The social impact of the measures introduced by the Coalition Government, as I highlighted in a previous article, has demonstrated the failure of a strategy based primarily on austerity, and lends credence to calls for an alternative economic strategy close to the heart of the rank and file of the Liberal Democrats, based on encouraging growth through measures such as tax cuts and increases in the minimum wage to stimulate consumer spending, and investment in public works such as roads, hospitals, and schools to create jobs and boost industrial activity.
Criticisms have been levelled against those who call for expansionary, Keynesian-style measures to encourage growth, arguing that the additional output generated would not yield enough tax revenue to finance tax reductions or higher government spending.
Expert analysis has shown, however, that economic stimulus would lead to a reduction in the debt to GDP ratio, the main measure of fiscal solvency. Although there is the possibility of a small rise in national debt, the country’s ability to finance it would nevertheless be improved. In addition, by borrowing money to finance investment, this stimulates economic growth, providing people with jobs and disposable income to spend, thereby keeping up demand for goods and services. Having more people in work also generates more taxation for the state, while enabling it to spend less on social welfare benefits. It has been estimated that youth unemployment costs the European Union £129 billion each year through lost production and social welfare. Encouraging a policy of expansion over a continuation of austerity to reduce unemployment is, therefore, as much an economic imperative as it is a moral one.
Inspiration can be drawn from those countries that have seen the importance of expansionary measures to encourage economic growth. In Australia, hundreds of thousands of jobs were safeguarded as a result of the economic stimulus measures enacted by the previous government, while in Brazil various consumption taxes have been reduced or abolished to encourage domestic demand. In China, economic stimulus measures that were implemented following the 2008 global financial crisis, including investments in new housing and infrastructure, prevented an investment decline while also leading to sizeable increases in the country’s GDP.
Such examples demonstrate the existence of alternatives to the one pursued by the Coalition, based on the prioritisation of austerity over the encouragement of growth.
As long as the Coalition continues along the path of austerity, we will not only continue to witness the shame of high levels of unemployment and underemployment, but increased levels of poverty and inequality that scar the moral landscape of our nation. The time has come for a new economic strategy, one based on encouraging expansion and demand through increased public investment and rises in wage levels that will not only help to alleviate the hardships brought about by the global financial crisis and the Coalition’s own measures, but also contribute to a resurgence in national prosperity, with its bywords being greater job creation and more equitable growth for all.
* Vittorio Trevitt has written for Respublica, Democratic Audit, Catch 21, Fabian Society and Compass. He has also done voluntary work for the Labour Party, including campaigning on behalf of local candidates, carrying out research for speeches, and writing articles to raise awareness of important social issues. He believes in British socialists and liberals working together to achieve progressive ends, united by their commitment to equality, freedom, and justice.
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35 Comments
It’s nearly 200 years since David Ricardo showed that all taxes come from rent and all surpluses go to rent. Cutting current taxes or raining incomes therefore will both feed through to increased rents in the economy – which are economically useless, nay worse, harmful.
Until there is a significant switch from taxes on investment and production to taxes on consumption of finite shared resources like land, such tinkering will eventually find its way back to rent and thence further calls for increases in incomes to cope with that increased cost of living.
We understood this, instinctively, a hundred years ago (to the point that all 390+ 1906 Liberal MPs singed a petition calling for land taxes). Failure to grasp this now puts us, along with Labour, in the same camp as Thatcher’s Tories when they declared housing (land) assets to be the security of the future – neo-feudalists.
Perhaps, in a future article, Brighton Labour Party’s Mr Trevitt could explain why he thinks the alternative approach (which I assume he supported) pursued by the Socialist Government in France has been so disastrous compared to the Coalition Government’s approach.
(incidentally, as a member of the rank and file of the Liberal Democrats, I’d rather members of other parties didn’t tell me what is close to my heart)
Jock, investors in land deserve a fair yield, can you tell me why they don’t? Inequality and concentrations of power are problematic, but land ownership itself is not.
When it comes to the article it is hard to know where to start. The best way I could describe it would be “deluded”.
History has shown that extreme inequality isn’t tolerated, so I would work on getting rid of the extremes, rather than increasing the minimum wage on small businesses.
