Andy Burnham and the way to regional productivity

Andy Burnham  has mentioned land value tax as a specific policy. He is clearly thinking beyond  Mansion Tax which is already planned for 2028 but only applies to dwellings valued £2m value and above.  

This blog supports the idea of a land value tax on the value of all land and for a land tax on residential land it should be allowable against personal income tax paid. This will ease the transition of the  reform as it will take into account the ability of the owner to pay and for most will not be an extra tax burden.  Those unable to pay due to low income should be able to defer some of the tax until a sale. 

Fred Harrison the UK's leading advocate of land value tax has just released a YouTube video:  Why Andy Burnham Will Fail: Fred Harrison on Britain's Last Chance  on which he says that Burnham's idea of spreading prosperity from London and the south-east  will not work unless money goes out from London. Land value taxation of itself will not achieve regional prosperity.  Harrison explains that Ricardo showed that the spare  wealth of a country after the basic costs of survival gravitates towards the centre of highest  productivity and finds its way into land values (also known as economic rent). For the UK, London and the south-east is where it mostly ends up. Fairness dictates that London's wealth  should be spread out.

A very comprehensive way of achieving this is to start issuing  universal basic income (UBI) to every person in the UK  using the tax from the land value as a way of redirecting land wealth. This would channel the land wealth gains direct to individuals and households who would then have the choice of spending  it, rather than a council or a quango having that choice. The poor who rent would be quick gainers with new income but without land value tax to  pay. Regionally local businesses activity and investment would pick up and the prosperity of the regions would grow.  The UBI  would be the same for all and without means testing and its value would be greater away from London as costs and prices are often lower there.  Because UBI would be guaranteed into the future it would encourage people to spend and this would raise economic activity.  

Annie Miller in A Basic Income Pocketbook shows that it is likely that costs of the new UBI measure would exceed current welfare costs  so higher taxes on the wealthier would be needed. This would come from the higher value of the land  their larger and better located houses are built on. 

Increasingly taxing land and not buildings would mean that other taxes could be reduced.  Land values are a product of the whole community's success and it is equitable to share that gain for the common good. Taxes on work and on goods are  a disincentive to work and produce and they should be reduced.

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom 

Theresa May's Magnificent Words

Our new Prime Minister Theresa May said some Magnificent Words as she entered No 10 Downing Street. 
...We will make Britain a country that works not for a privileged few but for every one of us'
Words that could have been sourced from the book The Free Lunch - Fairness with Freedom which in a similar vein, deals with how to start to overturn the 'Lottery Principle' of life where 'The poor create the rich'.  The problem with Magnificent Words at Number 10 is they raise expectations and then scepticism, given the meagre achievements of governments. But let us leave Mrs May's Magnificent Words still bright, shining and untested and wish her the very best. We all look forward to her chancellor's first budget for signs that this time it will be different.         

As an illustration as to how the current arrangements of our society work for the few and not the many, at a recent public planning enquiry in Winchester, developers awaited expectantly whilst a planning Inspector assessed objections to that part of the local plan relating to the small town of Alresford.  Winchester City Council has taken some years to formulate this plan after much public consultation.  Whatever the outcome of Inspector Nigel Payne's deliberations, soon the green light will be given to a landowner/developer or two, to cash in on a huge uplift of land values. For example a green field of agricultural land with a value of merely around £700 per house-plot size, will zoom to a value of perhaps £200,000 per house-plot after the local authority grants planning permission for housing.  Our 'democratic' system massively favour landowners over those needing the land to have a home. The movement in wealth is from the many to the few: 'The poor create the rich'. What about that Mrs May?

An example of a more egalitarian outcome sought at the same hearing was about public car parking. A car park is needed alongside two adjacent sites owned by different landowners. Which one would release the land for this? Might both? Someone said land for car parking has little value, because car parking by local councils is not an economic service. Quite wrong. This article from The Times in 2015 shows  that for English local authorities over £0.6 BN of revenue was raised through car parking. So a local authority which has control over land planning use, can restrict city parking and can force drivers to pay to park creates a clear money-spinner for themselves and their tax payers. What is happening is that they use their democratically given monopoly power and, as rentiers being leaseholders or owners of land, are using it for the common good above the break-even cost of parking. This will help cap other taxes and can also reduce pollution if park and ride schemes are used.

