference to “The Journey to Wigan Pier” when THIS just arrived in my inbox:
The Road to Broadcasting House
By Peter Saunders
“I heard an interesting interview on BBC Radio Four’s Today program the other morning. It was with The Guardian journalist Stephen Armstrong, who has retraced George Orwell’s 1937 journey to Wigan Pier and tracked down some of the sons of men Orwell interviewed for The Road to Wigan Pier. Here’s what Armstrong said:
Orwell met a lot of people on the road to Wigan Pier and he disguised a lot of names. We discovered that we know three of them quite well: a man called Gerry Kennan, who was a union activist, a man called Sid Smith, who was selling newspapers, and a guy called Jim Hammond, who was unemployed, a black-listed communist miner who really wasn’t getting any work.
So I went back to try to meet their sons. Gerry Kennan’s son, unfortunately, died at the end of last year. Sid Smith grew his shop into the largest independent retail newsagent in the north-west and his son Trevor now lives in a large house in green fields on the edge of Wigan. And Tony Hammond is now a retired High Court judge.
The BBC interviewer was astonished. These are only two cases, of course, but social mobility like this is not what The Guardian and BBC journalists expect to find when they go sniffing around northern, working-class towns like Wigan. This story just doesn’t fit with their familiar narrative of class privilege.
For years, I have been trying to convince anyone who will listen that social mobility in Britain is extensive. Like most other advanced capitalist countries, Britain is an open, meritocratic society where talent and hard work count for much more than social origins. Employers are interested not in who your father was but in what your competencies are.
But no matter how many times I set out the statistical evidence, politicians, academics and left-wing journalists refuse to believe it. Government is so convinced there is a problem that it is threatening to withdraw funding from top universities like Oxford and Cambridge unless they accept more working-class entrants on lower grades. Prime Minister David Cameron has appointed a social mobility ‘Tsar,’ Alan Milburn, who describes Britain as a ‘closed shop society.’ Milburn told the BBC last year: ‘In Britain, if you’re born poor, you die poor.’ This despite the fact that 80% of people born to parents under the poverty line in Britain avoid poverty when they reach adulthood.
We might hope that Armstrong’s stories of the retail magnate and the High Court judge might help correct some of these prevailing myths and misconceptions. But when a BBC interviewer gets together with a Guardian journalist, it doesn’t take long for them to revert to type.
Armstrong went on to tell of a 12-year-old in Wigan who thought that to become a High Court judge nowadays, ‘a magician would have to cast a magic spell.’ Armstrong concluded from this that mobility doesn’t exist anymore: ‘The opportunities that they [Orwell’s generation] had seem to have been closed off.’
He went on: ‘Poverty is back to 1936 levels. I met a girl, Sarah, who is living on £2 a day.’
This does sound like appalling poverty. Except it turns out that Sarah had failed to attend an appointment at the Job Centre, so her unemployment benefit was docked. Instead of arranging a new interview, she was living in a homeless hostel and had apparently taken up with some undesirable men. Armstrong concluded from this:
‘So Victorian style poverty and fates worse than death are increasing.’
‘Yes,’ said the BBC interviewer, now safely back in his comfort zone. And with ruffled feathers back in place, Radio Four moved on to its next story.”
Listen to the interview here:
http://news.bbc.co.uk/today/hi/today/newsid_9704000/9704017.stm
Peter Saunders
What this neglects is a second world war and thirty-odd Keynesian years when everyone had enough even though the rich suffered relative Austerity more or less willingly. Those were the years when, as Prime Minister Harold Macmillan said, we in Britain “had never had it so good”. You don’t become a High Court judge overnight. Since then Thatcher and her ilk have had Macmillan complaining of the dangers of her “selling off the family silver”, and Macmillan’s sometime aide James Robertson trying doggedly to make people understand how the banking system is being used to rip honest citizens off. (His latest book, “Future Money: Breakdown or Breakthrough?” is about to be published. See http://www.jamesrobertson.com/).
The deficits are certainly a major player especially in the end of this year and into 2013 for the world wide economy.