Oh dear Vittorio, you’ve been very brave in putting this piece up for discussion, so I applaud that at least, but where to start?
You say your previous piece “has demonstrated the failure of a strategy based primarily on austerity”. How, exactly? If we don’t reduce the deficit and make cuts somehow, we’re going to drown in debt.
You say we need a policy “based on encouraging growth through measures such as tax cuts and increases in the minimum wage to stimulate consumer spending, and investment in public works such as roads, hospitals”.
Do you realise that this is exactly what we are doing? Capital spending by the government is now higher than it was through most of the Brown era.
“arguing that the additional output generated would not yield enough tax revenue to finance tax reductions or higher government spending”
Which is entirely correct. It would increase economic output by some extent, but not by enough to generate sufficient tax revenue to compensate for it, thus raising the deficit rather than cutting it. Plus the fact that we had evidently abandoned any pretence of cutting our deficit would mean the cost of lending would rise dramatically.
“As long as the Coalition continues along the path of austerity, we will not only continue to witness the shame of high levels of unemployment and underemployment, but increased levels of poverty and inequality that scar the moral landscape of our nation.”
Have you seen the lastest economic figures, Vittorio? Unemployment, including youth unemployment, is plummeting. The latest single month figures have it at below 6%.
http://www.ons.gov.uk/ons/dcp171766_376532.pdf
The economy is not demand-deficient. It is growing at 3-4% per year. Wages may not be rising in real terms at the moment, but price inflation is coming down and the jobs market is tightening rapidly, despite a huge increase in the labour supply for various reasons including increased numbers of older workers and migration. Eventually this will result in greater wage inflation and rising living standards, but fundamentally, apart from the minimum wage (going up by 3% this month) the government does not set wage levels for 80% of the population, so how it can influence this beyond what it is doing at present, I don’t know.
Solving poverty is a much tougher problem to crack than simply throwing borrowed government money at it. Brown tried, by effectively subsidising starvation wages, thus massively increasing dependency on the state. Even Labour now admits this is no longer affordable and is now suggesting a higher minimum wage, which is fine, up to a point.
The problem is that the market cannot be bucked. If UK workers at the lower end of the job market do not have the skills to be productive, employers will not take them on at a wage that is higher than their marginal productivity. That is basic economics.
The Liberal Democrats have taken on the tough questions posed by problems left by Labour, like the poverty trap and the lack of skills and educational attainment at the lower end of the jobs market, with policies like the Universal Credit, pupil premium and a massive increase in apprenticeships. Much more needs to be done and many policies could have been implemented much more effectively, but to say we should just provide added demand and the whole problem of inequality will go away is just wrong.
A question for LDV – isn’t it possible to have Lib Dem contributors making the case for different economic priorities, or writing on how Lib Dems should support some of Labour’s economic ideas? I always appreciated Bill le Breton’s posts (though I didn’t agree with them!)
>in the same camp as Thatcher’s Tories when they declared housing (land) assets to be the security of the future
I think like the gold standard, we’ve moved on, housing assets, particularly in our big cities are no longer directly related to land and are becoming a much less tangible security, namely “a place to call your own”.
William Hobhouse has a point. Why not give Bill le Breton the chance to write a weekly Op Ed in LDV on economics or anything else he thinks relevant? He regularly makes informed and thought provoking comments which are worth their weight in gold.
With the Scotland Referendum over we no longer need fourteen comments a day from Caron on why she hates the SNP — so there is surely plenty of space in LDV for a weekly Le Breton. 🙂
We should take heart from the fact that economists like Adair Turner have been talking quite radically about economic reform, particularly financial reform. Mervyn King obviously wants major reform of the banking sector too. You have Mr Piketty and his astonishingly successful book on inequality. So with all this going on, where are the Lib Dems? Ideally placed you would think to be a voice for radical change and yet actually in a self-imposed conservative prison. How sad.
Two years ago, I would have understood this article. Today, with the economy growing – more strongly than other major economies, unemployment plummeting, and the deficit not falling particularly fast, I get the impression that the author has been asleep for quite some time.
RC nails it, but I will add something.
The suggestion is that there is an economic argument and a moral one. Two arguments. But the moral argument hinges precisely on whether the economic argument is sound. If the economic argument is unsound (which it is) then the moral argument falls apart as a consequence.