Another issue mentioned at the hearing was the use of a part of development sites for 'affordable housing' - to be rented by, or part-sold to low income earners. Some of the uplifted land value of a whole development is clawed back through using a portion of the site's land (at a low cost to a not-for-profit housing association) solely for rented or part-owned homes. An enlightened device favouring some of the disadvantaged. 

On one scheme on a previously developed (brownfield) site in a particular Winchester city site the developer had declared he cannot afford to release land for such homes in his new development. 'The sums don't add up!' But a competent developer would have known of their liability to provide the public benefit through land at lower than market housing value to make affordable housing possible. Development obligations such as these have been around since at least 1990 with planning regulation for developer contributions such as 'section 106' and now the Community Infrastructure Levy. Perhaps a developer overpaid for land at some stage so the sums now don't work. But should the public benefit suffer because an unwise commercial decision may have been made by a developer at the top of a market price bubble? If such a case is accepted it opens the possibility of a high price false 'sale' to an associated firm to establish non-viability due to a high base cost. 

This scare story about non-viability of affordable homes was raised as a possibility for a large greenfield site in Alresford. But the planning officer reported that the landowner/developer  for that site is happy that the site development is viable with all costs covered for new trunk road works, affordable housing, et al. A large greenfield site with no development history is less likely to have had run of different owners who might have overpaid at some stage. Or perhaps the developer is being sensible about the huge gains still available and doesn't want the jinx the magic of the expected planning consent.   

So the Winchester inspection will eventually result in one or two very pleased (wealthier) landowner/developers, through the public gift of planning permission. Albeit with help for some housing-poor.  Not forgetting we too who have been buying our homes for decades, whilst not gaining quite that 200+ times wealth multiple from these brand new developments, also benefit a growing equity nest egg through this long standing public gift of planning consent - and for us, tax free. 

The unfairness of the institutional skewing as above, of so called 'market capitalism' to the benefit of the few is developed as a theme in Guy Standing's book:  The Corruption of Capitalism: Why rentiers thrive and work does not pay 'he reveals how global capitalism is rigged in favour of rentiers to the detriment of all of us, especially the precariat. A plutocracy and elite enriches itself, not through production of goods and services, but through ownership of assets, … '. Read the extract provided.

Another book, by Fred Harrison, As Evil Does gives evidence (p.64) that academic research is blocked by government to prevent solutions that would overcome such failings of our society. Such as land value taxation. He refers to an article by Nicholas Stern about his 'Report on the reform of the tax system', in the FT 6 Aug 2014 'Fairer Fixes for the public purse lost in a chancellor's drawer'.   

Have you seen Sir Nicholas's report yet Mrs May? Could be a good way to fulfil those Magnificent Words.

Faulty bank lending - the scourge of our economic system. Fred Harrison, Adair Turner & Richard Werner

Fred Harrison, wrote in 2005, 6 years ahead of the depression he predicted for 2010: 
 'The driving force that shapes the business cycle is the pursuit of capital gains from land' 
(p 215. Boom Bust - House prices, Banking and Depression of 2010. Shepherd-Walwyn 2005). Then in 2010:
'When bankers fabricate money (credit) to lend to a borrower whose land is rising in value, they emulate Mr Ponzi. Why? Because the escalating value of land is nothing more than an increase in debt. Value is not being added to the wealth of the nation....In the end that bubble must burst' (2010 The Inquest. DA Horizons 2010)

Adair Turner 12 years later and after the Harrison-forecast property-driven crash of 2007/8 says: 
 '...credit and real-estate cycles are not just part of the story of financial instability in advanced economies; they are almost the entire story.' (www.project-syndicate.org April 6th. 2016).  As he further says, specifically about China, faulty bank-led resource allocation of credit into real estate means much investment has been wasted. He concludes that free market competition, whilst valid for most economic sectors, should therefore not apply to banks. 

Prof Richard Werner in an audioBoom recording on 6th March  with Marie Mc Cahery for Bradford  bcb106.6fm radio gets to the heart of the problems revealed in the above quotes which underlies them: the banking system.  He gives four suggestions to the programme's title strapline question: 'Why don't economists?...   

1. Why don't economists... Find out how the economy actually works?
 He says that contrary to any other discipline such as medicine, economists start with deductive methods involving the assumption of the underlying laws without looking at the facts. They choose axioms such as:  people are assumed to act in a selfish manner to maximise their own satisfaction / they are never affected by outside influences / there is perfect competition and no collusion / perfect conditions prevail. What they should use are deductive  methods which would start with the facts - such as that people are not always selfish but help each other and that they are changed by outside influences.  Werner says that the prevailing engrained-selfishness theory is wrong, as it 'mathematically' proves what is assumed. It is a theoretical dream world and particularly dangerous to society as economists use this model to advise politicians. 

