Danger: Central banks getting more power

Whilst you wait for Prof Richard Werner's book to arrive (see: Tue 30th June) have a look at: his article from 3rd June in The Daily Yomiuri, which is an English language newspaper from the Japanese publishers of what has been called the largest newspaper in the world. Why not send the link to anyone you know in government? We must not let this financial crisis repeat in future. People need to be alerted to what is happening now.

You must read this book…go on…buy it

The book is Princes of the Yen by Richard Werner, a young economics professor in an English University who was inside the Japanese economic scene in the 1990’s and explains the causes of the earlier boom and the following bust that the world wondered at. The book shows how countries can climb out of recessions and it is highly pertinent to our current global crisis. Any investor needs this book, and not only fund managers; landowners and homeowners too - essential reading. It warns about central banks and their powers – usually hidden from democratic control. Use this link: Amazon books to read my review. The book reads like a detective story and explains very lucidly, vital aspects of finance and economics that would normally bore you to sleep. It was a best seller in Japan on their general lists and only got knocked off by Harry Potter.

Bail out people not banks

Guy Standing, Professor of Economic Security at the University of Bath (UK) writes in Issue 3 of the Citizens Income newsletter, click here to access it, and see Viewpoint 2. He says that the current bail-out schemes, such as for ‘strategic’ industries, successful lobby groups, bankers, mortgage holders or inefficient firms, may not help the most needy citizens. He calls for an automatic regular ‘stabilization grant’ which would boost purchasing power and consumption and he says that evidence shows that such payments encourage people to take paid work. It would be payable as of right to every citizen on a monthly basis and with modern day tax and benefit systems it could be clawed back appropriately from higher earners.

There is a reference to an article in the Financial Times 4 June by Martin Sandbu and Nicholas Shaxson: click here, ‘Give the people the resource wealth’. They write that rather than political elites fighting for resources, such as oil wealth, these should be distributed directly to all citizens and then the political elites would have to bargain with the people for the tax revenues. See also ‘Viewpoint 1’ by Jeffery Smith on this idea. It is good to see a crossover between some of the essential strands of the ‘new economics’ that are already together in James Robertson’s work and in The Free Lunch – Fairness with Freedom. Professor Richard Werner (Southampton University) in his book New Paradigm in Macroeconomics goes even further than Sandbu & Shaxson in the funding source. From his viewpoint of the possibilities inherent in the democratic control of credit creation, he writes (p340) that in certain circumstances every family could 'be paid $100,000 for each child born'.

Other themes in the CI letter include: Basic Income? Basic Capital Grant? hybrid?; also Anne Millar has a financially worked out scheme, for funding from conventional income tax, for various levels of Citizen’s Income covering age groups, disability groups, lone parents, etc. This is extremely useful in that it shows that Citizen’s Income is affordable but it is always important to at least mention the possibility for wider tax reform involving using resource rents (land value, oil wealth, etc), or even non-banker credit creation in place of income tax to fund such a Citizen’s Income.

Blair-Brown: appalling end-of-term results

Gary Duncan of The Times 8 June (click here for article) gives recent Organisation for Economic Co-Operation & Development figures showing that the rift between GDP per head regionally within the UK, is the world’s second worst for developed countries after Turkey. 55/444 are the GDP index figures per head for each country’s poorest/richest regions. That range is 8.2. (See the OECD website for the figures: ‘Regions at a Glance’). Turkey at 28/287 is worst at 11. US 66/344 is 5.2. Duncan writes that the poorest region in Britain (Anglesey) is worse off than that in Poland which is 58/299. At the other end of the scale the UK has the highest GDP per head at 444, above the US at 344.

Fred Harrison’s book Ricardo’s Law, subtitle: Why Tony Blair’s Project failed (2006) addressed the same damning facts using earlier data. Harrison very clearly shows how the picture will not change until the fundamental bias towards impoverishment is lifted from the poor regions. London and the South East need to start paying their proper share of the common burden of public services and facilities. The wealth arising from the gain in land value is sucked away from the poorer regions to London like a magnet and Harrison shows how one of the consequences of the neglect of this important fact is to leave people suffering greater illness and earlier death back there. Arguably this book contains the most intellectually convincing justifications for land value tax in modern times and governments neglect its message to the loss of citizens everywhere. For more: see this Blog under the Harrison link for 2007, 9 July and 2006, 5 & 11 Nov.

For a Labour government in the UK, so outwardly concerned with poverty, not to have even considered seriously the possibility that the economic paradigm they were using might be wrong reveals appalling closed minds. Fred Harrison testifies to failed attempts by him to appeal to both Labour and Tory governments to look at alternatives.