The economic and moral argument is commonly made in these terms. It is an attempt to say to people that OK you may not understand the economics because, well I know it’s pretty technical isn’t it, and economists will disagree, and so on. So just do the morally right thing. It’s a deceptive tactic – a misdirection. Get the economics wrong, in whichever direction, and you will hurt the economy, jobs, opportunities, public services, etc.
There is an interesting moral argument here about balancing the short term and the long term. Expansionary policies will typically make things better in the short term and worse in the long term, and this is usually immoral, but sometimes the needs of the short term are so great that they are still justified. The relationship is not so simple – there can be short term costs such as a loss of confidence in a governments willingness to repay debt – and long term benefits, such as avoiding labour market scarring.
And politics of course generally demands short-termism of all parties.
@ Joe Otten
I will return to the issue I have raised a couple of times before and that is why not change the tax laws to ensure that multinationals who operate here pay their fair share of [corporation] tax by applying a turnover or transaction tax, instead, where tax is currently being legally avoided?
Starbucks, for instance, regularly post losses in most countries where they operate [by charging them for their coffee at exorbitant rates] whilst their international holding company makes very healthy profits.
http://www.theweek.co.uk/companies/53781/starbucks-pay-tax-first-time-five-years
Such a change would bring in many billions of extra tax and substantially ease the worst effects of the austerity measures whether experienced by those who are low paid, sick, disabled, mentally ill or unemployed.
It is clear from Osborne’s & Cameron’s speeches that many of the worst off will suffer significantly worse conditions throughout the next parliament if they should win. Is the Party really going to attempt a further coalition with them knowing the Tories intend to introduce even harsher measures?
John, do elaborate on this transaction tax.
If there were easy money on the table, a government of any colour would snap it up, because almost anything that government did with the money would win more votes.
Joe,it is simply an additional tax, like VAT, which would be levied on the transactions of multinationals, instead of corporation tax, where it was clear that the profits declared for their UK operations were below those known to be earned in their business sector.
On other parties snapping up such a scheme, I think you are overlooking the fact that Osborne, and now Balls, is a regular attender of the Bilderberg Group meetings – one of the import groups whose purpose is the furtherance of the success and powers of the largest multinationals.
I thought all the transactions were happening on a server in Ireland.
But anyway, wouldn’t it be simpler to put everybody on this transaction tax instead of corporation tax? Then it would be fair and leave no room for costly legal battles or creative reinterpretation over which category a business fell in. What would be the problem with that?
Yes – that would work. The transaction would be at each coffee house in the same way that VAT is charged.
I suppose abandoning corporation tax would be hard on UK SME’s who would not pay any corporation tax whilst they were not making any profits in their early years, but they would be for a transaction tax. I would think it better to apply it to all multinationals rather than all businesses.
We should introduce a wealth cap of £5 billion in the UK. We could eventually lower it to £1 billion, but considering the makeup of the richest in the UK I think £5 billion is all that is practical for now. Other countries could copy it if it is successful. We need to send a message that you are free to become super rich, but we don’t believe in unlimited wealth.
It would basically be a 100% net asset tax, but I don’t suppose it will raise much money, but that’s not the point: it would disperse power, ever so slightly lowering prices, increasing wages and creating more competition.
@ Eddie Sammon
A transaction tax [on the multinationals] would yield tens of billions from those who could afford to pay it.
I’m not sure it is so easy to always define what is or isn’t a multinational. Aren’t Starbucks etc franchises – i.e. small businesses – that just happen to pay for use of a brand? If they aren’t, various others are.
And anyway, aren’t we trying to level the playing field rather than unlevel it? Any two-standard system like this will have a lot of scope for creative avoidance at the boundary.
John Roffey, people don’t go to bed at night thinking about those nasty transactions that need taxing. I don’t have any exciting answers towards what to do with big multinationals yet, but a balance sheet levy might be a good idea. Similar to what we have introduced in banking.
I’m definitely not a “soak the rich” person, I just think we need to stop the power of the super rich and big business getting out of hand, hence my idea of a wealth cap.
@ Eddie Sammon
I wasn’t disagreeing with your proposal or its sentiment. However, if the Tories do mange to win a majority, particularly with the Party’s help, there is a great need to find additional income for the Exchequer or a great number of the poorest and/or most vulnerable in our society lives are going to suffer significantly increased hardship.
