Friday's FT was full of articles looking at George Osborne's proposals for a 'radical shake-up' of regulation of the financial system, which to the untrained eye looks like splitting up the existing 'tripartite' system (Treasury, Bank of England, FSA) into yet more quangoes with all sorts of exciting sounding names, overlapping responsibilities, liaison committees and lacunas. This is all just rearranging deck chairs on The Titanic (or rearranging the stools between which responsibilities will fall), but most galling of all is a snippet from this article:
Under the plans unveiled this week, Mr King, as chair of the new Financial Policy Committee and new Prudential Regulatory Authority, is being handed explicit powers to intervene and force firms to act if he believes there is a looming economic problem, such as another housing bubble.
Wot? Unless I've missed something, we are still in the middle of the biggest house price bubble that the UK has ever seen (in terms of price-to-income ratios). There was a brief hiatus during 2008-09, but the previous government managed to reflate it (primarily with the taxpayer-backed £300 billion Special Liquidity Scheme, which is about a quarter of all UK residential mortgages) to somewhere close to its original size.
So before we worry about preventing the next house price bubble*, shouldn't we be working out how can deflate the current one with the least damage to the economy?
* You all know what the proper long term solution is - it's something similar to what we were doing until the mid-1960s.
A grim document
9 hours ago
13 comments:
So before we worry about preventing the next house price bubble*, shouldn't we be working out how can deflate the current one with the least damage to the economy?
Too many people on the island perhaps.
For the Financial Policy Committee to work in the way announced it would have to have powers to direct credit that would make LVT look infinitely preferable to the Conservative mind.At least with LVT
you can dish our credit any old how then tax it when it leaks into
land price inflation.All the FPC can do is work out when HPI has become unacceptable and then restrict credit in a way which calls for levels of judgement financial authorities in this country are simply not up to.Such a weird choice for Conservatives and Orange Book Liberals : it is quintessentially bureaucratic.
The ruling-class will do anything however complicated rather than adopt the simple LVT.(In the hope that it won't work of course)
JH: "Too many people on the island perhaps." Well, obviously not. The population density of Greater London is fifteen times that of the rest of the UK, is it any poorer as a result?
DBC, yes of course, but they still haven't explained how to deal with the current land price bubble. Preventing them is easy, as we both well know.
My bet is that they will continue, as they have started, doing much and achieving little until international interest rates rise and the problem of the bubble is taken out of their hands.
> Too many people on the island perhaps.
Well I wonder if population pressures will reduce the Citizens Dividend.
i.e. More people = More LVT. But will adding people dilute the CD.
If we are dealing with things on an "of course" basis the first thing of course is that the deficit should be paid off by the people who caused it or those who did well out of the economic bust: the usual suspects ,homeowners.
It is of course entirely reasonable that they should pay back the entire capital gains that come from the still-existing house-price bubble via LVT.It is not reasonable that they should keep their literally ill-gotten gains and make those without assets pay with their jobs .
I am not normally in favour of retrospective LVT ,preferring for land prices to come down "naturally" then instituting a Sentinel tax to stop them going up again .But needs must.
How people ,especially working-class Tories ,can insist on not a penny off the price of my house while denying kids a free swim is beyond me.
If the pool workers want to work, and charity wants to pay for the building then it's a free swim. Otherwise it's not.
The LVT will probably stabilise prices as post-tax incomes raise from income tax cuts, and subsequent economic expansion.
@AC1
Mean -spirited or what?
In a family or any other domestic set-up the children are provided with things free,as are the too old to work and the ill.
The logic of your argument is that children should work under the machines of cotton factories as they used to do and the old and ill should work till they drop ,else starve.
You could have a factory where all or most of the work is done by machines. So nobody working:nobody gets paid.In fact you have to have within a factory an involved system of cross-subsidy so everybody gets paid as some functions are not directly,only indirectly productive.
The same applies to society on a larger scale with the NHS replacing the factory nurse , the armed forces replacing the bloke at the gate and security people; the political system corresponding to the management (both of them superfluous IMO).
Adam Smith thought the armed forces were superfluous.But a system of cross-subsidy obtains.
So why can't a cross subsidy give kids a free swim?
In a country with a largely mechanised industry the government would have to dish out purchasing power as a dividend.So the completely idle would have to get some or the stuff would go unsold.You could produce less but why bother.You are not paying people to produce it and the machines may as well operate as stand idle.
B, yes, market forces will win out in the end, but the Blue-Yellow Wing of the Home-Owner-Ist movement will do their best to isolate themselves from this (teh topic of last week's Fun Online Poll).
DBC, first comment, yes, as a thought experiment we could pay off the national debt in five years if we had an annual property value tax of 5% for five years.
DBC, AC1, I think you are at cross purposes here. AC1 says give people the maximum CD and let them decide for themselves whether to spend it on swimming pools. DBC says the state should spend it on swimming pools directly and not give people the choice.
Actually over time I see the CD becoming larger and the things the state does becoming smaller through the visibility of the Cost Of Government and the equal burden. Although the council provisioning things like swimming pools parks, and Libraries should raise the local LVT.
No, you really don't understand do you? Now that the Tories are in power it's not a housing bubble at all. It's a "recovery in the housing market". ;)
AC1, public pools and libraries ought to be voted on and paid for out of precept on LVT.
AC, ah yes, it all makes sense now. So by definition there won't be another one?
Listen. I have worked under the FSA regulatory system.
They always incorrecetly analyse the failures to ensure that they can do more of the same. In other words 'markets failed' and regulation was not 'tough enough'.
Wheeras the trusth is that markets succeeded in passing and accurate judgement on falied lefty and regulatory policies'. You'll never get them to admit that they are useless, will you.
Mind you they've summoned us to a 'TCF' (don't ask) meeting and i shall take the opportunity to barrack them merciless;y. I have absolutely had enough of the shits.
So, sometime in August expect me to be shut down.
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