28 December 2008

The Manchester Referendum

A referendum was recently held in Manchester to decide whether or not to introduce a congestion charge and use the revenue to increase expenditure on public transport. We result was 78.8% against the plan.

I was pleased with the outcome of the vote, but for different reasons than a lot of the no voters.

I'm generally supportive of road pricing, so that part wasn't my major objection, although I wasn't happy with the proposed system of electronic tags and cameras, which would only add to the extensive web of state surveillance. There are much less invasive ways of pricing road use which I prefer, such as increasing fuel duty, privatising the operation of the motorways or a distance based "tax disc" system as used in New Zealand.

The part of the bid I really objected to was increased local authority control over the bus network. There are two basic reasons I disliked the idea.

The first is the libertarian freedom of choice argument. If person A is happy to provide a bus service and person B is happy to use it, then it shouldn't be anybody else's business, so long as the normal rules of the road are observed.

The second is the practical matter of heavy regulation not working in practice. It takes control out of the hands of the passenger and puts it in the hands of politicians, so the bus operators become less answerable to the person using the service, making the system less responsive, less efficient and more expensive. Supporters of heavy regulation often point to London as a success story, but when looked at as a complete picture, London's buses receive around £1billion of subsidy per year and are supported by a congestion charge which discourages car use, while Manchester's buses receive a fraction of that level of subsidy, but offer a service which, in my experience, is comparable in terms of quality and price.

Worryingly, there is now talk about how the passenger transport parts of TIF proposal can be advanced without the congestion charge. As far as I'm concerned, they shouldn't. The question in the referendum was "Do you agree with the Transport Innovation Fund proposals?" not "Do you agree with the congestion charge?" The no vote should now mean that all the proposals are scrapped. To push ahead with bus regulation now would be just as unacceptable as pushing ahead with congestion charging.

As an aside, I wasn't a fan of referenda before this vote and it hasn't done anything to change my mind, but I'll talk about that separately.

24 December 2008

The Really Big Ponzi Scheme

While the Ponzi scheme that Bernard Maddoff is alleged to have operated is in the news, I feel it's worth re-iterating a comment I made three months ago - the British housing market is a huge Ponzi scheme.

Like other Ponzi schemes, investments in the housing market don't generally produce anything tangible, they just shuffle money around within the scheme; in fact, an increase in the supply of housing could actually cause the scheme to collapse, by suppressing the increase in house prices.

Like other Ponzi schemes, the viability of the housing market depends on being able to deliver a profit to people who invest in the scheme by getting subsequent investors to put even more money into the scheme, while maintaining the impression that nobody stands to make a loss. Of course, if the profits are significant, at some point the pyramid will collapse.

Gordon Brown's efforts to keep credit flowing into the housing market in order to keep prices inflated is a classic attempt to prop up a failing Ponzi scheme. The money coming into the pyramid from the bottom has started to dry up, threatening a collapse which can only be delayed be creating more debt and feeding it in to the system.

The Ponzi scheme that is the British housing market is far larger than anything Bernard Maddoff is alleged to have created and as the British economy is so heavily fueled by house price growth, it could be argued that Gordon Brown has been running the entire economy as a Ponzi scheme for years.

18 December 2008

A Simplistic Response to Energy Prices

Harriet Harman, filling in during prime minister's questions, said that the law would be changed to force energy companies to pass on lower costs to consumers if they didn't do it voluntarily. It might make for a nice sound-bite, but as a policy it's dangerous and probably counter-productive.

The clear implication is that the costs in question are oil and gas prices, but that ignores the fact there are numerous other costs involved which the government will never be able to adequately monitor or assess. The government could find itself forcing suppliers to cut prices at a time when increasing costs in other areas (such as staffing) are reducing their scope to do it. Even the cost of oil and gas is not as simple as the government likes to imply; many suppliers will undoubtedly enter into forward dated contracts to buy their supplies, which will give them greater security of price, but less scope to benefit from price reductions.

I don't accept the claims UK utility market (with the possible exception of water) is uncompetitive and therefore in need of heavy intervention. The number of salespeople knocking on doors and standing in shopping centres trying to convince people to switch seems to indicate that suppliers are actively competing.

By forcing the suppliers to drop their prices to reflect movements in the price of raw materials, I can see two perverse effects which could occur:

1. Suppliers may increase their prices more severely when prices are increasing, based on the expectation that they will be forced to cut prices later and need to ensure they have the scope to do it.

2. The requirement to cut prices upon government demand could force smaller players out of the market, especially those which focus on more speciality products, such as green tariffs, where price may not be the customer's over-riding concern. By reducing the number of players in the market, it would reduce the one thing which has been shown to improve the way the industry serves its customers - competition.

16 December 2008

IWF and Wikipedia

Having read about the Internet Watch Foundation putting a Wikipedia page on its blacklist while I was traveling, I was intending to post a fairly lengthy article on the subject when I got back. However, I think Cory Doctorow has covered most of the issues in pretty good detail in the Guardian.

If the IWF is blacklisting images of children which it considers to be titillating, rather than sticking to blocking images of actual abuse, it's operating in an area which is driven much more by opinion than fact and that requires much more scope for challenge.

I oppose to the idea of the government censoring the internet, either directly or by applying pressure on ISPs; it's too prone to abuse and corruption, however noble the intention may be. The government should stick to creating laws outlining what is illegal to distribute and then leave it to the courts to prosecute those who transgress.

On the other hand, if an ISP wants to offer an internet connection with certain sites blocked, I'm relatively comfortable with that as part of an open market, so long as the ISP makes it clear what criteria it uses to carry out blocking, it informs the operator of the site (when practical) that it is being blocked, it displays a notice saying that the site has been blocked when somebody tries to access it (not a dishonest 404 message which gives the impression that there is an error at the website's end) and it has an open procedure for challenging its decisions. If an ISP chooses to outsource its blocking decisions to a third party, such as the IWF, they should be obliged to ensure that the third party has procedures which are equivalent to those which would be required of the ISP.

Political Quiz

Via Mark Wadsworth, this political quiz is quite interesting. It gives an assessment of how much you agree with the policies of the Greens, Lib-Dems, Labour, Tories and UKIP.

I agree with Mark that it appears to be biased towards UKIP, but I think the result it gave for me is fairly reasonable given my views:

Labour 29%

Conservative 41%

Greens 65%

LibDem 46%

UKIP 67%

01 December 2008

On My Travels

Sorry for the lack of postings, but I'm currently moving around with infrequent access to the internet. I should be back to a normal posting schedule in a couple of weeks, but until then, here's a view out of my current bedroom window. :-)

21 November 2008

I Love Cash

Not in a "love of money is the route of all evil" way, it's just that the more the government tries to build all encompassing databases of our every movement and interaction, the more I value the anonymity that using cash brings. Lately, my use of credit and debit cards seems to have been reducing and my use of cash increasing and I think that's a subconscious attempt to reclaim my privacy and reduce the information available to prying eyes.

I've been taking the same approach to my online life. I've switched to using free and open source software, so that I know that the code is open to scrutiny and should be free of any nasty hidden features like back-doors. I've ditched Windows and started using Ubuntu, a process which was a lot less painful than I expected and I've find Ubuntu to be a much better system to use. I use Firefox for web browsing and Thunderbird for e-mail for the same reasons.

I've also started taking care to secure my data more thoroughly. I use Truecrypt to encrypt files, especially if I have to store them on somebody else's server and I use Enigmail to encrypt my email whenever I can, although there seem to be few people that use it heavily. That's a shame, because encryption is only truly effective when it's used extensively and for non-sensitive as well as sensitive data. There are a couple of reasons for that:
  • If people only encrypt data which is sensitive, such as their medical data, it flags up which files are sensitive and in the process tells any privacy invader where they should be directing their efforts.
  • If the use of encryption is limited, it allows the government to reverse the "nothing to hide, nothing to fear" argument and claim "if you're encrypting information, you must have something to hide." If everybody were to encrypt data as a matter of routine, that argument (as weak as it already is) would be completely destroyed.
Hopefully, the increasing erosion of privacy will push people to make greater use of encryption and open software, which will create beneficial network effects for everybody who does it.

17 November 2008

The New Falkland Islands Constitution

A new constitution for the Falkland Islands has been agreed and will come into force at the beginning of 2009.

Guthrum at the Libertarian Party has speculated that the document might be a prototype for a UK constitution. Given that possibility, I decided it was worth a look at the wording to see whether it would be a good option.

With this kind of document, I tend to look at the section relating to education first, as it usually gives a good sense of the tone it has been written in. For instance, as I commented previously, the European Convention on Human Rights/Human Rights Act says "No person shall be denied the right to education," which is a negative right, in that it specifies what the government mustn't do. Compare that with the constitution, which says "Every child of the appropriate age, as provided by law, shall be entitled to receive primary education which shall, subject to subsection (3), be free," which is a positive right, in that it specifies what the government must do. That is not ideal in a constitution, which should serve to place a limit on government activity.