The least defensible of Osborne’s proposals is the way he has proposed to deal with the, undisputed, massive shortfall in corporation tax paid by the multinationals [internationally agreed measures] – which has effectively kicked the issue into the long grass for many years to come.
Raising additional tax from these multinationals is the quickest, fairest and surest way of obtaining extra revenue for the Exchequer so that the worst of these hardships can be avoided.
@ Joe Otten
“And anyway, aren’t we trying to level the playing field rather than unlevel it? Any two-standard system like this will have a lot of scope for creative avoidance at the boundary.”
It seems to me that it is not a case of trying to level the playing field – more a case of finding ways to improve the economy and the quality of available jobs.
The old defence of rampant capitalism was the ‘trickle down effect’ that as a result of some making enormous profits they would spend this money in their local economy and the whole of the society would benefit.
This was a dubious argument in the first place insofar as frequently, when huge profits were made, this wealth was saved and the local community was denied any great benefit or it was spent in more exotic locations. When it comes to massive multinationals this argument hardly applies at all because the main shareholder are unlikely to be living in the locality where the profits are made, but will already be living in some exotic location and so these profits are simply removed from the UK giving little or no benefit in the UK.
The owners of SMEs are far more likely to live close to where their profits were made and much more likely to spend them in the area. The purpose of the transaction tax would be to favour smaller businesses thereby improving the economy and providing better quality jobs.
The massive government annual deficits of the last few years which conttinue today at the rate of £100bn per year is the biggest stimulus ever injected into this countries economy. So the coalition is already pursuing a Keynsian policy.
However, we are getting close to an unsustainable level of accumulated debt to annual GDP which means investors will no longer lend money to the government or refinance maturing debt. Therefore we need to dramatically reduce the annual deficit before we get to that position and have to slash public sectoir jobs and services in full crisis mode.
The live now (let our children) pay later strategy is not a sustainable policy.
@John Tilley suggests “Why not give Bill le Breton the chance to write a weekly Op Ed in LDV”
I have a title for his weekly diary ‘The view from Brittany’ 🙂
@John – It’s good to hear someone mentioning Balls and Osborne’s participation in the Bilderberg Group, as well as your comments on TTIP the other day. It would be great if our party did something really radical and at least talked about these issues, from a liberal perspective – for example, how is it liberal or democratic that a multinational corporation can sue elected (if largely imperfect) governments for taking ‘anti-business’ measures? Ultimately power should lie with the people: not the state, not corporations, the people.
@John Roffey
“it is simply an additional tax, like VAT, which would be levied on the transactions of multinationals”
The profits of companies like Google are booked in Ireland because the sale transactions are booked in Ireland. So a transaction tax makes no difference – UK sales would still be booked in Ireland and transaction tax would be avoided like corporation tax.
Once international laws are changed to ensure transactions are booked in the country where the substance of the transaction takes place then profits will be booked in that country and corporation tax will be due. Multinational discussions have been taking place to do just this.
@David Evershed – yields on 2 year Irish government bonds recently turned negative in spite of the eye-watering level of debt that the Irish economy is saddled with. The Spanish just launched a 50 year(!) bond at a 4% coupon.
You might reasonably say that this is a result of the impact of the Draghi put plus the negative rate at the ECB, which means that it’s better to buy short dated Irish paper at -0.01% than to park excess cash with the ECB at -0.2%.
It is certainly reasonable to expect that debt costs more when a nation is more indebted, but we live in strange times and I am not sure that the old model can be put back together again.
Thank you, especially to William Hobhouse on his particularly kind words.
The reason I don’t send in blogs at the moment is because we have a relatively new Governor of the Bank of England who is doing much of what I was urging in most of my blogs.
Expectations are key and stability a prize. What Mark Carney has achieved is an economic environment in which the expectations of inflation 3.5 years out have been remarkably stable at around 3% as this graph illustrates http://uneconomical.files.wordpress.com/2014/09/uk-infexp-3-5y-2014.png?w=595
Britmouse provides another graph that shows what it was like under previous mismanagement of monetary policy here: http://uneconomical.files.wordpress.com/2014/09/uk-infexp-3-5y-2012.png?w=595 That graph illustrates the real story of the boom and the long slump before Carney’s arrival on the scene.