So the battle remains with us, the ordinary people. As David Korten has recently written in his book: Agenda for a new Economy: ‘When the people lead the leaders will follow’.
If this means anything to you, think of who you could send this blog link to…and do so. And let me know of any good links too. Even if politicians seem unable to think beyond their next sound-bite, at least we can key-in the e-mail addresses of friends with a possibility of opening their minds a little.

Land Value Tax & Banking Reform

Economists know that to tax scarce resources such as the economic rent of land (i.e. land value tax) is a far better way of raising tax without causing economic damage than to tax work and goods. For instance Mervyn King (now Governor of the Bank of England) wrote in his book The British Tax System (1990 5th Ed) on p.179: ‘the underlying intellectual argument for seeking to tax economic rents retains its force’. He comments on the British tax system (p.185): ‘complexity, anomalies, inequities and disincentives…half-baked measures…repeatedly modified…without any sense of long term strategy...’ .

At the Southampton University seminar (see Blogs from 19 May onwards), following questions from the floor, the academics had no disagreement about taxing land values. But they seemed to consider the idea as not really affecting economic growth compared with the effect of credit creation. But the auspices of the Centre holding the seminar includes the term ‘sustainable development’. Introducing a tax shift from that on work, business and goods whilst taxing land would remove disincentives to enterprise and incentivize owners of land to use it more efficiently. Richard Werner’s method of using Japanese ‘window guidance’ by the central bank towards productive investment, in the credit creation process, restricts freedom and choice for citizens and assumes that the central bank has perfect wisdom, is without corruption and is properly directed by Parliament. Besides, people will still be able to put ‘existing money’ (or mis-directed ‘new money’) to use in speculative property deals. So why not introduce land value tax as a tool to dampen property bubbles as they gather pace, or to promote property investment when needed and, incidentally, to help to reform tax in the direction Mervyn King wants?

The Japanese experience shows that a fair society needs checks and balances. The current global financial fiasco and the UK Parliamentary expenses scandal reinforces this view. Tax reform and monetary reform are not incompatible – together they would give rise to a more sustainable economic system and a fairer society.

Interest-free debt?

Professor Richard Werner at the recent seminar at Southampton University (see this Blog 19 & 23 May) said that ‘the growth bias of modern economic life is destroying the planet’ and is driven by the servicing of interest on debt. The compounding effect of interest payments means that some production is needed merely cover the interest on any debt needed to set up and run the business.

He said the term ‘natural interest rate’ used by economists is not a natural or scientific concept at all, but ultimately is ‘for the convenience of bankers’. Some ancient Greeks thought the natural rate was zero. One reason for interest is that we compensate the lender as they forgo the use of their money for a time. This may sound sense if we have a personal deposit left in the bank which is then lent out to someone else. However this is not how bank lending happens. If someone approaches a bank for a loan the bank creates the credit requested based only on the bank’s small base of reserves. They are thus not ‘forgoing’ anything in the above sense as the new credit comes out of ‘thin air’ and thus the interest paid on the loan is almost pure profit for the bank alone. (See this Blog for Nov 8, 2009). Werner says this is non-sustainable for the planet as some of its resources are being used up just to pay for the all-pervading interest burden. In his book New Paradigm in Macroeconomics he writes (p341): ‘ Interest rates could be kept at very low levels , or abolished entirely, since they create deadweight losses and lead to the inefficient concentration of wealth in the hands of a few’.

Carol Wilcox of the Labour Land Campaign asked why we have to be in thrall to academic economists, surely everyone knows that their solutions are often flawed? Tim Congdon said that their role is very important as they advise governments and sometimes give the wrong answers as illustrated when Philip Snowden (a past Chancellor of Exchequer) was told by academic economists that it was impossible to leave the Gold Standard, which was not true. Today, Treasury economists did not tell Alistair Darling such solutions as he was suggesting.

Further questions covered the use of land value taxation in the interests of fairness and sustainability. More on this and other Qs&As in the next Blog.

Inadequate theories in economics - 2

(See also 19th May)
Tim Congdon said how many leading academics ignore the pivotal role of banks in our financial system. They see them as passive intermediaries only and not as the key providers of credit that is vital to the maintenance of the good financial health of companies and the wider economy. He said that the followers of New Keynesianism, although having had some success for a while - they are very influential with central banks - have nothing to say about the current financial circumstances and it is in this silence on the banking system that the fault lies. Overall the ideas of this school of economic thought and those of some others received his verdict of ‘tosh’ or ‘junk’.