Don't get me wrong; I think a primary education is very important and I don't object to some kind of provision being funded through taxation, I just don't think that having an education provided at the taxpayers' expense is something which should be considered a constitutional right. It opens up a whole can of worms, in that it effectively guarantees power for the government, as it gives it a service providing function which the electorate can't take away. If there is need to specify a right to primary education for all children, it would make more sense to place an obligation on parents or guardians to ensure that they receive it.

The wording of the section is also disingenuous. The use of the word "free" implies that education can be provided at no cost, which isn't generally true. It would have been more honest to say "the general public shall be responsible for paying for a primary education for every child of the appropriate age," which makes the chain of responsibility more clear.

In practical terms it would also be very difficult to prove that the specified right has been violated, as it doesn't define what "primary education" or "the appropriate age" are. The government could argue that giving a pop-up book to every five year old constitutes giving them a primary education and without defined standards, it would be problematic to argue otherwise.

The rest of the rights specified in the constitution seem to be based on those in the ECHR, so they have the up side of being mostly negative rights, but the down side of being accompanied by many broad get-out clauses. One big positive, compared to the ECHR, is that the constitution does specify a right to trial by jury, which should be a part of any constitution designed for a common law country.

Overall, at first glance, it doesn't appear to be a terrible basis for a constitution compared to others that have been suggested, but I wouldn't expect it to be used as a blueprint for a UK constitution; the government is less likely to be willing to constrain itself than it is to constrain overseas territories. The way the government has talked about a "Bill of Rights and Responsibilities" I would expect any proposed constitution for the UK to contain many more positive rights (a right to "free" education, a right to "free" healthcare, etc.) to ensure that the government is guaranteed a central role, while at the same time containing many more get-out clauses.

12 November 2008

MPs and Police Join Forces to Miss the Point on Alcohol

The Home Affairs Select Committee has suggested that the availability of cheaper alcohol should be restricted by banning happy hours and setting minimum prices. The proposals have been given enthusiastic support by Peter Fahy, the Chief Constable of Greater Manchester.

Chairman of the Committee, Keith Vaz said:

“We cannot have on one hand a world of alcohol promotions for profit that fuels surges of crime and disorder, and on the other the police diverting all their resources to cope with it.”

Peter Fahy lent his backing by saying:

"The suggestions by the select committee would make a big difference to the burden on the police and allow us to concentrate on other things like drugs, burglary and robbery. It would also make people believe their streets are safer."


"If we didn't have these problems in our country, we would be able to concentrate a lot more of our resources into crime and other issues."

Note the use of the word “believe” in the first quote. He’s at least being honest enough not to claim that the proposals would actually make the streets safer, he’s just claiming that they would change some people’s perception.

The comments by Vaz and Fahy completely miss the point that people who consume alcohol pay for the heavy burden on police they supposedly create. Alcohol carries a high level of duty because of the externalities, such as healthcare and policing, which are created by its consumption. I’d prefer it if the duty were lower and the people who cause trouble while drunk, or suffer health problems because of their drinking, were made to pay directly for the costs they create, but alcohol duty is a reasonable way of pricing the externalities.

People like Vaz and Fahy seem to want it both ways. They call for high levels of duty because of the cost of policing drinkers, but once they get the revenue, they object to spending it on policing drinkers. If the current duty is not covering the necessary level of policing, I wouldn’t object to it being increased, but that would require some analysis of the cost of policing drinkers versus the revenue from alcohol duty, which is something I’ve yet to see.

What is really unusual about the Committee’s suggestion is that it would increase the price, but without any of it going into the public purse to fund the policing which is claimed to be over burdened due to alcohol consumption. This price fixing approach is an attack on market forces as much as it is an attack on drunkenness. They seem to be objecting to the fact that supermarkets are able to out-compete local pubs as much as anything. Now, if there were evidence of predatory pricing, I’d be happy for action to be taken against the supermarkets, but in this case, I don’t see it. The idea that supermarkets could drive all pubs out of business doesn’t really make sense; if there are fewer pubs, drinkers will gravitate to the ones that remain, making them more secure and less susceptible to predation.

I get the feeling that the smoking ban is playing a part here. I imagine the committee would ordinarily suggest an increase in alcohol duty, but at a time when many pubs are struggling, with the ban being pointed to as part of the reason, it would probably create an outcry. By going down the price-fixing route, it would enable the government to reduce the availability of cheaper alcohol, while giving pubs a helping hand against the competition.

10 November 2008

Iain Dale on Votes for Prisoners

Iain Dale recently posted some comments about the possibility of the government being forced to give prisoners the vote.

Iain's comments raise two separate questions here, "who should have the power to decide if prisoners can vote?" and "is denying prisoners the vote the right thing to do?" Iain appears to be of the opinion that prisoners should not be able to vote and that Parliament should have the right to decide who gets to vote in UK elections. I disagree with Iain on both points.

On the first question, I think allowing parliament to make the decision is a very bad idea. Allowing the people whose jobs depend on getting the most votes to make the decision about who gets to vote is asking for corruption. The decision should be made on the the basis of asking "is it right that prisoners should be denied the vote?" but there is a real danger of elected representatives asking themselves "are prisoners more like to vote for me or my opponents?" and choosing the option which gives them most job security.

I'm not sure who should be making the decision. If it depends on applying a set of pre-defined rules, then judges possibly are the right people. If not, it may be that the House of Lords should be given the job, as it is one area where its unelected status would be a major advantage, as it would reduce the conflict of interest. Another option is to give the decision to a large randomly chosen jury, who would arguably be even less personally interested in the voting mechanism. Any of these approaches would be preferable to having the House of Commons involved in the decision making process.

On the second question, the major argument made in favour of denying prisoners the vote is that when somebody is imprisoned they lose their normal rights. Clearly, that shouldn't apply to those on remand, but even for convicted prisoners, they don't lose all their rights, they temporarily lose some of their rights. For example, they lose their freedom of movement, but they don't lose their right to own property, otherwise you'd see people serving short sentences for non-payment of fines leaving prison to find that they no longer owned their house, car, clothes, etc.

From my perspective, prison and the associated loss of freedom are meant to serve four key purposes: rehabilitation, protecting the public from dangerous offenders, providing punishment to create a sense of justice and acting as a deterent. I don't see how taking the ability to vote away from prisoners serves any of those purposes in any meaningful way.

Denying prisoners the right to vote opens up more potential for corruption, as it encourages politicians to introduce tougher sentences for people who are less likely to vote for them and more lenient sentences for those who are more likely to vote for them. That is not in the best interests of justice.

If prisoners genuinely are the most dangerous rogue elements within society, they should be few enough in number that their votes should have very little impact. If, on the other hand, the number of prisoners becomes so large that they are able to wield significant influence, it would tend to be a sign that something has gone wrong in a broader sense, such as people being imprisoned for significant amounts of time for minor offences or the government attempting to skew the democratic process by imprisoning people for political reasons. Ensuring that prisoners continue to be able to vote is an important democratic safeguard.

As soon as voting is done on any basis other than everybody over the age of majority having one vote irrespective of circumstances, you get into a dangerous area, where the normal democratic mechanism of the voters choosing the government is reversed, so that the government can choose the voters.

05 November 2008

In Defence of the Human Rights Act

The Human Rights Act is a favourite scapegoat of the low brow tabloids and seems to be the first in line to get the blame for anything that goes wrong. Occasionally the criticism is fair, but more often than not it isn't, mostly, it seems, due to mis-representation of what the act is; I'd be very surprised if most of the people that complain about it have ever read it.

It's probably worth saying at the start that it isn't anything to do with the EU and it isn't anything particularly new. The HRA enshrined in British law the European Convention on Human Rights which was ratified by the UK in 1951 and was drawn up as an attempt to safeguard against a repeat of the horrors of Nazism. Since then, Britons have been able to go to the European Court of Human Rights if they feel there has been an infringement of their rights. Throughout that time, the whole issue of human rights didn't seem to concern the tabloids. The HRA merely made the rights enforceable in British courts, avoiding the need to go to Strasbourg as a first port of call. Functionally, our rights are still the same as they have been for nearly sixty years, but it is only now that it the tabloids have decided to get up in arms.

Taking an overview of the HRA/ECHR, I think it works well in some areas and not so well in others.

Where it works well

• In the main, it works well, because it takes the correct approach for a constitution or a bill of rights in that it focuses on defining negative rights. In other words, it places constraints on the government by saying what it mustn't do rather than saying what it must do. This is a very important distinction. Any bill of rights should draw a line beyond which the government shouldn't be permitted to go (such as imprisonment without trial) and in doing so, define what is the maximum permitted use of its powers. Defining the minimum that the government must do with its powers is the opposite of that.