2. Why don't economists... Understand the role of money and banks? 
Werner quotes from a leading economist's textbook which explains why the matters of money and banks are left out of the book because 'it would obscure or confuse the reality'.
The common misconception is that the government or the central banks create money but only 3% of money is produced by the central banks (cash) and the rest by ordinary banks. In allowing banks to do this they are not instructed to create money wisely. 
The creation of money by banks was acknowledged by the Bank of England in March 2014 and Werner had conducted an experiment in August 2013 to prove this fact empirically. Linked to this,  the quantity of credit is, in Werner's view, the driver of the economy and not interest rates. The trend to negative interest rates will achieve nothing for GDP growth. Interest rates follow growth. 

3. Why don't economists... ward off crises caused by asset purchases?
Crises arise now through Ponzi-style housing funding (asset finance).   New money creation from banks should rather go to investment in the productive economy with consumption needs met from 'lenders' whom Werner distinguishes from credit creating banks. Growth will come through the expansion of the money supply through bank credit, but it should be under guidance, and is the most effective policy for growth in the real economy.

4. Why don't economists... create recovery without any extra costs to the taxpayer?
Rather than full monetary reform whereby the government creates the money supply without debt, which would need rather too extensive changes than we are yet ready for, Werner advocates 'Enhanced debt management' carried out through the Debt Management Office by the government. Here money would be raised for the government as it borrowed directly through bank loans (non-tradable, unlike bonds which are tradable) which Werner says would be economically advantageous being less expensive than issuing bonds.      

The interview ends with the case for local community banks which would promote lending to small and medium sized businesses as the German Sparkassen model and as already under way in the UK with the formation of Hampshire Community Bank.  

Posted by Charles Bazlinton.. Author The Free Lunch - Fairness with Freedom

  

The Idolatry of our House Prices

How long will the UK housing bubble last? Max Keiser and Stacy Herbert host a world-ranging video discussion of current housing bubbles and related economic news (particularly Australia and UK/London) with Prof Steve Keen and Ross Ashcroft [KR883] Keiser Report: Global Housing Bubbles .  

In London the Cameron/Osborne government has added credit fuel to the housing mortgage market. What started out as Help to Buy (2013) has just become London Help to Buy and 200,000 first-time buyers under the age of 40 will qualify for an initially interest-free loan (after 5 years you pay a 1.75% fee i.e. interest) for a newly built home. This is a government guarantee to the mortgage provider that the extra deposit money is safe, but not a guarantee for the buyer if they fail to pay back [NB. Beware a lifetime debt millstone and no house if you default]. Steve Keen says that this scheme to boost an obvious asset bubble is being launched by people 'who don't understand the system...they have power, not control' Max K. asked why, when the global macroeconomic tendency is deflationary would a government encourage investment which is based on inflation? Ross Ashcroft thinks they are 'terribly deluded'.  

So are we in the UK  due for a re-run of the Japanese housing boom/crash from the peak around 1989/90? With (27 years later) the Japanese index showing an 80% drop from peak prices. Steve Keen thinks the current UK government has some scope for 'dragging people into this market for a while' because the UK proportion of mortgage debt to GDP is 70% and falling, but Australia is more dangerous as the figure is 95% and rising. 

Another bubble detector by way of a contrarian indicator was suggested from Japan at the time of the 1989/90 peak. Then, 9 out of the world top 10 banks were Japanese; now, with Australia having 3 of the top banks OZ may be at a similar danger point, with the New Zealand financial and banking system also dangerously exposed. Prof Keen says the cause of the bubble is the banks creating credit which feeds the property price rise. He says it is a myth that government spending caused the 2007/8 credit crisis, the cause was a private credit bubble which burst. The current government has it that the previous Labour administration's need to raise government spending to compensate for the crisis was the cause of the crisis! So now the cut-back in government spending and the ensuing austerity makes the problem worse - as more people become unemployed with less spending power.  

'There is free lunch in the housing market' said Stacy, and Max agreed: 'many, many free sandwiches in housing in the UK!'. Phrases chiming in step with the book The Free Lunch - Fairness with Freedom .  Brian Wakelin at Christ Church, Winchester on 21 Feb 2016 (Our Response to World Mission: Isaiah & Matthew) called the widespread attitude to the phenomenon 'the idolatry of our house prices' [audio: at min. 2m 00s.]. But young people are unable to buy or even to rent locally. 

