Tag Archives: economics

Green doesn’t need to mean gentrification

Jim Gleeson has an interesting blog entry about the consequences of making a city more liveable. In short, there is a danger that making an area more liveable can price out lower income people. By reducing air pollution and generally improving the local environment in more deprived areas,  richer people will start to move in displacing the people who should have benefitted.

His prescription is more housing supply to accompany environmental improvements. But we need to think a bit more carefully about this to get the medicine right for places like London.

As he points out, the economic benefits of making an area more desirable will largely go to existing home owners and landlords as the value of the land, and therefore the rent they can charge, increases. Lower income people will be forced to move, presumably (according to Jim’s argument) to less liveable areas. Council and housing association tenants who are secure in their homes gain a nicer environment, but they have no direct stake in the increased value of the land their homes sit on.

Building more homes as Jim suggests could help to keep prices down, meaning less of a windfall gain for land owners and possibly more stable rents. But in practice, due to London’s policy of “mixed and balanced communities”, deprived areas tend to see council housing demolished and replaced overwhelmingly with housing for sale in order to “balance out” the social “mix” of people in the area. There’s no way anyone with an average income and average wealth would be able to buy a new flat in most areas of London on the open market.

The flats will be bought by wealthier-than-average people, and probably many then let on the private market, with a good number of those subsidised by housing benefit. So while more supply might dampen the economic consequences of making an area more liveable, and while it might spread the wealth a little more widely, the economic benefits will still mostly go to wealthier people.

You would need to increase house building across London to 50% higher than Boris Johnson’s aspirational target just to stabilise prices. It would be interesting to know whether there is enough spare land and available development finance to raise supply levels high enough in order to gradually reduce prices so that the benefits of new homes would be principally accrued by ordinary Londoners.

But there are other ways in which we can reduce unequal access to nice local environments while maintaining or reducing levels of economic inequality. Housing supply is undoubtedly part of the picture, but policies need to be a bit more sophisticated to achieve this aim.

One simple policy would be to try to build lots more council housing in wealthier areas that already enjoy high environmental quality. That would require a government to reinstate an adequate housing capital budget; the new budget for London in 2011-15 is two-thirds lower than than the budget for 2008-11!

Another would be to ensure all the new housing is put into the control of a Community Land Trust, which owns the land and so can keep homes permanently affordable. Members of the Trust, usually a co-operative, use any rise in land values to benefit the local community and not private individuals. To date, there is only one example of this in London – Coin Street. Despite valiant efforts and credible plans from various other communities, the HCA, GLA and government have done little to make this concept happen.

A third more radical solution – radical as in dealing with the root of the problem (from radix, Latin for ‘root’) – would be to bring back taxation on land. Winston Churchill and Lloyd George both tried, and failed, to do this at the turn of the 20th century. They were blocked by wealthy landowners in the Lords, whose ancestors got rid of them as the power of the Crown diminished.

We have a tax system that raises income off hard work and consumer goods, and that leaves people to rake in huge gains from increases in land values and capital gains with comparatively little or no tax. If we brought back “schedule A” taxes, land values wouldn’t rise so much, the benefits could be clawed back for investment in affordable housing, all local residents could therefore benefit including council tenants, and people might be encouraged to invest their savings in productive stocks and shares rather than dead bricks and mortar.

These solutions have all been applied in the not-too-distant past. But as with the debate over the National Planning Policy Framework, they seem to get overlooked in simplistic debates over false choices like “housing supply vs. conservation”.

Jim’s post is much more sophisticated, looking at the relationship between environmental improvements and the housing market. But his prescription – more supply – needs to be equally sophisticated to ensure that we deliver environmental and social justice side by side.

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Why Ed should take a leaf out of the Green book

When I read the New Political Economy Network’s excellent pamphlet called ‘Britain’s Broken Economy’, my first thought was “that sounds just like our election manifesto, like the Green New Deal”. I span that thought out into this article for Bright Green Scotland… have a read and pass on to any Labour folk you happen to know.

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Ken vs. Oona – anything new?

Being a Green, I’m not following Labour’s hustings for their Mayor of London candidate too closely. But being a realistic left-of-centre Green, I’m hoping that either Ken or Oona get elected into City Hall in 2012.

Oona King hasn’t impressed me much so far. Her candidacy seems very light on detail, her policy pronouncements full of nice language but no specifics. As Martin Hoscik writes, Ken Livingstone is simply rehearsing his 2008 manifesto, with a few innovations (such as borrowing affordable housing money on the bond market) that are basically unfolding behind the scenes in City Hall already.

But on the BBC Politics Show on Sunday, King did get one impressive point in. Livingstone is basically gearing up for a re-run of the 1980s, when he battled with Thatcher from the GLC. He wants to fight, fight, fight every cut (transcript here). But as King pointed out, once the Mayor gets a cut-down grant she/he can’t do very much about it.

In the face of cuts beyond our control we need to innovate (whilst of course speaking out against the cuts and making them very uncomfortable for Lib Dem and Conservative MPs in London). King cited the example of co-operative home ownership, something I have recently worked on with Jenny Jones. I have also written in the past about opportunities for local communities to regenerate their area without waiting, cap in hand, for big chunks of government funding.

Given that Livingstone has jumped on the bond market bandwagon to raise money for affordable homes I hope he will use the next two years to take up other innovations, as King suggested. I also hope Oona King puts some substance behind her slightly vague but insightful suggestions.

A campaign of positive ideas for London’s very varied communities would be much more interesting, and beneficial to London, than two years of simply attacking the coalition Government’s disastrous budget.

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The CrapAnalysis Alliance strikes again

The self-appointed TaxPayers’ Alliance have published a shoddy demolition of The Spirit Level, which kicks off by claiming that “the best way of getting rich is by satisfying or anticipating the wants of other people”.