For example, the HRA says that "no person shall be denied the right to education," not that "the government must provide an education." Of course, the electorate may decide that providing a system of state education is a good idea, but suggesting that it is a right is dangerous, as rather than constraining the government, it would give it greater power, by allowing it to do almost anything necessary to provide that education, as it would be obliged make people teach. That kind of "positive right" would also be a meaningless right, as it wouldn't define a specific standard of education, nor would it ever be possible to.

Similarly, the HRA says that everybody should have the freedom "to manifest his religion or belief, in worship, teaching, practice and observance," not that "the government must provide facilities for religious worship."

• It focuses on most of the key rights, such as the right to life, freedom from slavery, the right to a fair trial, freedom of throught and expression and freedom of assembly and doesn't stray too far into areas which could be construed as contentious matters of political opinion.

Where is doesn't work well

• The fact that the ECHR was written to cover a number of nations with very different customs and legal systems means that on certain issues it is silent or vague. For example, it makes no mention of a right to trial by jury, as juries are not a feature within the civil law systems which are the norm on the continent.

• There are broad and ill-defined get out clauses attached to some of the rights, which allow them to be restricted "in the interests of public safety, for the protection of public order, health or morals, or for the protection of the rights and freedoms of others." Without a more detailed definition, "public order" and "morals" cover such a broad range of issues that they could be used to justify almost anything.

• In one section, it refers to "Every natural or legal person." Including legal persons (i.e. corporations) in a declaration of human rights is counter-intuitive and dangerous. Corporations only exist because they are created by the government and there is no reason that they should be treated as having the same fundamental rights as humans. The structure of corporations should be defined in company law, not a constitutional document.

So, it isn't perfect, but what are the alternatives?

The HRA and ECHR could be repealed in the UK, but that would solve the problems within the present situation by removing the few constraints on government power that we have, which would be a far worse position to be in.

The other alternative would be to repeal HRA/ECHR, but replace them with a Bill of Rights. I can't see that being anything but considerably worse at this moment in time. The government has already talked about introducing a Bill of Rights and Responsibilities (in addition to of the HRA/ECHR), which hints that they are intending to do away with the concept of fundamental rights and turn them into something the government owns and gives to the people that do its bidding, in the form of the responsibilities it lays out. There is no need for responsibilities to be defined in a Bill of Rights, that is the purpose of criminal and civil law and it does it perfectly well. The proposals also talk about introducing the kind of positive rights that the HRA/ECHR quite rightly leaves out.

So, of all the available options, the status quo appears to be the best by far and until I see a suggestion that improves on it, I'll support the Human Rights Act.

03 November 2008

Totalitarian Democrats

The Libertarian Party recently ran a campaign to get people to send a copy of 1984 to their MP, with the covering note telling them that the book is not an instruction manual. One Labour MP, Tom Harris, received his book and proceeded to voice his disdain at the idea that the country is proceeding along Orwellian lines. Some of his comments were extremely informative, for example:

We live in a democracy, and just because those - including my anonymous benefactor - who get excited about such things are unhappy that Labour is in power, that does not make us anything other than a democracy. And democratically-elected governments govern with the consent of the people. Yes, even this one!

Personally, my concern isn’t that Labour are in power (I don’t have any party political affiliation), I’m concerned that the position they are in allows them to exert so much control over the public and I’d feel that way irrespective of who formed the government.

Harris’s comment illustrates perfectly the problem with a lot of politicians; they can’t see the difference between democracy and totalitarianism. To people like Tom Harris, the fact that a government has been elected should give it carte blanche to do whatever it likes and enable it to rebut any questioning of the legitimacy of its actions by parroting the fact it was elected. Hitler was elected into power; it didn’t justify his actions.

With democracy, you’ve got two basic choices, you either have a liberal democracy, where the government is limited to making decisions in a way that they do not infringe on the basic freedoms of the individual, or you have totalitarian democracy (the tyranny of the majority) where the government is free to do whatever it likes and the individual has no freedom beyond what the government chooses to give him or her. I don’t think people like Tom Harris have actively chosen to be totalitarian democrats, I just think they are unaware that there are other interpretations of what democracy means.

Claiming that governments govern with the consent of the people is a meaningless platitude unless people are free to withdraw their consent, which doesn’t mean just replacing the government with another group wearing different coloured rosettes. That isn’t on the table in the UK, so politicians should acknowledge that they aren’t governing by consent, they are governing by force. As the saying goes, no matter who you vote for, the government always wins.

In attempting to justify the rafts of supposedly anti-terrorist legislation, Tom Harris says:

I genuinely believe - rightly or wrongly - that Islamism (as opposed to Islam) represents the greatest and deadliest threat to our society.

Whatever threat is posed by Islamism, it must pale in to insignificance when compared to the threat presented by governments. Even the briefest examination of a history book shows that the most evil acts throughout history have been carried out by governments. Governments have the advantage of size, but even more than that, they are able to fall back on the idea that they represent “the people” and therefore, whatever they do is morally right. Wars of aggression, genocide and numerous other acts which, if carried out by individuals or independent groups would be considered monstrous, are treated as something justifiable when carried out by governments, as they are representing “the people” and if “the people” are doing it, it must be right. In the eyes of the totalitarian democrat, to say otherwise is undemocratic.

If any group of people needs to have its activities restricted to reduce its threat to society, it is the government.

Perhaps Tom Harris’s most cringe worthy comment through the thread is:

As a Member of Parliament, I feel I should place the safety and security of my constituents and fellow citizens above every other consideration.

Their safety and security should obviously be one of his considerations, but to suggest that in all circumstances it should override everything else is idiotic.

Pursue that line of thought and you’d ban all cars, motorbikes and pedal cycles for a start, because the safety issues would override the benefits of being able to travel. You’d also ban all means of communication to eradicate the risk of the medium being used to plan a hazardous act.

Eventually, that train of thought would lead you to conclude that we should all be blind-folded, gagged, hand-cuffed and locked in padded rooms, to be released to work on chain gangs controlled by MPs, in order to keep the risks we face to the bare minimum.

No rational MP should view safety and security as their overriding concerns. Freedom, independence and the ability to seek out enjoyment have to be considered too, even if they sometimes conflict with the course of action which would maximise safety and security. I think the words of Benjamin Franklin are as relevant here as they were over two hundred years ago:

“Those who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety.”

28 October 2008

Land Value Tax - What is Value?

It's time for me to hold my hands up. When I've talked about different methods of valuing land for the purposes of LVT, whether it be self-assessment or taking house sale prices and deducting rebuild costs, I've made an assumption which, on reflection is not reliable. That assumption is that the sale price of land directly correlates to the rental price of land.

Both sale price and rental price are used within the current tax system. For instance, Council Tax is based on the assessed sale value of a house, whereas National Non-Domestic Rates are based on the assessed rental value of a commercial building.

The difference is important for LVT, because the charge is intended to be in proportion to the benefit the landholder is getting from having exclusive rights over a location at a given time, which, by definition, is its rental value. If the sale value does not directly correlate to the rental value then it is, a compromise valuation. I believe that there are examples where it could diverge significantly:

Consider two identical fields, A and B, used for agricultural purposes. I would expect them to attract the same rental price. Now imagine that field A is in an area where it is suspected that the local authority might give planning permission for a housing development, but field B isn't. Field A would have some speculative value, which would probably result in it having a higher sale price than field B, in spite of the fact that they both have the same rental value.

The very nature of sale prices means that they are also much more volatile than rental prices. In effect, the sale price of land is the predicted future rental values rolled up into a single payment. If there is an expectation that future rents will increase, selling prices can rise quickly on the basis of that speculation, while the current rental value remains relatively stable.

That isn't to say that rental price can't be derived from sale price, or that sale prices aren't an adequate proxy in the majority of cases, but I think it is important to acknowledge that they are not the same thing and allow for that when assessing any system of valuation.

I think this shows that one of the biggest problems with LVT is the name. "Land" can be misleading, as it can make people think of "soil" rather than "location" and "value" is ambiguous, as it isn't clear whether the value in question is the purchase price or the rental price. Maybe a term like "site rental value tax" would have been clearer. It would have certainly forced my thinking in the right direction.

27 October 2008

Is it Time to Privatise the Operation of the Motorways?

It seems that the bulk of the environmental movement has bought into the idea that socialist economics and its associated public ownership and control is the only way to achieve meaningful change, so suggesting a program of privatisation to them would probably be about as welcome as suggesting a dolphin harpooning holiday. I think that’s a shame, because in many cases, environmental problems are caused by the scarcity of a resource not being reflected by an accurate pricing mechanism, which is something that privatisation can introduce. One area which is ripe for this kind of change is the motorway network.