As Stacy pointed out (agreeing with Brian Wakelin's sermon point without the theological terms), the general population is indeed complicit and likes the chance of a gain through government subsidy such as London Help to Buy, even though only a few get it - 1 in 10 among 2 million renters. 

So where are we in the bubble cycle? Fred Harrison for years has warned of the 18 year peak-to-peak property price index. He told the New Labour government when they took power in 1997 about a coming 2007 peak (which happened); that a financial crisis would be caused by the housing market breakdown (it was)  and that a recession would ensue (it did). The Max Keiser panel last week reminded us that Mark Carney now Governor of the Bank of England oversaw a house price boost when running banking in Canada and that the same is happening now in the UK. So with the power of the Bank of England behind Chancellor George Osborne's encouragement of property speculation it would be brave to say the price peak has already been reached and the bubble is about to burst. Albeit any temporary slowdowns which may happen to confuse. 

George Osborne is raising his tax take from high value property with new taxes which is suppressing those prices but not making the houses more affordable, because of the high tax charge. Offshore-owned homes are to be subject to an annual tax which is really the most sensible property tax, but it should be on the land value of all the real estate and apply whoever owns the underlying land. This would moderate the housing market making homes more affordable. 

We await a Chancellor and a Bank of England Governor who could extend home ownership by lowering prices through land value tax without crashing the system. Is anyone clever enough? Making an annual land value tax charge an allowable deduction against annual income tax would probably be an essential start.
Posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom

Bank of England and its own cartoon

The Resolution Foundation has published this image using Bank of England statements and data over the past 7 years: 



It shows how the BoE expected its bank rate to rise following the date of its forecasts over the years, according to the reading of the economic runes at the time. Clearly the Bank does not know what is happening as it wiggles various monetary levers, squeezes prudential brakes and holds enigmatic press conferences. Yet it still continues to issue rising interest rate forecasts just as it has since the credit crisis of 2008 when rates dropped off a cliff and resolutely stayed there. 
  
This simple graph is as funny as an artist's cartoon. It combines a hilarious reminder of nearly a decade of economic forecasting with a pathetic illustration that the Old Lady of Threadneedle Street is the Emperor Who Has No Clothes. 

One symptom of the above very low interest rates is galloping house prices which is a likely herald of another general economic crisis ahead bringing renewed financial difficulties for many. Will the Bank or the Chancellor, or both...or enough other people ...anybody! please!... summon humility and call for a general discussion of what to do next?  Time is short and we should not wait for the crisis to hit. Anyone reading The Free Lunch blogs will be aware there are eminent people whose untried ideas deserve examination. For example: Lord Turner, Prof Richard Werner, Prof Steve Keen, Lord Skidelsky, Fred Harrison, Richard Spencer,  Prof Mariana Mazzucato, Prof Michael Hudson, Ann Pettifor and many other distinguished champions of economics for the common good.    

Homeowning - A Brilliant Wheeze

The democratic struggle moves towards respect for the rights of all. Reform follows when the rights of some are seen to blatantly burden others involving a denial of their rights. In the UK a new regulation is coming into force that will criminalise the squatting of someone else's home. Up until now it was usually a civil offence if someone moved in uninvited. Now it will go like this: You are out. Squatters are in. Police are in. Squatters are out (cops leading). You are in. Quickly.

Squatting usually happens after buildings have been left empty and the hard cases such as someone having a long hospital stay and finding squatters in when they get back home are quite rare. Besides there are apparently criminal remedies for such squatting already before this new law . 

Squatting is one symptom of our divided nation. We inordinately favour home owners to the detriment of the propertyless. See this YouTube video where Fred Harrison uses researches from his book  Richardo's Law, House Prices and The Great Tax Clawback Scam . He shows that the nest egg that accrues to many homeowners in the equity stake over a lifetime, effectively refunds a huge amount of income and other taxes that the homeowner has paid over the years. This, whilst being a brilliant wheeze for homeowners, blights the lives and social opportunities of renters and tenants. Poverty. A huge imbalance is perpetuated in our society through our failure to face up to this unfairness. We unfairly burden renters with the tax for the services we all use and unfairly allow a protected nest egg (i.e. tax refund) to homeowners. Horrendous for any democrat worthy of the name. We don't even have adequate rent controls - see this UK/Germany.   