What I tried to persuade all of you of was that if people expect a long period of stable NGDP growth of 5% (because they believed the Central Bank was targeting that figure) we would get the stability that business needs in its expectations and we would return to a period similar to the great moderation that delivered real growth of 3% and inflation anchored at 2%. If this continues we shall get this.
What you so called Keynesians can’t explain is why it is that when the USA went over the fiscal cliff and sequestration in 2013 (automatic spending cuts) there was no reduction in growth.
Of course it was because these fiscal cuts were offset by the central bank providing extraordinary monetary stimulus. Lots of it. And is still doing so, remember.
As I tried to persuade you, the Central Bank always has the last say. If for instance a Government sets it a target of a 2% inflation forecast two years out and if the Central Bank is bang on this target, ANY increase in fiscal stimulus will be countered by monetary tightening until the inflation forecast is back on target. In an inflation targeting economic environment there is NO multiplier.
That is why during Japan’s lost decades every fiscal stimulus programme was cancelled out by its central bank tightening monetary policy. All fiscal stimulus did was increase the National Debt.
If you want to use fiscal stimulus you HAVE to change the central bank’s inflation target. Only when Shinzo Abe imposed such changes on the Japanese central bank and told it to increase NGDP by 2 or 3% a year did the economy start to respond.
Of course if you had followed my advice here in November 2012, when Abe was fighting his general election campaign, and bought a few calls on the Nikkei, (then 9,000) you’d be sipping a glass or two on the yacht next to mine in this quiet bay on the coast of Sardinia. 24 degrees as I write. 😉
I am a little worried that all this talk of raising interest rates is reducing those inflationary expectations and I think I’ve noted a bit of tailing off of our recent growth as a result.
And I do think we need some more Government expenditure, but not for reasons of fiscal stimulation. No, I think we need it because there are things that need to be done on infrastructure for the good of the country and for the good of future generations … future generations who will look back and say; “What on earth were they doing? Had they learnt nothing from the Great Depression? Did they really not remember that low interest rates are not a sign of loose money, they are a sign that monetary policy is too tight?
Which is why 10 year gilts remain where they are, why we are in the middle of the (unnecessary) Age of Austerity and why Bill Gross has just lost his job.
In response to RC’s comment, I meant that the Coalition Government should pursue an expansionary strategy in place of the current strategy which involves a great deal of austerity at present. I do acknowledge the fact that the minimum wage has been increased and that capital spending has gone up. I just believe the Coalition Government should go further in those directions.
@ David Evershed
“Once international laws are changed to ensure transactions are booked in the country where the substance of the transaction takes place then profits will be booked in that country and corporation tax will be due. Multinational discussions have been taking place to do just this.”
I had mentioned this international solution in my earlier post. Since it is not in the interests of either the multinationals or those nations that act as tax havens to resolve this issue – it certainly will not be resolved in the near future if ever. Osborne has offered this remedy to kick the issue into the long grass – because he does not want it resolved.
However, taking into account the combined effect of Cameron’s & Osborne’s speeches at the Tory Party Conference we know that these are going to lead to significantly harsher austerity measures taken against the poorest and most vulnerable in society – certainly through out the next parliament.
Should the Party be in another coalition government with the Tories, as is clearly the aim of the leadership, the weakest part of Osborne’s argument is that no intermediate action is to be taken against the multinationals whilst an international agreement is being sought.
A transaction tax, for those corporations registered in the UK, can be used at least for those who are clearly understating their profits, whilst other measures can be devised for those multinationals trading here but are registered elsewhere.
In short, the multinationals should be chased by the HRMC with the same vigour for the, undisputed, shortfall of corporation tax that they apply to obtaining underpayment of tax by individuals – devising new schemes to ensure this is the case as far as is possible.
There are many billions avoided under the present arrangements and each billion that can be retrieved can be used to soften the harshness that is ahead for the poorest and most vulnerable in our society.