I could envisage the operation of the motorways being put into private hands using a model similar to railway franchising. The government could take bids for the opportunity to operate the network for, say, three years, with the operator free to set prices as they see fit, but obliged to return the roads in a good state of repair at the end of that time. The potential operators would have to calculate how much to bid based on their estimate of how much revenue they could obtain and the cost of maintenance. The amount of revenue the government would obtain from this would be substantial and would allow a major reduction in other taxes. The existing M6 Toll road was set up along these lines, with the builder of the road given the concession to operate the road for 50 years

The introduction of market economics would create effective road management. If the operator were to set prices too high, people would use other roads or other modes of transport. Set the price is too low and they wouldn't cover their costs and congestion would build. A closed motorway would mean lost revenue for the operator, so they would have a strong incentive to carry out road repairs quickly and at the quietest times. There would also be significant environmental benefits from introducing market-based pricing of long distance car travel.

I generally consider it much fairer and economically sensible for the government to obtain its revenue by charging for the use of common and public assets (oil drilling licences, pollution levies, land rent, etc.) than by arbitrary taxes which don't have any direct relation to the benefit being given (income tax, VAT, etc.). Privatising the operation of the motorways would fit into that model nicely.

I have to admit that instinctively it wouldn't be my prefered option; I still prefer the idea of using fuel duty as a way of charging for road use, because I value the anonymity it provides compared to direct electronic road pricing, but fuel duty suffers from the problem of being subject to so much political pressure to keep it low that it is unlikely ever to be set at the the same level as true market based road pricing. Fuel duty also suffers from the fact that it prices two separate factors, the first being the scarcity value and maintenance costs of road space and the second being the pollution caused by burning fuel. This creates the problems associated with agricultural fuels, which justifiably have a lower duty due to them not reflecting any road use costs, which then creates the potential for a black market in so-called "red diesel." Pricing road use separately from pollution would allow a single tier system of fuel duty to be used.

I'm much more comfortable with the idea of motorway franchising then I am with other road pricing schemes because the privacy issues aren't as severe. Firstly, the charging would be carried out by a private sector organisation, which would have a limited scope to use the data for surveillance purposes, as it would have limited access to data other than what it has collected itself, as opposed to the government, which would be able to cross reference the data with other databases. Secondly, as the charges would only be applied to motorways, it would still allow people to travel anonymously on ordinary roads, so long as other forms of vehicle tracking were not used on those roads.

On balance, I think motorway franchising may be the way forward.

24 October 2008

The Electricity Market - Another Situation Made Worse By Regulation

It seems that suggestions that the energy market is not sufficiently competitive and requires more regulation are becoming an almost daily event. It seems to be the same story as the banking sector; the industry is already heavily regulated, but it is assumed that any problems must be due to the regulation not being tough enough. The validity of the existing regulation is rarely questioned.

When I looked around to see what the suggested regulatory reforms might be, I came across an
interesting article on the Ecotricity website outlining what they perceive to be the major regulatory failings. Ecotricity is a smaller supplier (around 35,000 customers) which invests heavily in wind energy. It is this kind of supplier which could provide innovative competition to the "Big 6," so their opinion of what is stiffling the sector is probably worth taking into consideration.

What is interesting is that they highlight seven issues, three of which have been created directly by the regulator, which are:

  • The cash flow issue created by the requirement that suppliers offer a quarterly payment option. The regulation may have been written with the honourable intention of giving customers more choice, but it will clearly present a problem to new and smaller suppliers who may have less access to credit (per point 1), but have to pay up front. In trying to increase the choice of payment terms, the regulator could be reducing the choice of suppliers.

  • The burden created by the social requirements placed on suppliers, which ties in with the previous point a little. By forcing suppliers to offer a range of payment options and adminster energy efficiency programs, the regulations place a disproportionate burden on smaller suppliers compared to the larger players.

  • The length of contracts being limited to 28 days, which impedes the ability of suppliers to carry out reliable business planning and limits entry into the market, compared to industries such as broadband, where income can be secured over a longer period.
There seems to be a recurring theme whenever the government regulates a market, one of unintended consequences; they put requirements into place which will supposedly benefit the customer by increasing competition or creating greater choice, but they often end up doing the opposite by creating barriers to entry into the market.

21 October 2008

Land Value Taxation Without Valuation

As I've said previously, I like the principle of land value taxation (ideally paid out in full as a citizens' dividend). In discussions I've had with people who aren't convinced by the idea, the major concerns relate to the valuation methodology and the possibility that government corruption could skew the valuation process.

With a statistically based system, working from market data, I believe the potential for government manipulation of the system could be all but eradicated, but I recently came across a brilliant suggestion on Anti-Citizen One's blog which would go one step further and take the government out of the equation completely. The suggestion was to let the landholder produce his own valuation of the land.

Having read the suggestion, here's how I see it working. The government would set the LVT as a percentage of the sale value of the land. The landholder would then have to submit his own valuation saying how much he would be prepared to sell the land for, so if the tax rate was 2% and the landholder valued the land at £100,000 the annual tax bill would be £2,000.

Now, if you are looking at it like I did, you are probably thinking that there is a massive flaw, in that the landholder, unless he is incredibly honest, will value the land at £0. This is the where the next part of the system would come into play. If somebody offered the landholder his stated valuation, he would be obliged to sell at that price, so undervaluing the land he holds would put him in danger of having to sell the land for less than he is really prepared to.

The buyer would only be buying the right to exclusive use of the site, not the previous occupier's property, so the previous occupier would be free to take every brick and plant from the land and leave a completely bare site for the new landholder.

The government would have no involvement in the valuation process, the landholder would be entirely free to produce his own valuation of exclusive rights to the land and the system would ensure that his assessment is honest.

I suspect that this approach might be a bit too radical to introduce as a first step, but it could still be introduced as a back up to a system based on a more traditional valuation system. The government could set the rate of LVT and carry out the valuation, but if somebody felt their valuation was too high, they could set their own instead, on the understanding that they would be obliged to sell to anybody who was prepared to meet that valuation. As a first step I think that would be a good one.

Yet More Surveillance

There is an excellent piece by Cory Doctorow on BoingBoing about the government's attempts to force anybody buying a mobile phone to show their passport. This would enable the government to complete it's giant database of every phone call, email and website visit, by allowing them to tie every phone to an individual.

The whole idea that this is purely about serious crime or terrorism is clearly nonsense. As Cory points out, those people will simply buy an anonymous phone overseas and use it in the UK. Somebody else pointed out another obvious way around it, which is to steal somebody else's phone.

At first I was annoyed by the fact that this totalitarian government was trying to completely rob me of my freedom and privacy. Now I'm more annoyed by the fact they've become so arrogant that they don't even think they need to bother coming up with a half decent excuse to do it.

20 October 2008

More House Price Nonsense

Alex Salmond of the SNP always seems especially eager to eschew policies of substance in favour of soundbite populism. His latest move continues the trend.

He has announced that a shared equity scheme for first time buyers in Scotland will be extended, with the intention of enabling more young Scots to get on the property ladder. Coming from a man who was an economist before becoming a politician, it is an absolutely ridiculous policy decision.

Affordability will improve without these interventions, because house prices are falling anyway. By pumping more money into the housing market, the SNP will prop up the underlying house prices. That might not be particularly bad news for those that can get an equity share arrangement, but for those that can't, things will be worse than they would have been without the scheme, because they will find it harder to afford the house prices that the government is artificially inflating.

In the long run, this kind of equity share approach is completely counter productive, because the way it forces house prices up results in the government having to pump more and more money into the scheme to maintain the very affordability that the scheme itself is harming.

You've also got to seriously question the wisdom of the government taking a stake in an asset which is currently falling in value and is predicted to continue falling for some time.

Let's also not forget that one of Salmond's pet policies, the local income tax, will also have a major impact on affordability. By removing council tax and thereby reducing the cost of holding domestic property, it will increase the demand for houses and push prices up. There was a spike in house prices when domestic rates were abolished in favour of the poll tax and exactly the same effect will play out with local income tax.

In short, if Alex Salmond wants to improve the affordability of housing in Scotland, he should do exactly the opposite of almost everything he is doing now. Unfortunately, his current policies make for good soundbites, so I wouldn't expect that to happen.

18 October 2008

Joined Up Government?

The government is continuing to push for universal mass medication by fluoridating all water supplies. It seems to be be gaining ground in Greater Manchester, as seven of the ten local health trusts are working to produce a fluoridation plan.

When the scheme was first mooted, one Greater Manchester Labour MP, Hazel Blears, dismissed concerns about the ethics of mass medicating the population without each individual's explicit consent by saying:

"those who remain adamantly opposed would be able to use water filters that remove fluoride or buy bottled drinking water"

That statement seems to be a little bit at odds with one made by another Greater Manchester Labour MP, Phil Woolas, who gave his support for a campaign to get people drinking more tap water by saying:

"There are more than a billion people in the world without access to safe water, and yet, here we are with pure water on tap, buying it in bottles - I believe it's morally indefensible"

So, the message from our joined up government seems to be that if you choose not to consume fluoride, you are doing something morally indefensible.