Howard Davies, a one-time deputy governor of the Bank of  England in a article in the Financial Times A wealth tax may work once but don't make it a habit   advocates taxing all land values rather than the wealth taxes mentioned by Lib-Dem Nick Clegg. A levy on the location value of all land would address the land utilisation problem that is one root of the squatting problem. If you had a property that you were keeping empty but had to pay a levy on its land value every year you would soon let the building out and the rent payments would cover the new levy. Hey! With every landlord having to rethink about their empty properties, rents might drop so that even poor potential squatters could pay them.

Trouble is there are more homeowner-voters than renter-voters. Homeowners-voters must be given a promise of  a drop in income tax to match a new land value tax. It is called a tax shift. It will be the only way.

McCarthy & Stone: Bad timing in property deals

McCarthy & Stone is a privately owned company which builds retirement homes. A news item in the FT today McCarthy back to profit after housing crash   tells another interesting story of mis-timing in the property market (see this blog for April 5th, 2011 about Taylor Wimpey). 

Dorset Business (March 2009) reported that in 2005, the business traded at a value of under £600m on the stock market when during that “boom time” it was selling 2,000 units a year. It was taken into private ownership for £1.1bn in 2006 by a consortium led by HBOS which included property investors Simon and David Reuben and Sir Tom Hunter (Josephine Moulds, Daily Telegraph  29 Jan 2007).


In 2007 Building.co.uk reported that HBOS was looking to sell most of its stake in McCarthy & Stone just five months after the above £1.1bn deal. HBOS needed the cash to buy housebuilder Crest Nicholson in early 2007. This was at about the peak of the property boom and whilst good timing for the sellers of McC & S and CN shows that some of the big shots on the buying side had not read or heeded what Fred Harrison with his analysis of the 18-year property cycle had written: such as The Power in the Land 1983; Boom & Bust 2005; Ricardo's Law 2006. 


McC & S was lumbered with massive debt taken on at the time of the 2006 deal.  They had to stop construction for a year from mid-2008. Michael Ball who in 2009 was McC&S's Chief Financial Officer is reported in the FT as saying at the time: 'in 2006 the group had not expected such a severe housing crisis' . Click on the link for a review on Fred Harrison's later book 2010 The Inquest . Essential reading for politicians and property people. 
    
posted by Charles Bazlinton. The Free Lunch - Fairness with Freedom which deals with land and property issues 

Could Taylor Wimpey's Pete Redfern have done better?

When a property chief executive says about the house price crash of 2007 ' No one could have seen what was coming...' (FT 5 April 2011: Taylor Wimpey back at the crease) you do puzzle just a little. Mr Pete Redfern  joined George Wimpey in about 2001 and sorted out the McAlpine Homes bit of that before becoming Chief Executive of the combined Taylor Wimpey which is now No.2 UK builder. Obviously a capable operator, to an extent.  

The Taylor Wimpey deal was done in January 2007.  Another UK developer / housebuilder, Linden Homes was sold to Galliford Try in February 2007 (Building). This was particularly neat timing by the owners of  Linden as they sold the outfit within a whisker of the top of the house price market. This rose from £184,143 in Jan 2007 to £189,316 in July 2007 and then crashed down 20% in Jan 2009 (see chart). Did Linden's  owners know something? Had they read Fred Harrison's books on the repeating 18 year land / business / house price cycle? In 1997 he predicted that the house market would peak in 2007 (2010 The Inquest read my review).

Redfern in the FT today is refreshingly candid, but it is all very well. The TW share price was about 430p in Jan 2007 and is about 40p now (9% of its value).  I wonder if chief executives ever read in-depth about every aspect of their industry? Fred Harrison has been publishing regularly on 18-year price cycles since his book The Power in The Land in 1983. OK, Pete Redfern was 12 at the time but since then his property industry experience never seems to have prepared him for 2007, despite Harrison's insights. 

Some homework: find out who sold Linden Homes in 2007, ask was it fluke timimg? If not and they are still in property, invest in their firms. But, a caution, watch this blog because land value tax might come into the equation, judging by recent Coalition Government tax policy ideas. This new factor in property development ought to be considered even for those who get the timing right.

posted by Charles Bazlinton.