In terms of a new economic alternative, this article relates to something I was talking about under another article:
http://www.ft.com/cms/s/0/8510b958-9aad-11e1-9c98-00144feabdc0.html#axzz3EwG1RKJZ
There’s a belief that high risk = high return, the left uses this to justify massive Keynesian investment and the right use it to justify casino style banking. I don’t see why over the long term risk should be rewarded as a good thing in itself. I’ll have to look into it more, but I think it is flawed.
The IMF has lost its credibility in my eyes, even yesterday it was talking about printing money, cutting taxes and increasing borrowing to stimulate the economy. It doesn’t hold much logic to me. They’ll just create more volatility and admin costs. Stability is important, not just walking into the treasury and playing roulette with the economy.
@ John Roffey
“The transaction would be at each coffee house in the same way that VAT is charged.”
Good point,.. and indeed, why not set a dual rate VAT? With the higher VAT rate for overseas companies. The real transaction takes place when the customer goes to the till to pay the bill. That is the point that tax should be differentiated,.. So that :
A coffee house with its headquarters based in the UK would charge the 20% rate, and :
A coffee house with headquarters elsewhere would have to charge at a higher rate,.. (for example) 25% VAT rate?
That would provide a good incentive for customers to buy a coffee [cheaper], at a UK based company, and also a good incentive to offshore coffee houses to bring their headquarters into the UK [to be competitive]?
Bill – are you sure we’d be quids in if we’d bought Nikkei at 9k in 2012? You are of course correct to note that it has risen to about 16k. But in the same time the exchange rate has gone from about 125 yen to 175 yen. So you must discount your notional profit accordingly. Not 75% but 25% over 2 years. Still a healthy return but about the same as the FTSE in the same period. Would-be investors should also factor in a wicked volatility in GDP, down at an annualised -7.8% in Q2 mostly due to a tightening in consumer spending after the sales tax hike in spring and a 2 year continuous decline in base salary resulting in real (as opposed to nominal) wage change of -2.6% YoY to August.
Vittorio, I have to admire your courage but I’m now sensing a backtrack. You now acknowledge that the minimum wage has gone up, that capital spending has gone up and that you want the Coalition to go further in the direction they’re going (do I have that right?).
I won’t repeat what RC says – as Joe Otten says he’s pretty much nailed the key problems with this article. I’ll only add a couple of observations:
1. You have to start with the facts. Any fair assessment of the facts would show that countries such as Britain and Ireland that pursued austerity are now doing well and countries that needed to (eg France) but did not are doing badly. Countries like Brazil and China are in a different situation – they’re growing from a low base and they didn’t have the same experience in 2008 as their economies were very different. So comparing our growth with theirs is not a like for like comparison.
2. As the last few years have shown the “austerity v growth” argument was a false one. It was never either/or but a question of how to bring about growth. Labour as now didn’t have an alternative plan, aside from claiming one was needed. Britain’s strong and stable growth now, low unemployment etc etc would appear to vindicate the government’s economic policy.
Actually Julian, I was saying that the government should go further in terms of expansionary policies such as capital spending and increases in the minimum wage, and move away from austerity. For instance, in addition to the 3% rise in the minimum wage, the government could index-link the minimum wage to inflation, as is currently the case in France. Also, the fact that real wages are lower than they were in 2010 shows that there are still signs of weakness in the economy.
Hah! So, I could have written my comment about land taxes as a test to see who run up the flag and saluted the land monopolists, and sure enough, a couple of you did. Though my point was not to debate whether land profits are legitimate (they are not) but where the “extra” money in people’s pockets as a result of either tax cuts or income rises actually ends up, in rent, if you don’t tax rent. Ultimately, trying to tinker with the distribution of economic welfare is like filling a leaky bucket, which only results in the land underneath getting watered and more fertile, all for the owners doing precisely nothing.
Labour think, after the flawed scholarship of Messrs Hacker and Pierson, that the cost of living is too high for many people, so give them more money, either through welfare or minimum/living wage policies, to enable them to participate. If you increase incomes by more than inflation this way, it’ll end up in higher rents. The Tories think, just because they are flawed from the ground up, that if you give people more money through tax reductions, people will be able to invest more in more productive opportunities. But again, this flows to rent.