17 October 2008

Shared Space in Manchester

Warren Marshall, the Urban Design and Conservation Manager at Manchester City Council, retired earlier this month. I've never met the man, but I'd like to applaud him for one particular piece of work he did during his career - the redesign of the area around St Ann's Square in Manchester City Centre.

I'm a big fan of the shared space approach pioneered by Hans Monderman in The Netherlands, which removes the separation between road and pavement, by, among other things, lowering curbs so that the road and pavement are on one level, removing barriers between the two and removing most road markings and traffic lights. The approach has proven to be successful at reducing accidents. That might be counter-intuitive to many, when we are used to being separated and controlled for our own safety, but it seems that when you stop people relying on the layout of the road to keep them safe, they start to pay more attention to what is going on around them and take more care.

The area around St Ann's Square isn't a pure shared space scheme (there are too many bollards for a start), but it does have some of the key features, such as the pavement not being raised up above the level of the road and the unusual features separating the road from the pedestrianised areas next to it, such as the large stone balls on the right of the picture.

The area has a much more pleasant feel than the ordinary roads surrounding it. There never seems to be any conflict between drivers and pedestrians, in spite of the fact that pedestrians tend to walk straight down the middle of the road. That lack of conflict seems to exist because nobody has any sense that they have priority, so instead of people angrily demanding that others get out of what they perceive as their part of the street, people silently and politely accommodate each other.

The way this has been achieved in one of the busiest parts of a major city is impressive and I imagine it wasn't been an easy scheme to put in place, so thanks for your work, Mr Marshall and enjoy your retirement.

14 October 2008

Economic Myopia - Part 2

The government's response to the banking crisis just gets more ridiculous.

They've spent weeks berating the banking industry for being irresponsible and taking excessive risks; Gordon Brown told the UN in no uncertain terms that it was time for the end of the age of irresponsibility.

It seems that the banks are doing exactly what was being demanded of them and have entered a phase of re-evaluation. It is obvious house prices are over inflated and indebtedness is unsustainably high, so the banks are backing away from lending more money until the underlying risks become clear.

So, is the government standing together as one to welcome this new age of caution and responsibility? Of course not! The Treasury Select Committee has criticised the banks for not being hungry for business and not doing enough to support the housing market.

We've passed the top of the land price cycle and we're entering a recession, so house prices are falling while unemployment is rising. Of course lenders aren't hungry for mortgage business at the moment. If they were, they'd be idiots.

To use my analogy from yesterday, the approach the government is taking is like criticising brewers for selling to alcoholics, but pushing them to keep supplying anyway, so we don't end up with large numbers of alcoholics sobering up and suffering with bad hangovers.

13 October 2008

Removing Depositor Guarantees Would Mean Cheaper National Debt

In a previous posting, I gave reasons why removing the guarantee on deposits in banks would go a long way to resolving the problems that have caused the current banking crisis.

There is a pleasant side effect that removing depositor guarantees would also create, which is that it would make servicing the national debt cheaper. I'll explain why:

At present, the UK government carries debts of in excess of £500billion. In the ideal world, the government wouldn't carry that debt; it amounts to over £8,000 per person in the UK and it is an irresponsible way to operate a government as it allows the cost of todays spending to be passed on to future generations. Unfortunately, we aren't in the ideal world and that level of debt won't go away overnight, so while we have it, we need to find a way to fund it as cheaply as possible.

Around £84billion of that debt is funded by people investing with National Savings & Investments (according to their annual report), through products such as premium bonds. NS&I should have a strategic advantage over private sector banks, as somebody investing in NS&I is lending money to the government and therefore has a government guarantee of repayment. Unfortunately, the government throws this advantage away by guaranteeing some investments in private sector banks too, even though the government isn't the borrower.

If the government removed the guarantee on private sector bank deposits, the advantage would materialise. People would see the risk in banks and demand higher interest rates from them. On the other hand, NS&I would be able to use its government guarantee as a major selling point and reduce its interest rates, knowing that it would be the only port of call for investors looking for safety.

Economic Myopia

Just when I thought the government couldn't find any more ways of fouling up the banking system, they go and prove me wrong. As part of the plan to bail out RBS and Lloyds TSB/HBOS, the government has announced that it has made these banks commit to:

"maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels."

The wisdom of maintaining high levels of lending to small businesses is debatable. The wisdom of maintaining high mortgage lending isn't; it's just plain stupid.

The reason mortgage lending has dried up is that house prices have increased far faster than income levels, driven by cheap credit and they are now unaffordably high, causing mortgage defaults to rise. House prices are falling as part of a natural correction. Trying to force people to take on more debt in order to keep a debt driven house price bubble growing, when people are struggling to service the existing debt, is clearly going to create bigger problems. It's a bit like trying to keep a pyramid scheme going by pushing more people into it; it might work in the short term, but eventually it will crash and the longer it takes to happen, the worse the crash will be.

By adding in the requirement that mortgages should be "competitively-priced," the government has made it even worse. One of the reasons that the banking crisis has been so bad is that mortgages were priced far too cheaply. Many banks foolishly assumed that house prices and income levels would continue to grow smoothly and constantly and perceived the credit risks associated with mortgage lending to be almost non-existent. This pushed lending margins down and left banks horribly exposed to increased defaults and reductions in house prices. These government funded banks need to ensure that their mortgages are realistically priced for risk before they even consider competing against other banks, which might be setting their interest rates too low to cover the risks they are taking.

In reality, I expect the opposite will occur and the government backed banks will price much lower than the fully private sector banks, which I expect to restructure their mortgage portfolios, by increasing interest rates to more accurately reflect risk and push their less attractive customers elsewhere. RBS and LloydsTSB, with their obligation to maintain lending levels, will probably be forced to acquire these customers by the government. The end result will be that the majority of banks will restructure and stabilise their portfolios, while the taxpayer will be left with a large stake in two banks holding large amounts of junk debt. What happens then is anybody's guess.

The strategy that the government is pursuing is comparable to using taxpayers' money to put pressure on a section of the brewing industry to continually increase production of lager, keep prices low and sell aggressively to alcoholics, in order to ensure that they don't sober up and suffer from a nasty hangover. It might satisfy some short term goals, but in the longer term, it will achieve nothing.

29 September 2008

Stop Protecting the Savers

Throughout the banking crisis, one thing that all sections of the mainstream political spectrum seem to have agreed on is that savers must have their deposits protected at all costs. That's a shame, because it is precisely that approach which has got us into this mess.

It all comes down to a muddying of the distinction between a "depositor" and an "investor." Under the original meanings, a depositor was somebody who put their money in a bank for safe keeping. Somebody with a safety deposit box is probably the closest thing we have to a genuine depositor today. They make no profit from leaving their assets with the bank; in fact, it costs them money. In contrast, an investor was someone who gave their money to a third party with the intention of making a profit on it, but also with the risk that they might make a loss.

The problem with savings accounts at banks is that they are treated as if they should have the risk free characteristics of a deposit, but also enjoy the risk taking profits of an investment through the interest they get paid. That obviously means that somebody else has to shoulder the risk which is involved in creating the profits and in this case, it is ultimately the taxpayer. The saver gets to take the profits when things are going well, but when they go badly, the taxpayers has to guarantee that the saver doesn't lose any of their original investment.

The mainstream attitude all comes down to the perception of the individual players. Directors, corporate investors and shareholders are criticised for making profit in the good times but being bailed out in the bad, while savers are portrayed as passive victims who must be protected, in spite of the fact that they are just as much beneficiaries of the "privatised profit but socialised risk" scam as the others, if not more so.

This is why, as I've said previously, this crisis is not a result of the free market, but government intervention. In a genuine free market, savers, just like shareholders, would have to accept the losses that arise from bad investment decisions. This is how it works in other industries, where creditors queue up to get what is left after a business fails. By guaranteeing deposits and creating the impression that savers are involved in a risk free activity, successive governments have created the conditions that have resulted in this crisis.

The first step that should be taken now is to re-establish the distinction between "depositor" and "investor."

A depositor, who puts their money with a bank for safe keeping and makes no profit from it, should be well protected, just as they would be if they'd put it in a safety deposit box. The law should treat the bank in much the same way it treats postal services; it is a custodian that has no right to use the property it holds. Any attempt to use that money for investment should be treated as a serious criminal offence for which the Board of Directors of the bank should be ultimately criminally liable, just as they should be if they allow their staff to take assets out of safety deposit boxes. The bank would therefore hold cash and central bank deposits equal to its genuine deposits, which would be paid out to the depositor immediately should the bank fail. In contrast, an investor who puts their money in an account with the intention of earning interest on it should have much less protection. They should be treated as a creditor of the bank and if the bank fails, they would have to wait for the bank to be wound up and its assets sold and then collect whatever percentage of their deposit is available from the proceeds. This leads on to an area where I disagree with many of those with libertarian leanings - the fractional reserve system.