His view is that the percentage increase in the level of money (that is deposits) that affects the growth of the nation’s gross domestic product. This is key. Money can be called into being out of thin air – we are in a ‘fiat money economy’ - so the solution is in the authorities’ hands. What the UK government has recently started through the Bank of England will bring about the creation of money. It is borrowing from banks and is buying gilts to counter the huge drop in money holdings over the past 18 months. He said that the stock market rise since March reflects the general expectation that new money is on its way and share rights issues are now raising new money to refinance companies. His book: How to stop the recession, was published in January.

It seems that the tide has turned in terms of the understanding of ‘the market’ according to Professor Richard Werner. He quoted President Sarkozy of France and George Osborne (Tory shadow Chancellor) who say they no longer believe that ‘the market’ is efficient or is the ultimate arbiter of everything financial and economic, which was one theme in his book New Paradigm in Macroeconomics (2005). His own view of macroeconomics includes the importance of credit and the quantity of it. His view of bankers is summed up in a quote from Nassim Nicholas Taleb (author: The Black Swan) about the economics establishment: ‘People who were driving a school bus blindfolded (and crashed it) should never be given a new bus’. RW said they surely cannot take care of the economy since they have shown that they cannot take care of themselves. His long experience in Japan through the 1990’s shows him that what that country went through then, is in danger of being repeated by the rest of the world now. He said that quantitative easing will not be a cure-all if all that happens is that bank reserves are boosted. He advocates carefully directed credit allocation into non-speculative, productive ends. This worked very well for some time in Japan, but it went awry when it lacked openness and caused the real estate bubble. Read about it in his book, a best seller in Japan: The Princes of the Yen, published in 2003. Click here for more.

More to report here next week from this second seminar from this increasingly important think-tank centred at Southampton University. Werner goes to core of the problem in the financial and economic system.
Posted by Charles Bazlinton author: The Free Lunch – Fairness with Freedom

Could do better – our academic economists. Also, the origin of the term 'quantitative easing'.

A billowing of healthy scepticism was bursting forth from the lecture room in Building 67 at the University of Southampton today as a second seminar took place at the Centre for Banking, Finance & Sustainable Development. Tim Congdon the eminent monetary economist in particular gave five modern schools of economic thought low marks for analysis of the current problems affecting the financial system. He said it took the Bank of England 9 months to carry out his recommended solution, that is: to start creating money, otherwise known as quantitative easing. His firm Lombard Street Research has a long track record of spotting the variation in the liquidity ratio of companies (comparing their bank deposits to their bank borrowings) which show high and rising values (60%+) in a boom and dropping values (under 50%) as recession looms. This should have alerted economists in the Treasury to the dangers, but they did not warn Alistair Darling, the UK’s Chancellor. But one got the impression that Tim Congdon is not surprised, bearing in mind what he called the ‘trash taught in universities’.

Did you know that it was Professor Richard Werner now Chair of International Banking at Southampton who first coined the term ‘quantitative easing’ in Japan where he was advising at the time? He showed a headline from a Japanese newspaper for 2nd September 1995 which used his term. At the time he thought that ‘printing money’ was a bit blatant and ‘credit creation’ too novel, so he coined ‘quantitative easing’. He was the second speaker today - see later on this blog for further reports. He had some quite intriguing things to say.

Tim Congdon & Richard Werner: Tue 19 May

The global financial crisis is the subject of the next free seminar hosted by the University of Southampton's School of Management on Tuesday 19th May 1pm-3pm. Click here for more details and to book your place.

Tim Congdon CBE is one of Britain's best known monetarist economists. Richard Werner 'Global Leader for Tomorrow' will speak about the role of central banks in sponsoring misguided economics and creating the crisis.

No 10 Downing Street – lobbying by E-Petition

If you place an e-petition on the No 10 Downing Street website you may be interested in my experience. In early 2008 I placed a year-long petition about the need to tackle the problem of over 800,000 empty homes during a time of housing need. I e-mailed about 150 people who I thought would be interested and also the Empty Homes Agency, who passed the message on. The early weeks showed an impressive growth, but after a while signatures settled to about 1 added per day and the total was 380 when it closed in January ’09. As No 10 petitions go this was a success being number 56 out of 750 petitions on housing, by signature total. Petitions with over 200 signatures get a response from the Prime Minister’s office which was posted up after about 2 months.

In mid-2008, and in the life of my empty homes petition, the government launched its proposal for 'eco-towns' to be built in the countryside to supply new homes. This brought out local opposition against many of the sites and several e-petitions were placed on the No 10 website. These quickly gained support and by the time they closed in early 2009, 10 of these petitions gained nearly 17,000 signatures between them. But nobody (not even me) connected up the obvious fact that the anti-eco-town people should be natural supporters of the empty homes petition - to provide good homes elsewhere thus protecting the countryside from building.