There is a dirty great policy gap between these two positions that changes everything. That this party and its predecessors supported since at least the days of Richard Cobden, but most especially as part of the turn of the century “New Liberalism”, supported by every single one of the 390+ Liberal MPs in Asquith’s first ministry, still unimplmeneted, that puts an end to this cycle of monopoly profits once and for all. Yet it is relegated to what amounts to an afterthought in our platform, a sop to those continuing weirdos in the party that think this is important (and there are a fair number of us even if we never get policy adopted with any enthusiasm or understanding on the part of the rest of the party).
This is policy which even my non-political, non-economically savvy, self-described working class unsophisticates understand – “tax what we take, not what we make” – and who have even found it so compelling that they have taken to xplaining it to their fellow, even less politically sophisticated metal-bashing workmates with some success. Yet here we are, still tinkering with the question of whether to emulate one of our opponents, “more free money” labour, or the other, lower taxing Tory, most closely.
It’s truly pathetic to me. Myopic. Against our party’s history of attempting to eradicate the sort of privilege Churchill and Lloyd-George railed about a century ago.
So, just to answer the two comments my original prompted…
Eddie Sammon, on 02/10/2014 at 09:36, wrote:
“Jock, investors in land deserve a fair yield, can you tell me why they don’t? Inequality and concentrations of power are problematic, but land ownership itself is not.”
…and on 02/10/2014 at 09:53 Roland wrote”
‘>in the same camp as Thatcher’s Tories when they declared housing (land) assets to be the security of the future
I think like the gold standard, we’ve moved on, housing assets, particularly in our big cities are no longer directly related to land and are becoming a much less tangible security, namely “a place to call your own”.’
…which both rather neatly demonstrate the lack of understanding of the place of rent in the (any) economy that has captured both this party and economics in general over the past century. How anyone can think that “housing assets…are no longer directly related to land” is beyond me. What do you think they stand on? What accounts for the difference between an £8,000/sq m home in Kensington and Chelsea and an £800/sq m home in Nelson (from “most and least expensive” average homes in http://www.lloydsbankinggroup.com/globalassets/documents/media/press-releases/halifax/2011/251011scotland_and_the_north_dominate.pdf)? Gold plated bricks on the former and dung bricks in Nelson? No, it’s the location, the land value.
The developers don’t create that. The occupants don’t create that. The landowners (whether different from the home occupants or not) don’t create that. The surrounding community makes each location (each an individual monopoly on that location) more or less valuable according to the competition for space and the services and facilities that community brings to each locality. When I help pay, through my income taxes, say, for government to create a new hospital in Nelson, it is Nelson property owners who gain from that nice new facility, both by being able to use it, and through their property values. If I wanted to move to Nelson, not only would I have paid through my income taxes for that hospital, but I’d also have to pay again, to whomever I buy or rent my new home from, which has appreciated in value because of that public investment.
As to a “fair return” for investors in land, no, there isn’t one. They *invest* in capital improvements, the home, the office block, etc. Not in land itself. The return to land is purely in economic rent – the gain or loss caused not by the investor, but by the rest of the community that competes to access that monopoly position. Churchill explained it 100 years ago, and is worth repeating:
“It is quite true that the land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the [320]mother of all other forms of monopoly. It is quite true that unearned increments in land are not the only form of unearned or undeserved profit which individuals are able to secure; but it is the principal form of unearned increment, derived from processes, which are not merely not beneficial, but which are positively detrimental to the general public. Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position—land, I say, differs from all other forms of property in these primary and fundamental conditions.”
Rent is a huge part of our economy – up to 50-60% of GDP. It is the basis of inequality. It is the origin of all concentration of wealth. Ricardo knew it, Adam Smith knew it, J S Mill knew it, Lloyd-George knew it, Ramsey MacDonald knew it, Tony Benn knew it. But the parties in these great peoples’ traditions have all but forgotten it. If we really want to effect change, we *must* rediscover it, else the sort of tinkering suggested by this article and by so many of the commentators on it, and by Milliband, Hacker, Pierson, Piketty and the like will serve merely to perpetuate and exacerbate that poverty amidst ever greater concentration of wealth.
And, by the by, LVT and some rules about withholding taxes on overseas companies can deal perfectly well with the likes of a Starbucks, without the need for further confusing tinkering suggested in this thread. For example: http://markwadsworth.blogspot.co.uk/2014/09/arcane-musings-about-tax.html