The fractional reserve system of banking allows banks to lend money that is saved with them in such a way that, if all the savers were to try to withdraw their money at the earliest possible opportunity, the bank wouldn't have the cash available, because it is tied up in loans. It is what makes bank runs such a problem. Many libertarians think the fractional reserve system is inherently wrong because of that, but I don't view it that way. Any individual could do the same as the banks do; I could borrow ten pounds from you and write you and IOU. I could then spend the ten pounds, while you treat the IOU as ten pounds available to you whenever you want it, just as you would treat ten pounds in an instant access savings account. The problem arises if you try to get your ten pounds back from me and I don't have the cash, just as it would if you went to the bank and it couldn't pay you back because your deposit is tied up in a loan.

The real problem with the fractional reserve system arises because the government takes the risk out of it. If the banks can't pay their IOUs, the central bank lends them the money. If a bank fails, the government makes sure the IOUs get paid back. If IOUs written by individuals had the same guarantees, IOUs would get written, accepted and spent recklessly, just as the ones issued by the banks are.

We don't need to get rid of the fractional reserve system; we just need to make sure that it is clear to all what risks are and that those risks stay with those who are trying to profit from them. Savers who are trying to profit from their money being lent to others should be told that, if there is a run on their bank and there isn't the cash available to pay out their investment, they will have to wait in line until a loan is paid back and the cash is there, even if that takes years, unless the bank is forced out of business, in which case the saver might not get back their original investment in full.

By putting the consequences of risk taking back with the people taking the risks, we would solve the fractional reserve problem. People would treat putting money in an interest paying account like buying shares - an activity which can bring rewards, but also has risks. People wanting genuine security would put their money in non-interest paying deposit accounts or safety deposit boxes. All of the risks associated with the banking system would stay in the system, rather than being passed on to the government and by extension the taxpayer. The amount of reckless risk taking would reduce and the system would stabilise.

In short, if you want a sound banking system, stop protecting the savers.

20 September 2008

Is Gordon Brown the New Neville Chamberlain?

Whatever else Neville Chamberlain did throughout his political career, he will be remembered for just one thing - returning to England after finalising the Munich Agreement with Hitler and declaring "I believe it is peace for our time." Such big claims are alway liable to come back to haunt you if they prove to be false.

In the ever worsening economic slump, I can't help feeling that Gordon Brown might similarly be remembered purely for his claims that he'd put an end to boom and bust.

If, in 1997, he only expected to be around for one term, it might have been a politically sound statement for Brown to make, even if he didn't believe it was true; you can get away with claiming to have eliminated boom and bust when you're in the boom phase. Of the boom and bust double act, boom has always been the more popular partner. It isn't really boom and bust that joe public wants to see eliminated, just bust. So long as you're out of the way before bust makes a come back and you can blame your successor, you're laughing.

If, on the other hand, Brown genuinely believed that he had put an end to boom and bust, he was both arrogant and stupid. He made certain economic changes, such as giving the Bank of England control over interest rate changes, which created more economic stability, but he completely failed to address the underlying land price cycle which drives boom and bust. By failing to heed the warnings of the likes of Fred Harrison and Fred Foldvary, he's been the architect of his own demise. The ultimate irony is that, by creating stability and constant growth in the boom part of the cycle, he might have made the bust phase worse.

Unless he quickly recognises his mistakes, he's only going to make them worse. His efforts to keep the housing market moving at any cost have turned it, even more than before, into a giant pyramid scheme, with more and more money being pumped in at the bottom to keep an unsustainable chain going. If house prices are falling, it's because speculation had pushed them too high. Continuing to stoke them will just make the inevitable fall even harder.

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17 September 2008

The Banking Crisis

Earlier today, Lloyds and HBOS formally announced that they are in merger talks. There is a lot of comment in the media suggesting that this move has been motivated by the credit crunch. I think that is true, but not in the way the media is implying. In the banking market, where bigger is generally better, merging is always going to be an attractive option. The problem for the banks is that, when times are good, competition rules make merging difficult. When the economy turns messy, it's a completely different story. The government becomes so scared of banks going bust that they throw competition rules out of the window. That presents the banks with a golden opportunity.

I've seen plenty of comment on message boards claiming that the current crisis in the financial sector is a sign that the free market doesn't work, because institutions are being bailed out by the state. As an argument, I think that's pretty poor. The banking sector is not even a vague approximation of a free market. It has high statutory barriers to entry and the state intervenes in a way that encourages reckless behaviour, such as, ironically, by bailing out institutions when they hit problems.

In the UK, the three state interventions in the banking sector which I think cause the most distortion are:

1. The government guarantees bank deposits (to certain levels), which reduces the risk to the depositor and therefore reduces the need for banks to prove to customers that they are well managed.

2. The Bank of England acts as lender of last resort for the banks, which allows them to make riskier liquidity decisions. If banks were at the mercy of their competitors when seeking out liquidity, they'd have to be more prudent.

3. The government implies that some banks are “too big to fail,” which sends out the message that the bigger players will be kept safe no matter how bad the situation gets, which encourages risky behaviour all round. This is one of the major reasons that "bigger is better." The current arrangement offers an implicit guarantee that, if a bank gets big enough, the government will make it immune to some market forces and prevent it from ever failing. The potential for failure is an essential part of a free market; it's what gets the bad practices out of the market. It's not a perfectly smooth system, but like evolution, it pushes things in the right direction. Take failure out of the system and bad practices can build up, until what might have been an individual failure becomes a wider catastrophe.

Add in the fact that the FSA has the statutory objective of "maintaining confidence in the financial system," which is a bit like telling a road safety officer that part of their job is to convince people that the roads are completely safe and risk free and you have a recipe for disaster.

If the current situation shows anything, it's that government intervention has a tendency to solve problems by creating bigger ones.

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13 September 2008

One Country Makes Geo-libertarian Changes

I'm a big fan of the geo-libertarian approach to economics, which is a synthesis of the georgist principle that everybody has an equal claim over natural resources and the libertarian principle that government should be kept small and services should ideally be provided through freedom of choice, rather than by the state.

When you combine those two viewpoints, you get the geo-libertarian position that, economically, the state should be limited to collecting charges for using natural resources (oil drilling permits, land rent, broadcasting licences, etc.), taking only as much of the revenue as is necessary to fund the essential functions of government (courts, land registry, etc.) and paying the rest out in equal shares as a "citizens' dividend."

While I make an effort to promote these ideas, I've never really believed that there is much chance of them being widely adopted, because they go against the mainstream political momentum. Georgists struggle to gain ground, because many of the wealthy supporters of mainstream politicians benefit from special privileges over natural resources, such as control over large swathes of land or exclusive access to gas and oil fields. Libertarians struggle to gain ground, because most politicians want more power and work to create the impression that giving them greater control is the only way to make things better.

However, over the last week, I've gained a little hope that geo-libertarian ideas might make some progress after all, after one political leader announced his plans to introduce a citizens' dividend to replace large parts of his government's spending. In a speech outlining the changes, he said "Corruption is linked to bureaucracy everywhere in the world. The solution to ending corruption is to end this administration which manages money spending, and put the money directly in people's hands." About the education budget he said, "Put it in your pockets and teach your kids as you wish, you take responsibility."

So, who is this visionary? Muammar Gaddafi, the leader of Libya!

The leader of the oil rich nation said, "Libyans, with oil money directly in their hands and bureaucracy dismantled, will set up a genuine popular administration and form a society of the masses ruled by a genuine direct democracy."

Of course, talk is often cheap and it still remains to be seen if Gaddafi will convert his talk into action, but just to have a political leader expressing these ideas is a major step forward.

So, it seems that the country leading the way on progressive economics is an authoritarian military dictatorship. I don't know whether to laugh or cry.

You can read more about the story through the BBC or Reuters.

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11 September 2008

Windfall Taxes - A Slap in the Face for the Rule of Law

One of the fundamental principles of the rule of law is that there should be no punishment for an act which was not a crime at the time it was committed. This prohibition of ex post facto laws, as they are known, is reflected in both the European Convention on Human Rights and the American Constitution.

So, if I had a cup of coffee yesterday and the government made coffee illegal today, it shouldn't be possible for somebody to charge me with breaking the law, as what I did was legal at the time I did it. Similarly, if I was arrested for being drunk and disorderly yesterday and today the government increased the maximum sentence for being drunk and disorderly to life imprisonment, it shouldn't be possible for me to be imprisoned for life, as that was not the maximum sentence when I committed the offence.