Lesson for petitioners another time: In writing a petition try and anticipate what other supporters you might gain from elsewhere and from which stance, and word it accordingly. Be careful that some content doesn’t put people off unnecessarily. You cannot alter the wording once it goes live. I might have included a phrase about land value tax, but that would have been counterproductive. What I should have done was to send the eco-town petition organizers an e-mail to be forwarded to all their supporters asking them to sign up about empty homes. I am sure I could have massively increased the signatures on it. This might have pushed the empty homes campaign into the national media spotlight which is what really gets lobbying campaigns moving.

10 Downing Street: Empty homes petition result

A petition I Iaunched in January 2008 gained 380 signatures in a year and any petition with over 200 names gets a comment from the Government. Which is...they are not going to do anything new. Click here to read their response.

For them the existing law is sufficient. The Empty Dwelling Management Orders (EDMOs) that they refer to, are enough for Local Councils to bring back empty homes into use. The first EDMO was issued in Peterborough in January 2008 and they have since been used on only 20 properties in the entire UK. They say the threat of an EDMO gets the owners to do something. Also that there has been a 9% fall in empties since 1997 (less than 1% a year) but David Ireland of the Empty Homes Agency says that the figures have been climbing for 3 years now and on a programme on ITV on Friday 17th April it was noted that in 2008 we had the biggest jump in numbers ever. There are now nearly 1 million empty homes in the UK. It is not difficult to see why EDMOs are not used. The Peterborough case took 20% of the council officer’s time to handle it. As the EDMO rules are so complicated the Empty Homes Agency have produced a helpful guide,click here for their flowchart which shows nearly 60 actions needed before the builder even gets on site to do repairs!
Meanwhile, ideas from LibDems and Conservatives include proposals to charge the same VAT (or none) on house repairs as on new build; and various schemes to ensure that funds for social housing can be spent on repairing rather than only new-build. But this is merely well-meaning tinkering.

What no party is actively proposing yet is the single most effective measure to bring unused buildings, and empty land with planning permission, into productive use: to tax all land according to its value. It would be a substitute for Council Tax and with reductions in other taxes it could be adjusted to achieve the efficient use of land and existing buildings.

This is a thoroughly green policy and is now getting more possible to legislate for. The current credit crisis had it origins in tempting low-earning families into home ownership. That scenario is now busted and firm steps must be taken to prevent its recurrence. We need land value tax to control the next speculative housing and land bubble well before it starts again. This measure would help force empty homes onto the market and help to give people what they need – affordable homes where they want them.

G20 crisis summit - exposé & answers

Here Bill Davies lifts the lid on reality and gives the real solution. Bill has been closely following monetary matters for decades:

‘97% of all of the money we use was provided by the private clearing banks as loans.
The amount of money created in this way was increasing at up to 15% or more a year up to the middle of 2007 when the level of bad loans made by the banks overwhelmed their ability to create more money.
The amount of new money created by the banks was limited only by the demand for new loans from people judged by the banks to be able to repay them with interest.
The demand for new loans was increased by lower interest rates set by the Bank of England and interest rates were reduced because they targeted indexes of inflation that were highly misleading and in particular ignored asset price inflation.
Because the creation of new money was extremely profitable and the supply of real assets for sale is limited the banks devised ever more dubious and risky forms of loan. This led to the largest financial bubble ever blown and burst.

We are now trying to get the same failed system going again by reviving the banks with injections of public money.
This is completely unnecessary and counter-productive. All existing bank deposits should be registered and guaranteed by the government.
All new money should be created by the government as a replacement for part of taxation.
No new money should be created by private banks’.

Imagine…

...that there lived in the UK a special group of people who had the privilege of overruling the planning laws. Because of their status they did not have to request planning permission to build houses, flats, factories, offices, etc. They could buy farmland – the cheapest land you can get - and build whatever they wanted to, wherever. Imagine the outcry if this really happened.

Switch to the real world. There is a special group of people in our country. They have the immense privilege of creating, not their own valuable planning consent for building, but money. Not coins and banknotes for which goal sentences would follow, but money that starts life on bank’s computer screens and comes to us as credit for our house mortgage, car purchase, business loan, and such like.

You may have imagined that banks only lend out to the total of all the deposits of our savings. NOT TRUE. They typically multiply what they have as reserves by about 100 times so that £100 becomes £10,000, with interest flooding back to them for years. They create money from nothing and the reckless use of it brings crashes like this one. (See this BLOG for Nov 8 2008).