The Free Lunch - Fairness with Freedom and on Amazon

OECD: Land Tax is Good

'Taxes on immobile bases, such as property' are advocated in an article recently (7 Oct) in the Financial Times by Vanessa Houlder . The source paper for this was by the OECD 23 March 2010 Preparing Fiscal Consolidation.   This itself quoted Asa Johansson from OECD Asa Johansson Working Paper 620. 2008
Extract:

47. Recurrent taxes on land and buildings (especially residential buildings) are generally argued to be more efficient than other types of taxes in that their impact on the allocation of resources in the economy is less adverse. This is because these taxes do not affect the decisions of economic agents to supply labour, to invest in human capital, to produce, invest and innovate to the same extent as some other taxes.

.....also, as real estate and land are highly visible and immobile these taxes are more difficult to evade, and the immovable nature of the tax base may be particularly appealing at a time when the bases of other taxes become increasingly internationally mobile. Property taxes also encourage greater accountability on the part of government, particularly where they are used to finance local government. Property taxes, with regular updating of valuation (which, with modern technology, is now feasible), can also increase the progressivity of the tax system (for example, by the exemption of low value properties), provided that special arrangements are made to reduce the liquidity constraints that the tax may imply for the relatively small number of people with low incomes and illiquid assets.

…and they could contribute to the usage of underdeveloped land…

48. The design of property taxes on land and buildings can also be used as an instrument to affect land development and land use patterns. For example, low taxes on vacant property and  undeveloped land can encourage the under-utilisation of land which may lead to a reduced supply of land for housing particularly in urban areas. Linking the assessment value to market value may increase incentives for developing land as market prices also reflect the development potential of land.

Fred Harrison's book The Predator Culture ( see this blog Oct 18) comes with a strong advocacy of land taxation as outlined above but Johansson does not differentiate between buildings and the land. 
Muddly.
The first paragraph says land and building taxes are less inhibiting to investment decisions.
Correct concerning taxation of land but if adding value to a building will increase the tax on it then improvement is inhibited. 
So: tax the plot's value more and the building's value less (or not at all).  We need good housing, offices and factories so chop taxes on them. Balance any tax loss with more tax on the site. Force the landowner to develop their plot (to raise funds for the land tax) and make this easy for them by having all buildings tax-free. 
Obvious.
posted by Charles Bazlinton
BUY THE BOOK: For a fuller discussion of land tax and other measures to make a fairer society click here: The Free Lunch - Fairness with Freedom 



 

The Predator Culture - Fred Harrison

A new book by Fred Harrison The Predator Culture is another one of his to be read and re-read. This one comes from a more philosophical and moral point of view than his earlier work and comes over as a fresh  approach to the author's familiar subject. He likens the sickness of the body politic to a sufferer from trauma. Rent-seeking owners of land, the 'predators', need the subjugation of the 'producers' as 'outcasts' to be able to maintain their place in the hierarchy of power that is essential to sustain them. Enduring 'pauperisation' with accompanying injustice is inevitable. 

Several revealing international examples help illustrate the theme with Costa Rica as quite enlightened,  to Rwanda, Zimbabwe and Afghanistan. To see a review click at Amazon here. To buy also click at Shepheard-Walwyn. A revealing book for anyone owning or trading property, in land development or associated occupations such as banking - anywhere in the world.  

posted by Charles Bazlinton

Chris Grigg & Sir Roger Moore; land & credit

Sir Roger Moore CBE, humanitarian worker, actor ( tv-The Saint, films-James Bond) exposed his financial affairs to Sarah Fleming (Sunday Times 2oth June 2010). Pause here: I am talking about land and anyone who has read this blog for Feb 25 , 2010, will remember Debbie Moore's  'no free lunches' claim and how Sherlock Holmes very quickly utterly rumbled her about that.  Sir Roger is no relation to Debbie (although he has does have a daughter Deborah...) but his run of house purchase gains started in the 1960's at £7,500 - sold £12,000; £17,000 sold- £35,000; £75,000 - sold £250,000. His comments are quite telling. He felt 'guilty' on his first gain and 'truly felt disgusted' at the last, some 10 years ago.  He now lives in Switzerland.  Seems that Sir Roger has an unusually unsuppressed conscience that has not been smothered in the way it is usually is with home owners - who appear to believe that they have a God-given right to their house price gains despite the fact that they have contributed nothing to the rise of the land's value, which is the key factor in the value. The cost of building improvements that they may have added themselves, are usually a small part of the underlying total gain. Sir Roger! He gets it. Respect! 