As well as applying to criminal acts, the avoidance of ex post facto taxation is a valuable principle in a democracy, not just because it is consistent with the rule of law, but also because the ability to restrict the tax flow to the government is an important form of protest for those who have serious objections to government policy. This can only happen if the taxpayer is aware the tax before it is levied.

Thankfully, almost all taxes pass the test of not being retrospective. If the government says it is going to levy a tax on my car, I can sell it. If the government says it is going to increase income tax, I can get a lower paid job. If the government says it is going to increase the tax on land or buildings, I can downsize. If the government says that is going to increase the tax on tobacco or alcohol, I can stop buying them. Even with a poll tax, I can leave the country or even kill myself if my moral objections to the government are so severe. Whatever you think of these taxes, it is clear that each of them is levied on an activity which occurs after the government has enacted the tax.

There is one set of taxes which completely ignore this principle and that is windfall taxes. There is currently pressure to levy a windfall tax on the previously declared profits of energy companies, but such a tax would clearly be ex post facto; the companies didn't know about the tax when they earned the profits and there is nothing they could now do to avoid the tax.

As well as being unjust, these taxes are often based on ideas that arise out of anger rather than rationality. Often the taxes are levied on the basis that the companies are making "excess" profits, without any justification of what excess means, but an underlying implication that the customer is somehow being ripped off. This ignores the possibility that the companies may be making a profit because they are simply doing a good job. A gas supplier, for example, may make a profit by predicting the wholesale market in gas correctly and buying gas when it is cheapest.

Creating uncertainty around tax issues can also discourage investment, causing companies to move into more predictable markets, resulting in weakened competition and potentially a poorer deal for the customer in the long run.

Calls for windfall taxes may be well intentioned, but in the long run they can harm the people they are supposed to help. The whole thing looks even more absurd when you consider that there is already a tax on profits, in the form of corporation tax, which ensures that companies pay more tax as they make more profit, but in a much more open and honest way.

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28 August 2008

Green Taxes - How to Completely Miss the Point

The TaxPayers' Alliance have released a report called "The Burden of Green Taxes," in which they claim that green taxes are too high, on the basis that the taxes are much higher than are required to cover the social cost of carbon emissions. The report goes on to claim that high green taxes harm the competitiveness of the UK, encourage companies to move overseas and potentially cause jobs losses. The final conclusion is that green taxes should be frozen or cut.

I have to admit that I took an instant dislike to the TaxPayers' Alliance, purely because of the name; nothing is guaranteed to irritate me more than people claiming to speak on behalf of others, especially a group as disparate at "Taxpayers," which is pretty much everyone. Having said that, their main mission is to reduce government expenditure, which is something I generally agree with, so I think I approached the report with a fairly open mind. Having picked my way through it, I would describe it as 79 pages of detailed analysis with a completely erroneous conclusion.

The first point to consider is that carbon emission is only one of the externalities of fossil fuel use. Driving, for example, causes congestion and air pollution too. The report does acknowledge those externalities, but dismisses them as not warranting pricing, thereby implying that polluting the air is not something which should place a cost on the polluter.

Even if you put that aside and take all the calculations at face value, accepting the idea that green taxes are too high because they exceed the costs of the externalities relies on the reader ignoring the fact that most other taxes are levied on activities which have no direct externalities. If you apply the TPA's reasoning to taxes such as income tax and VAT, it implies that they should be zero, as that is the cost of their externalities.

Now, if that was what they were suggesting, with a move towards public revenue being raised purely from green taxes set at the level of the externalities, along with a land value tax, I'd be all for it. As a geo-libertarian, that would be my ideal system, on the basis that it would only charge people for doing things which have a negative impact on others. Unfortunately that isn't what the TPA is proposing. If they were, they'd be defending green taxes and calling for income tax to be phased out, rather than pushing in the opposite direction, by attacking green taxes while waxing lyrical about the idea of a flat income tax.

To me, the argument that we should levy less tax on activities which have negative effects on other people just doesn't make sense when we're still levying taxes on activities which have no negative effects on others.

The idea that green taxes are bad for business is erroneous too. When you tax something you discourage it, so a tax on pollution does certainly discourage polluting businesses from operating in the UK, but, by the same token, income tax, as a tax on earnings, discourages labour intensive businesses from operating in the UK and a tax on profits discourages profitable business from operating in the UK. When looked at as a complete picture, it becomes obvious that if the government wants to raise a certain amount of tax without reducing the benefits gained from businesses, it makes sense to raise it by taxing and discouraging pollution, rather than taxing and discouraging jobs and profits.

If there were no income tax or VAT then the the time would be right to debate the pros and cons of reducing green taxes, but until then, the TPA is attacking the wrong target.

Copyright © 2008 Paul Lockett (paul-lockett.co.uk). Verbatim copying and distribution of this entire article are permitted worldwide, without royalty, in any medium, provided this copyright notice is preserved.

26 August 2008

The Manifesto

As a fair part of my blog involves criticising other people's political opinions, I thought it was only fair to put myself in a position where my own opinions are open to scrutiny. The best way I could think of doing that was to produce a personal manifesto. I've taken some inspiration from a few sources, such as Fred Foldvary's outline geo-libertarian constitution and bill of rights[1] and the free earth manifesto from earthfreedom.net [2], which both have a similar basis to mine, but reach different conclusions in a number of areas. I view this as a work in progress, so if anything new occurs to me, or somebody points out something I've not considered, I'll revise the document.


This manifesto is built on the belief that all people should have the right to use their own bodies and the material fruits of their labour as they wish, but the natural environment should be treated as a common good to which everybody has an equal right.

  • Personal Sovereignty.
    Adults should be free to use their own bodies, minds and property as they see fit, so long as they do not infringe the rights of others by using or threatening to use force or fraud, or place others in immediate danger. Compulsory medication, including the addition of a substance to a public water supply for medical purposes, should be prohibited. The government should not be permitted to retain fingerprints, DNA samples or other bodily samples from citizens unless they have been convicted of a serious crime.

  • Freedom of Association.
    Consenting adults should be free to choose who they associate and trade with, including the freedom to enter into any form of sexual relationship, so long as they do not violate the rights of others. The judiciary of a community should act to adjudicate on and enforce an agreement freely and knowingly entered into by adults, at the request of any one of the participants. The participant found in favour of should have the right to have their reasonable legal costs paid by the other participant. A contract which contains terms which violate inalienable rights, such as a contract to enter into slavery, should not be enforceable.

  • Freedom of Expression.
    Every person should have the right of free expression. Legal penalties for harm caused by expression should only be permitted in the cases of false statements which defame a person or place others in immediate verifiable danger (in both cases, where the person making the statement knew it was false or showed reckless disregard of whether or not the statement was false), perjury and fraud..

  • Freedom of Movement.
    People should be free to move goods, services and themselves across borders, with the only permissible restrictions being the pricing of any externalities imposed across those borders and the requirement that migrants do not violate the rights of those residing in the community they are entering.

  • Self-Defence.
    People should be free to defend themselves and their property, so long as they use no greater force than is reasonable to prevent or minimise the harm caused by the initial threat. People should also be free to offer such defence to others.

  • Criminal Justice.
    Those accused of a crime should be presumed innocent, be informed of the charges against them, have access to a solicitor, be able to examine the evidence against them, have the right to silence and have a fair, speedy public trial by an impartial jury, chosen at random from the electoral register, with the right to acquit through jury nullification. Those accused should only be convicted if their guilt has been demonstrated beyond reasonable doubt. Nobody should be charged with an offence which was not a crime at the time the act was committed, or face a more severe sentence than was applicable at the time the offence was committed. Anybody who is detained against their will should have the right of habeas corpus. Penalties for criminal acts should be proportionate to the harm caused. The removal or damaging of a body part as a penalty for a crime should be prohibited. Capital punishment should be prohibited.

  • Children.
    Parents and guardians should have the right to raise their children as they see fit unless they abuse, neglect, or recklessly endanger their children. Neglect includes a failure to provide shelter, nutrition, medical care and a sufficient level of education to enable the child to become an informed adult capable of critical thought.

  • Copyright.
    Ideally, communities should not grant monopoly rights over artistic and literary works beyond those which the producer is able to achieve through ordinary contract laws. If communities do grant monopoly rights to producers of artistic and literary works, those rights should not prevent anybody reusing the work if the use is non-commercial, does not misrepresent the original work in a defamatory way and the original source is stated. These rights should only be granted for a limited time period (no greater than the average human lifespan) specified in law at the time of publication. It should be forbidden to retrospectively increase the period of copyright protection. Copyright should not be granted on works where technological measures or contractual terms have been applied to the work which are intend to, or have the effect of, imposing more severe restrictions on the user than would be applicable under copyright law. When copyright expires, the work should fall into the public domain.