The democratic way is for money to be created by the Bank of England debt-free and fed out to the economy by our elected parliament. This system is possible…tell people about this…check it out on the internet.

Click here:to watch a new 6 minute YouTube video about this important topic.
Click here: to sign on a No 10 Petition to get this debated in April at the G20 meeting.

Printing money

The government is asking the Bank of England (BoE) to ‘print money’. The Times (19 Feb) has a useful guide as to what will happen:
1. New money will be created by the BoE who will buy up some government gilt-edged securities in the market.
2. Then they will credit the new cash to the reserve account at the BoE of the bank selling the gilts.
3. With these extra reserves at the BoE the banks will have more scope for lending out to firms that want investment money.

Will it work?
Firstly the banks have to take into account all the bad debts that have arisen due, for example, to the house price bubble that they lent out for earlier. If their reserves are still desperately low then they will need a lot of this 'printed money' to get back to a sensible level and for some time may have no spare capacity for new loans.
Secondly how many firms will come to borrow? We are in a recession and with few people and firms spending as they did, how many firms will invest if there are fewer customers and little profit out there in the foreseeable future? Firms are going broke.

What might work?
The thing that might get individuals spending is if they we were all given regular payments from the government. This is known as the Citizen's Income (called the Citizen's Royalty in The book The Free Lunch). The Citizen's Income Trust has worked out a scheme that is affordable for the country and would be in place of many welfare payments. Suggested figures for UK citizens: Standard £90; Child: £50 p/wk; Senior £110 p/wk. (2006 prices). Click here: Citizen's Income Newsletter 2006 Issue 1.
This crisis is an ideal time to launch such an idea. It would make a real financial difference to the poorest people. Because it would be regular it is likely that much of it would be spent and not saved like one-off tax related benefits. The economy may actually be helped through this device for fairness.

The Free Lunch – Fairness with Freedom has several other radical ideas that would go towards promoting the economic justice that this financial and banking crisis shows is sorely lacking. Click here: To visit the website.

Don’t nationalise banks but...

...nationalise the money supply.

On BBC2 this week Geoffrey Robinson minister in the Blair government and long-term friend of UK Prime Minister Gordon Brown showed his shock at the enormous amount of money that the failed Royal Bank of Scotland has been lending as it crashed out of control towards the largest loss for any company to date. He seemed surprised. You would have thought that someone so close to the center of power would realize that it is the banks that make most of the money supply for a country as they create credit out of thin air and then speed off with it round the world as they do their business.

Asset bubbles in property, in commodity or stock markets are fed as this credit creation balloon inflates around the world. Banks increasingly egg each other on by making more and more money to catch every last million of profit before the whole thing bursts.

Top man Lord Myners, the Government’s City Minister, also seems strangely out-of-touch. He is reported in the London Times today as saying that bankers have 'no sense of society'. But we must not get angry with bankers as they seem to slam the doors to lending to ordinary firms desperate to borrow to keep their businesses going. They are only protecting their own banking businesses as bad loans turn worse in horrific amounts. The credit creation system is the problem - banks just do what they have to do, because the system compels them to do so. They have a legal right to create credit (that is: money) and use it with minimal supervision. So why would one bank hold back?

But this is a bizarre thing. No one is allowed to forge banknotes or coins, but banks, in creating credit, are doing just the same thing and we are all seeing the consequences. I suggest that Geoffrey Robinson and Lord Myners study the submission made to the House of Commons Select Committee on the Treasury, by James Robertson. Click on this link: (House of Commons -Robertson ). He says it is unnecessary to nationalise commercial banks if we nationalise the money supply. The Bank of England would create the money - all money - according to agreed rules, and give it to the Government to spend into circulation - just as it does with banknotes and coins. Ordinary banks could borrow from this supply of money and lend out to those who need it. However the monopolistic profits that they have made up to recent times, by being permitted to create their own money, would cease. As some of the new money would be used to replace that currently raised by government borrowing, taxpayers would save billions every year in interest. It is likely that asset prices would be less volatile. See also references to Prof Richard Werner on this blog.

Joined-up government

Forget it. Forget the idea that it is important that our all-pervading government should be more joined-up. The Free Lunch – Fairness with Freedom shows how through dropping complexity and bringing in some neglected aspects of economics, property ownership, welfare, freedom and democracy, government would be simpler and our society more co-operative, with greater efficiency and humanity. And also more environmentally sustainable.

The theme is: don't worry too much about joining up lots of bits of big government – if it's broken, put something simpler in place. It would work better.