Chris Grigg I am sure 'gets it' absolutely, as he is paid to do so. He is the new chief executive of  British Land (BL is UK's No. 2 property company). He has previously been with Barclays and 20 years in Goldman Sachs.  He talks to Rebecca O'Connor in The Times June 21st 2010. When people find out what he does, they usually ask 'Is my house price going to go up? '. He says he is loath to give an answer. He says 'there are times when I will have a view. And times when I won't'.  
Lets split this Q & A into two parts.
1) Does he say? 'When you say house price don't forget that the price of houses  always drops because they deteriorate -  as anything man made does - what you really need to know is are land prices going up. 
2) Does he say? 'If you really want to understand if house/land prices are going up or down, read anything Fred Harrison has written and especially his finding going back for 200 years about the 18 year peak-to-peak price cycles.
But Grigg doesn't really let on any such property secrets but he scorns the view that property investment is innate 'People always talk about gut decisions in real estate... but ...really a judgment based on information.' One of these bits of information he suggests is 'looking out of the window at buildings'. Hey! that helps. 

Rebecca finishes the article with a reference to Grigg's previous career in banking and how Stephen Hester his BL predecessor went to rescue Royal Bank of Scotland. Property- banking /land-credit are inextricably linked as Rebecca suggests.

Credit fuels the property price cycle. What the gainers are doing is cashing in on the need everyone has of land for living and working. Bankers use the timing of the cycle to lend to developers to buy low and sell high, they take years of interest. Developers also rake off the land rent as part of their total real estate yield. The land rent in a more moral world would be due to the public purse, since it supplies the tax for infrastructure that gives the land much of its value.   Our political masters should use the innate human insight of such as Sir Roger Moore and boldly take control of these banking and land monopolies for the public good.

posted by Charles Bazlinton 

Werner meets Harrison - Monetary Reform & LVT. No:4 Interaction

In answer to a question from Richard Werner (International Banking Professor) as to what about land did Keynes not understand? Fred Harrison suggested that even in a stable monetary system such as Dr.Werner advocates, unless there is a fiscal system to tax away the gains on land from private gain towards public purposes, it is generally banks which gain those rents that accrue. He said there is an inevitability about it - a 'law'. Due to the fixed amount of land, a shift in favour of rents occurs so that income arising thus goes to those so placed to receive it. This will continue to happen unless rents from land are specifically directed for the common good. Public services should be funded from these rents, as alternative taxes, such as we now have, mean that the rich get richer and the poor get poorer. Harrison also said of the monetary approach - that it would not eliminate land originated economic failures.

Werner asked why it is that in Germany land prices are stable?  Harrison said after German experiences following WW1 and the 1930s, there had developed a different ethic of economics.  However, he said that despite Werner's suggestion that rules for banking about property speculation would be sufficient, monetary policy was not enough - more needs to be considered. He suggested that James Robertson** is important in the finding of a synthesis and integration between the two.   David Triggs said that Henry George believed both in the full recovery of rents for the public good and also that the public control of credit through the government was vital for economic justice.

Werner said that property prices are a function of the increase in credit, with most of the value being in the land. For a while all goes well as the rising amount of credit feeds into a rising property market. His researches show that credit cycles explain property price cycles - when the credit supply slows, prices drop. In Japan prices fell 80% and broke banks. He sees  the repayment of debt, with its background of charging of interest, as unsustainable for an economy as a whole. (See Blog May 2nd - Babylon). Whilst one individual bank could assess a borrower's ability to pay, no one bank could assess what was happening to the whole economy - as other banks lent out, unknown to each other. Thus is the case for the government or the central bank to control credit allocation. To a questioner, he said that interest rates do not control growth or the money supply. Low interest rates  stimulate growth and interest rates follow growth.

**Five years ago James Roberston  drew the work of Werner and Harrison together.

Click on this and go his summary & items 3 & 7:

“At Item 3 the books by Fred Harrison and Richard Werner complement each other wonderfully .

Harrison’s is about how the pathology of a perverse tax system encourages fluctuating land values and house prices which cause booms and busts. Werner’s is about the pathology of the present perverse way of creating new money which, by encouraging lending for the purchase of assets like land and housing instead of investment in productive activities, also contributes to booms and busts. Together they show that serious study is needed of the links and interactions between tax reform and monetary reform. Item 7 is about that”.

With the extraordinary events of the last view days resulting in a coalition government with Clegg, Huhne and Cable (leading lights in ALTER) at the very top tables who knows what  could lie ahead?


Posted by Charles Bazlinton   click to see the cartoon

Werner meets Harrison - Monetary Reform & LVT. No: 3 (Harrison)

Et tu? When your friends don't seem to have grasped the knub of what you have spent several decades explaining so lucidly, it can make you weep. We empathised thus with Fred Harrison last week at the IU Conference in London. He referred to a speaker at the conference on another day who had, according to Fred, used a wrong methodology to assess the value of the rent of land. 