  • Patents.
    Ideally, communities should not grant monopoly rights over inventions beyond those which the inventor is able to achieve through ordinary contract laws. If communities do grant monopoly rights over inventions, they should be for a maximum period of twenty years, with a tax levied on the patent as a fixed percentage of the holder's assessment of the value of the patent, with the percentage being set at a level which collects the majority of the value of the patent. The holder should be obliged to sell if anybody offers to meet their valuation. The holder should be free to increase their valuation at any time, but never reduce it. At any point, the holder should be free to cancel the patent and put the invention into the public domain. It should be forbidden to retrospectively increase the length of a patent. When a patent expires, the invention should fall into the public domain.

  • Trademarks.
    Communities should be able to grant monopoly rights to use distinctive words or logos to indicate that products have come from a specific producer or region, or meet a certain standard.

  • Natural Resources.
    Natural resources are those items, other than humans, which have not been made, cultivated or extracted by people and include underground minerals, ores and oil, wildlife, naturally occurring forests and plants, the air, rivers, lakes, seas, rain, sunlight, the electromagnetic spectrum and the surface area of the Earth. As natural resources are not the product of human effort, they should be considered common property.

  • The Value of the Commons.
    Each member of the community should be viewed as having an equal claim on the economic value of the commons, which in turn provides a mechanism for the just and open protection of the commons. In a situation where over-use of the commons endangers its continued viability (such as over-fishing), the community should be able to control the over-use by a permit/quota system, with the permits being leased at market value.

  • Animals.
    People should not be permitted to inflict intentional cruelty on sentient beings.

  • Resource Extraction and Pollution.
    The community should collect the market value of finite natural resources (such as minerals and oil) extracted from a community commons.

  • Pollution.
    A community should be able to charge a fee for polluting a community commons, such as a duty on fossil fuels burnt in the area.

  • Geographically Fixed Natural Resources.
    A natural resource which is a geographically fixed and is not reduced by use, such as land, the broadcast spectrum and the atmosphere, should be treated as unowned property to which all have an equal right and not sold in perpetuity, although this should not prevent people having secure possession of land in perpetuity.

  • Land Rent.
    The unimproved value of land, should be collected by the community as land rent (likewise for other geographically fixed natural resources) when exclusive use is being made of the resource. In this context, exclusive use means any situation other than one where all members of the community have the same rights to access, control and use the resource. As the unimproved value of land is created by the location of land, the community around it, the public services provided and planning permissions or restrictions on land, this captures the community created value of a common good for the benefit of the community. The rental price should not be set for a period longer than 10 years. If there are practical difficulties in determining the market value of a given resource with complete accuracy, the charge should be set at a level which, as a minimum, collects the majority of the value of that resource.

  • Resource Valuation.
    The value of those resources for which rent is charged should be determined by one of the following methods:
    - Periodic auctioning.
    - Self-assessment by the holder, with the holder being obliged to sell if anybody offers to pay their valuation.
    - Centralised assessment based on market data, with each landholder having the option to use self-assessment if they are unhappy with the valuation.

  • Other Taxes and Charges.
    As placing a charge on land (and spectrum, etc.) cannot reduce its supply, the collection of the unimproved rental value of fixed quantity natural resources does not cause economic distortions or inefficiency. In contrast, traditional taxes on income, sales and man-made wealth create economic distortions and effectively confiscate the legitimate wealth of individuals. As such, they should be avoided.

  • Landholder Rights.
    Landholders should generally be free to use previously developed land as they see fit, subject only to the requirement that they do not impact on others by creating excessive pollution, noise, light blockage or verifiable danger. If there is a wider system of planning consent, any increase or decrease in land value as a result of planning permission or restriction should be reflected in the land rent paid for its use and only the current landholder should be able to apply for a change in planning permission for a plot of land. There should be no laws allowing the compulsory purchase of land use rights for less than the landholder's own valuation.

  • Open Country.
    Communities should be able to create national parks to protect areas of special natural value. There should be a general right to roam across open country.

  • Public Goods and Services.
    User fees should be the preferred method of financing public sector services, as they prevent cross-subsidy between activities and areas. The fees collected in this way should be used solely to finance the specific service being charged for. For those services where charging a direct user fee is not practical, land rent is a just form of financing, as the provision of public sector services in an area is, in part, what creates land values.

  • Geographically Open Financing.
    Public finance should be passed down per capita from the collecting body to subsequent lower levels of government, with each level of government required to take funds equally from the amount allocated to each member of its constituency and only to fund services which are provided without geographical discrimination within that constituency.

  • Citizens' Dividend.
    Once public sector services have been paid for, the revenue remaining from the collection of land rent, pollution fees, extraction fees, quota fees, etc. should be paid in equal shares to community members as a citizens' dividend.

  • Free Trade.
    Aside from the creation of natural monopoly networks, the preference should be for goods and services to be provided by a market completely free of government support for any provider, so that competition can drive efficiency, the availability of multiple suppliers can create flexibility and the excessive centralisation of power can be avoided. The government of a community should not establish any trade rules for the purposes of protectionism.

  • Government Powers.
    Government, which is merely the representative of the community, should not have significantly greater powers than those enjoyed by individual members of the community. As such, public sector organisations should be required to pay land rent, pollution fees, etc., at the same level as members of the community.

  • Surveillance and Privacy.
    Where a camera is used to record a public place, no public sector body should be permitted to obtain the recordings without a warrant issued by a judge, on the basis that there is good reason to believe that viewing the recordings is necessary to investigate a specific crime. Public sector bodies should only be able to obtain financial or communications data, or put a citizen under surveillance, if they have a warrant issued by a judge on the basis that there is a justifiable suspicion that the person being monitored has committed a crime. The subject of such monitoring should be informed within 12 months that they have been subject to monitoring, along with the details of the information obtained. It should be prohibited for any individual or organisation to intercept communications without permission. Citizens should be able to demand the removal of any camera which is fixed in a location which can record any premises they occupy.

  • Subsidies.
    Subsidies and special privileges of any sort should not be given, except in the form of support for the severely incapacitated and emergency aid in the event of a natural disaster or war.

  • Free and Open Formats.
    When a public sector body or somebody acting on behalf of a public sector body communicates or stores information, it should be required to do so in a format which has had its specification made freely available and which can be implemented by any third party without royalty or restriction.

  • Government Chartered Organisations.
    The Board of Directors of a limited liability corporation should be held legally responsible for activities which cause physical harm to people or prohibited damage to the commons. The government of a community should be able to require corporations to refrain from cartel, predatory pricing and monopoly forming merger and acquisition activities. Any information which a corporation is required to retain or transmit for a regulatory purpose should be in a free and open format. A corporation should not automatically be entitled to the constitutional rights enjoyed by humans. Specific taxes on corporations are in effect a charge for the benefits conferred by the corporate charter and should be considered a legitimate source of revenue.

  • Registration of Citizens.
    There should be no compulsory ID card or identity registration system, beyond a simple electoral register. The government of a community should be able to require citizens to obtain a passport, as well as remain on the electoral register in the community, if they wish to receive the citizens' dividend; however, the government should not be able to further restrict the rights or opportunities available to citizens within the community, if they choose not to hold a passport.

  • Elections.
    Government elections should be held using the Single Transferable Vote (STV) or single vote open lists. Voting should be conducted in secret on paper at a designated polling station. All adult citizens should have the right to vote, including prisoners. Voting should not be compulsory.

  • Legislative Bodies.
    Legislative government should be made up of two houses. The lower house should have its members elected from single member constituencies using STV. The upper house should have its members either randomly selected from those who wish to be a member or elected from multi-member consituencies. In either case, members of the upper house should be prevented from standing for election to any public office after the completion of their term in office. All legislation and any increase in government borrowing should require majority support in both houses. Legislation should have a sunset clause of no more than twenty years.

  • Constitution.
    A written constitution should set binding limits on government powers and any amendment should require the support of two-thirds of the members of each house.

  • Public Sector Debt.
    In order to prevent the cost of public sector funding being passed on to future generations, public sector bodies should only be able to borrow to finance capital investment (not expenditure) and any amount borrowed to finance a project should be repaid within 20 years.

  • Open Networks.
    Those physical utility networks which have traditionally been considered to be natural monopolies and held in state control, such as railway lines, telephone cables, electricity grids, gas pipe networks and water/sewage pipe networks, should be operated as not-for-profit consumer co-operatives. These networks should be as open and neutral to different users as possible to allow consumers to choose from a range of suppliers (such as different electricity providers or ISPs) and thereby create a free and competitive market. The network itself should not be legally protected from competition and should be able to price its services in proportion to the cost imposed on it by the individual user.

  • Money.
    If a government issued currency exists, new units of currency should only be issued through the citizens' dividend. If it is necessary to control inflation, this should be done by reducing the number of units of the currency in circulation by reducing the citizens' dividend. People should be free to use whatever currency they choose in their non-government transactions, including Local Exchange Trading Systems (LETS) and precious metals.