But how could this work given the dire state of the financial world at present? Surely governments are showing they are indispensable - even if faulty? But it is actually we citizens who are indispensable. Each one of us. A major cause of recession is because we are not going to be spending as consumers. A solution is to pour vast quantities of money into the banking system in the hope that companies might borrow and do business again. But we citizens will need to be buying what firms make and offer.

It has been observed over cycles of boom and bust that as a recession bites, households start saving and don't stop until savings level are much higher than now. So this is an ideal time to introduce a Citizen's Income. Everyone would be given a regular payment – the Citizen's Income trust has shown that this would be affordable, as related to current welfare systems and tax allowance levels. Above this basic payment, in the current circumstances, extra payments could be made to each of us in the way that money is about to be forced into banks directly. This double action could get the recession over quicker – because as our deposits rose we would feel more confident to spend.

The Citizen's Income would also reduce the complexity of our faulty welfare system and is likely to be the only long term, effective measure against enduring poverty.

So when you hear that 'the government will do MORE for.....etc', think rather, how could we have new patterns of democracy so that the government does LESS. What we need MORE of is: joined-up economics and joined-up fairness. Read the book , look at the website for the cartoons.

Global poverty: how it could be transformed

The book The Silver Bullet by Fred Harrison is a tour de force. It is a must-read for anyone trying to understand why global poverty is so enduring. Be warned though that it will probably generate a lot of frustration in readers because of the blindness of the target audience of global poverty campaigners who need to benefit from its incisive forensic insights. The index is excellent.

Harrison shows that the current neglect of key issues by such world famous advisers such as Jeffrey Sachs and Joseph Stiglitz, will prevent poverty being tackled with any sort of effectiveness. He shows their ignorance of an effective appreciation of how land and natural resources should be handled to benefit a nation. He also shows how Sachs, and Paul Collier with Anke Hoeffler (Oxford Univ) deduce the strange theory that a nation rich in land and natural resources will have problems in promoting democracy and poverty reduction. To cap it all, the bizarre term ‘resource curse’ is being used to promulgate this abysmal theory. They propose that taxes for national investment in public services should be raised from incomes and capital rather than using some of the value of land and other natural resources for the self-funding of those facilities. This is rank neo-colonialism. Western countries can now justify their exploitation with such ideas from such ‘experts’, and extract the very wealth from needy countries that should be raising their citizens from poverty. Sadly the gurus continue to peddle their false theories despite, in the case of Sachs, Bolivia's GDP per head remaining static even after 20 years of trialing his advice. What is being played out here is the old colonial idea of raising tax from people’s work and creativity but leaving most of the ever-growing wealth of land and natural resources in the hands of elites.

Harrison’s answer is that public goods such as schools and roads should be created by government and become self-funded from the rents of land in the nearby areas, as land become more desirable following the investment. What is wanted is good stewardship of the resources to benefit all, rather than to succumb to the fatalistic and extraordinary diagnosis of: ‘resource curse’. To see a recent YouTube film by Harrison on Zimbabwe as to how that country has been dogged by these false theories, go to: Why Mugabe killed a nation http://uk.youtube.com/RenegadeEconomist

Sir Fred Harrison?

You will see a letter in the Financial Times (28/29 Nov) where I suggest that Fred Harrison might receive a knighthood for his accuracy in forecasting the current economic crash. HM The Queen had asked academics recently at the London School of Economics why nobody had noticed the credit crunch coming when it turned out to be so large? Fred’s published warnings well ahead of time deserve recognition.

His researches lead him to believe that these crashes will keep recurring unless we take steps to rearrange our tax system. He says we should stop taxing income and goods and tax land value gains instead. Credit booms feed right through into house and property price booms. By taxing property (land value element only) we would moderate the boom and prevent the bust. Homes would be more affordable long term. The tax principle is that you pay for what you get. For example if a road or other transport improvement near your home means its value rises, you would be taxed on the benefit accruing to it. For most people the net result will be neutral as income tax and vat would go eventually. Fred sees this method as ‘self funding’ for the schools, roads, hospitals we all need. Other benefits include: a reduction in much of the burden of long term government borrowing, which is the conventional way of paying for these facilities; also, businesses would be able to plan better having a steadier economy rather than the violent swings that trouble us.

Read The Free Lunch – Fairness with Freedom for this and other suggestions to prevent another crash in the mid-2020s. Our children and grandchildren deserve our action now from Fred’s foresight.

Don't play on Labour's pitch

Gordon Brown is wrong-footing the Tories with his new tax-cutting policy. Having successfully led them to promise to match Labour's spending plans if they gained power and scorned any whisper of 'Tory tax cuts' as a threat to the funding of public services, he is now, due to the current crisis, shifting the goal posts again by egging on world leaders to cut taxes.