But whilst such friends in the same cause are obviously a disappointment to him Fred regaled us with some of the content of his book 2010 The Inquest: see the review. This deals with his second major prediction of the land/property 18 year price cycle which peaked in 2007. He warned political leaders of this 10 years before: Mandelson, Darling,  Campbell.  J M Keynes remark in 1925:  'there is no land problem any more' as you can imagine does not go down well with FH and it makes JMK's views part of the problem.  Harrison cannot understand the 'disconnect' with the truth about land. He said government has betrayed those it is supposed to be looking after. He likened the scenario to the treason that King Charles was charged with. He sees the failure in terms of politics and not of economics. He sees land value as a cash measure of the failure of governance. There is a failure of monetary policy. He does not particularly blame bankers and 'greed' - the rules allow them to behave as they do. He sees the issue as a breakdown or morality and intellect and wondered why the system is not being called to account by the churches, or by intellectuals and academics?

He judged our system as not being fit to cope with with the results of a 200 year trend. Land policy has failed and academics put the body of knowledge about it 'out of reach'. For some reason economics relating to land does not 'stick in the mind' - (even JMK's mind?). Fred believes that when even friends seem unable to grasp land economic fundamentals, the next generation starts 40 years back.  (As though Fred H had not been around enlightening us with his amazing  books? Can this really be so?).

In response to questions, he said that despite his own failure to affect changes in the UK  in the 1980s, in Russia in the 1990s, or in the UK again in the 2000s, he dropped a hint of some scheme he has embarked upon recently that will take about 5 years to come to fruition. He gave the audience reason to hope that the world will continue to be enlightened  - if it wishes to be  - by one of the pre-eminent advocates for economic justice of this generation.  

NB: More to follow later on the IU Conference exchanges between Harrison/Werner/audience.

Posted by Charles Bazlinton. Revised 8 May.
Author: The Free Lunch - Fairness with Freedom
see web cartoon

Fred Harrison & Richard Werner - new links

See these new links: A review by Bryan Kavanagh of Fred Harrison's book 2010 The Inquest. Also: Dr Richard Werner's submission to  the  Secretariat of the Basel Committee on Banking Supervision at the Bank for International Settlements (BIS).

Werner meets Harrison - Monetary Reform & LVT. No: 1

There was a certain frisson in the air when Richard Werner, leading international academic on monetary reform and Fred Harrison eminent land value taxation economist both presented at the IU Conference in London yesterday  These leading proponents of their subjects had a theme of 'secrecy' (Werner) and 'hidden knowledge' (Harrison) that surround their disciplines and both are tireless exposers of the long-established thrall in which ordinary people are held thereby - where the major players in banking and land ownership rake off their gains to the permanent impoverishment of society. The victims, being blinded by this status quo that has endured for centuries, meekly accepting that the recurring banking and property crises are seemingly held to be irrevocable laws of nature. 
Both speakers have had similar career paths. For 20 years (Werner) and over 30 years (Harrison), having struck gold in their pursuit of reality and truth in matters of credit and banking  and of land, respectively, have pursued the thread wherever it took them, despite the lack of recognition that might have been expected from their insights.  These pioneers met for the first time in person at the School of Economic Science in Mandeville Place, London where the theme of the conference is: 'Why is so much wealth in the hands of so few?'.  The Conference continues today and Fri 30th.
I will be opening up Werner's and Harrison's viewpoints in subsequent postings on this blog. Werner gave a fast and potted history of credit, beginning in ancient Babylon up to date. He also revealed the mechanism that Keynes overlooked in his prediction that wealth by the year 2028 would mean that no-one would need to work more that 15 hours a week. Harrison gave a heartfelt view of the fact that despite having accurately predicted the dates of the last two boom-bust cycle peaks he has been ignored by politicians whom he specifically warned.  He also pointed out a vital flaw in Keynes' thinking: 'There is no land problem any more'.  

This occasion was a highly important meeting. There is hope that these powerful streams for economic reform can find an integrated platform. Within the space of two hours these speakers  occupied the same rostrum, but where they speaking from different premises? Link to this blog in days ahead. 

James Roberston has long brought these two themes together. See his latest newsletter which has a last-minute UK election suggestion. See also The Free Lunch - Fairness with Freedom.