Apparently they are ignorant of advertising (shaping and creating the wants of other people), which is projected to reach £531bn globally by next year. That’s roughly the same amount that the UK Government brings home in tax revenue. Or to take a specific example, research from 2008 suggested that American drugs companies spend roughly twice as much on advertising as they do on research – getting rich by promoting cash-cow drugs instead of researching much-needed medicines.

Apparently they missed the collapse of the global financial system in the past few years, which was triggered by companies getting rich through risky trading practices far distanced from the wants of people outside the financial services sector. Those that were affected first – home owners with “sub prime” mortgages – were exploited by irresponsible people getting rich off their wants in an underregulated market.

Apparently they are ignorant of the way in which the business world actually works. Take this compendium of Microsoft’s dirty tricks, for example, which shows a company (and one man in particular) getting filthy rich by distorting and abusing another poorly regulated market. Yes, they satisfied the wants of a great many people, but if that was your only measure then other companies would have done equally well if not better. But they were crushed.

I’m not saying all businesses are evil, just that apparently the TaxPayers’ Alliance are talking out of their arse again.

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Why so concerned about tax?

The chart below shows a breakdown of where my monthly gross income goes. I’m earning in the region of £30k/year, above the London average but not exactly an enormous sum.

One of my favourite adages is that British people want Scandinavian public services with American tax levels.  Raising taxes to tackle the deficit is treated as something approaching political suicide. But do we pay all that much in tax?

Put aside the fact that at 36% of the UK’s GDP, the current tax level is lower than under Margaret Thatcher (when it dipped to 40%) and much lower than the Swedish level of around 50%.

How does tax affect me? Well my income tax and council tax, which pay for all the basic public services, the roads, waste collection, public transport investment, welfare for people in harder circumstances and much more account for less than my rent, which pays for my half of a flat with my fiancee. My national insurance and pension contributions that are hopefully securing my retirement add up to much less than my rent as well. Since I don’t spend a great deal on clothes, cars, TVs and the like, I’m not too affected by indirect taxes like VAT either.

After all those taxes and basic life expenses, I still have 35% of my gross income left over for fun, holidays, personal savings and the like.

If I were to get pissed off about someone taking all my money, my first target would be the property market. Look how much money I have to spend just to afford a reasonable flat in an area I like! Then there’s my inability to afford to buy a home making my future less secure, low interest rates on my ISA bond and in the short term the likely rises in bus and train fares due to spending cuts.

Yep, all things considered I think tax is the least of my financial worries.

Anyone on similar or higher incomes who crows about tax levels should stop for a moment and think about the majority who earn less and stand to lose a great deal from public spending cuts.

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Why is economics a load of rubbish?

OK, it isn’t really. But an event at City Hall today threw up some difficult lessons for economists from other academic disciplines. After a massive crisis in the global financial system, which was triggered by and hugely deepened a cyclical recession, it’s a pretty easy time to have a dig. So here they go!

Paul Ormerod kicked off with lessons from physics. The big one was: use empirical evidence and discovery to test, falsify and improve theories. In economics, evidence has very little status whilst most theory is developed in ignorance of evidence. His pet example was the work done on networks and effects such as herding (e.g. fashions and fads), which has barely scratched the surface of classical economic theory.

Luc Bovens gave a fascinating dissection of the financial crisis using Aristotle’s Nicomachean ethics. Who is morally culpable for the crisis, he asked? In the tradition of all good philosophers he gave a number of different accounts and arrived at four possible conclusions for one example theory – rational choice theory. Either it needs relaxing, because it was interpreted too strictly; or it fails to model real-world risk so should be supplemented; or it fails to model the way people really act, so should be supplemented; or it actively destroys public virtues by encouraging us to follow selfish vices instead, so should be junked.

Next, Avner Offer told us about three different historical perspectives. The first is economic history, the main lesson from which is that particular theories are developed in particular epochs, and that they may be applied in new epochs where things have changed and so may not be empirically justified. The second is from conventional history, which assumes that most human attempts fail in contrast to the centrality of equilibrium in economics. Historians also understand the importance of narrative, or story telling, to understand and communicate contextually complex things, which challenges the economist’s over-reliance on deterministic algorithms. Finally, the history of economics tells us that theories should, and generally do, change all the time. But Adam Smith’s invisible hand is a sad example of an as-yet-unproven aside becoming doctrine, an article of faith.

Finally, Neil Stewart rounded proceedings off with a psychological smackdown. Assume, he advised, that the brain is basically stone age in its approach to economic decisions. We are fundamentally irrational, and so the idea that we “maximise utility” is a load of nonsense. Ouch. He described some brilliant experiments his team have carried out to find out the weird and wonderful ways that our brains defy rational expectations and suggested economists should heed the influence of memory, perception, emotion, attention, and social and environmental influences. Above all, he pleeded, conduct experiments to test assumptions!

So there you have it, folks. If you understood any of that hopefully you’ll be as perplexed and excited as the audience, whilst mindful of the folly of following one economic perspective as though it were gospel.

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Eco taxes going down in the UK!

I came across a shocking statistic today: environmental taxes are decreasing in the UK!

The total revenue has risen slower than inflation between 1999 and 2008; from around £32.6bn in 1999 to £38.5bn in 2008. If it had grown with inflation over that period it would have stood at £41.4bn in 2008.

As a percentage of GDP over that period it fell from 3.5% to 2.7%. As a percentage of the total taxes and social contributions in the UK, it has also fallen behind. In 99 it peaked at 9.7% of total tax revenue, then fell to 7.2% in 2008.

Environmental taxes made up a lower share of our economy and tax revenue than at any time since 1993, when the ONS records begin. So much for shifting the tax burden from income to environmental damage!

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