The danger of playing to moving goals is that you have to keep on running into areas that others choose. So why not roll up the pitch and play a different sort of game? The ideas launched in Southampton last week (see Blog: 8 Nov 2008) could well have an edge with the voters as well as being soundly based in financial probity.

Charles Goodhart said that an expansionary policy is needed in these rapidly deteriorating times. Traditionally this means governments borrow and spend on public works to counteract the tendency in hard times for most people and businesses to stop spending and to save. Richard Werner said that it was quite possible for the government to issue their own money. No borrowing from banks & no burden on future taxpayers, because no interest payments and no payback.

Some of this money could go to public works (very slow acting), but this is an ideal time to give a citizen's income directly to every individual (quick acting). This would achieve what a tax cut does (money to spend) but in a novel way. And the manner of achieving it could be in Werner's novel way: create the money 'out of nothing' just like the banks always do for their own benefit. Result: real money to households...most effective for the poorest and just what is needed to encourage private spending quickly as the recession start to bite. How's that for a new pitch for Tories or LibDems to force Labour onto? This one would really grab the attention of the voters.

No such thing as a bank loan says Richard Werner

Emeritus Professor Charles Goodhart, eminent economist addressed an audience of nearly 300 on 5 November at Southampton University at the launch of the world’s first Centre for Banking, Finance & Sustainable Development founded by fellow speaker Professor Richard Werner. It was a memorable occasion and highly significant in giving rarely heard solutions in the current international economic crisis.

Prof Goodhart spoke on the causes of the current economic crisis: a lax monetary policy, a long period of low interest rates and a huge credit expansion, a bet that house prices would always rise, a lack of transparency in lending combined with complexity, and a weakening in bank asset quality. The crisis was not unforeseen but the authorities only had interest rates as a means of control, and in the UK, house price inflation makes no impact on their decisions. The Lehman bank collapse on Sept 15 was a point of ‘sheer panic as near as you can get’. He said that early warning signals are beside the point - what is needed in future are extra instruments ‘to control the cycles in financial leverage’. He said that big crashes such as this one do not happen at times of high inflation.

He did not think that the actual collapse of the ‘house of cards’ was generally triggered by ‘bad behaviour or lack of due diligence’. The sub-prime lending presupposition that house prices will generally rise and fairly rapidly cover the 100% mortgages granted to low earners, was largely true. In the US, borrowers can walk away from their mortgage debt without any future penalty, in the UK the lenders can continue to make claims against them even if they have lost the property.

He said that the banking and financial procedures to be followed to get out of the problem were now clear. On a macro-prudential level the Central Banks should rule for systemic risk and the Financial Services Authority for micro-prudential matters. But no clear new procedure was yet obvious for housing. On an economic level an expansionary policy is needed and he foresaw interest rates in the UK approaching 1% or lower. Timings of the appropriate changes needed, will need to be very carefully gauged due to the ensuing danger of inflation.

Comment: Prof Goodhart did not mention the notable work of economist Fred Harrison in clearly identifying the well-established, 18 year cycle of boom and bust associated with property prices for over 200 years. (See this blog Refs: ‘Harrison’). Harrison advocates that the ‘new procedure for housing’ should be land value taxation which would place a permanent damper on land and real estate price booms.

Prof Werner began with quotations from Alan Greenspan who was for many years the Chairman of the world’s leading central bank - the US Federal Reserve. AG has experienced a profound shock over the past few months as he has admitted that his presuppositions about how banking systems operated have been ‘partially wrong’. Werner said that the intellectual edifice around banking has collapsed due to the current crisis. Deregulation has been the fashionable keyword preached by the IMF and the World Bank to any country enduring one of the many more localized banking crises in recent decades. He said that this policy is in fact a new problem and not a solution.

He enlightened the meeting with ‘What you need to know about credit creation’. Credit creation is the hidden key at the heart of banking which, very strangely, you rarely find in the index of standard economics textbooks. Received wisdom is that banks are a form of broker or a financial intermediary and do not need special regulation. But banks are special, they have monopoly power, they have the legal right to create money. Banks do not issue loans – they create credit, which is different. In physics we have the thermodynamics principle [that nothing can be created out of nothing] but banking is different. A £100 deposit in a bank can be turned into £9,900 to be lent out to a customer. He illustrated by producing a glass of water. He could loan the drink to another person, but banks did not have the same amount of money at the start that they lend out - they create it. JK Galbraith said ‘the process by which banks create money is so simple that the mind is repelled’.

He explained that (following Keynes), credit can be identified in two streams: for the growth of the economy and for financial speculation. Some of the uncontrolled use of credit causes such as a house price bubble with an ensuing crisis.

The solutions to the crisis should not crowd out the private sector thus deepening a recession, but the danger is that taxpayer-funded solutions proposed so far, will do this. He illustrated an alternative way for governments to act by creating credit directly themselves, with a copy of one of the dollar bills that President Kennedy had issued in 1963, which bypassed the Federal Reserve system. Governments/central banks should stop issuing bonds and gilts but issue credit directly into the economy thus avoiding interest costs for future taxpayers.

Comment: Again an extra tool in the fight against speculative property bubbles is land value taxation. Prof Werner seems to be advocating close regulation of what credit is used for, so that for instance, speculative dealing in property is curtailed. But how draconian would the measures be and wouldn’t people find ways round the system?

Land value tax would be an automatic damper – it could be increased if speculation was getting out of hand and lightened if stimulation was needed. It would need to be accompanied by reductions in other taxes and by other measures. (See elsewhere on this Blog and read The Free Lunch – Fairness with Freedom)

Crisis solutions: Top Economist at Southampton 5 Nov

NEWS! Prof Charles Goodhart is giving a free lecture on:
The Banking Crisis: Causes, Consequences & Solutions

5pm Wednesday 5th Nov. University of Southampton, UK.

Link: http://www.management.soton.ac.uk/research/centre-for-banking-finance-sustainable-development.php

If possible please e-mail: c.hopper@soton.ac.uk to register.

This is the inaugural seminar of the Centre for Banking, Finance & Sustainable Development which was founded by Professor Richard Werner D. Phil. (Oxon), Chair of International Banking at the School of Management.

For when we climb out of this hole: Citizenisation

The UK's Sunday Times (ST:19 Oct 2008) covers the various crises that any reader of The Free Lunch (TFL) would have been ready for since its publication in 2002. They would also be familiar with The Free Lunches’ solutions that would bring the hope that such cataclysmic times need not recur.

• The ST has a letter from James Glover about the way the Bank of England has ignored house price inflation when setting interest rates (see TFL p.141).
• A ST article reports that major house-builders Barratts and Taylor Wimpey are trying to sell thousands of acres of land: Where they not aware of the approaching end of the 18 years land price/house price cycle? (see TFL p.113).
• There is much newsprint on the ongoing banking crisis which is a culmination of many years of wild spending of money that banks make out of thin air (see TFL p.43-46).
• Also - the need to address the shortfall in income for those reliant on dividends from bank shares (see TFL ch 3). The Australian government is reported as counteracting a bleak Christmas by giving special payments to pensioners and families (TFL ch 3).

When we start to surface from the abyss of this multifaceted crisis what direction will be headed in? Will the state be more fully in control or will we be? The Free Lunch calls the second way citizenisation – a cumbersome word for a neat idea. It is practical, it is very hopeful. Is it possible? Read The Free Lunch (www.the-free-lunch.com) and make up your own mind.

The choice: More banking regulation? or Banking reform?

After years of hands-off regulation by the UK’s Labour government, Alistair Darling current Chancellor of the Exchequer, is now planning for tighter rules covering liquidity, banker's pay and capital requirements (George Parker: Financial Times for 22 Sept).

As yet the mainstream media is reporting only such probable tightening of the rules of the current banking game. But as suggested by James Robertson in the last blog there is an alternative way of banking which is fairer, straightforward and very much simpler. See this Blog for 3 January 2008 and the YouTube links on it. Learn what could happen to transform our money system to the benefit of everyone (except some bankers).

President Jefferson said that the central banking of his time was ‘swindling on a large scale’. President Woodrow Wilson said after signing the Federal Reserve Act that ‘I have unwittingly ruined my country’. Such banking systems are typical internationally to our day.

Read The Free Lunch – Fairness with Freedom for a clear and understandable way ahead. Written in 2002 the book is becoming more relevant with every passing week of this long running crisis.

To order the book: http://www.the-free-lunch.com/

Banker’s Rewards & Risk Management

Stephen Green the chairman of HSBC, the world’s second biggest bank, has given an interview about the credit crunch on the BBC website, see: http://news.bbc.co.uk/1/hi/business/7613509.stm

About banker’s pay levels he says:
‘there has been far too much focus on payments that are very short term focused, people who pick up the tab for short term profits, without having to bear the costs of long term impairments.’

James Robertson** who works tirelessly to promote alternative economics puts his finger on the core of the problem, he says:

HSBC chairman Stephen Green's acceptance of the need to reform bankers' pay is welcome. But it won't touch the root of the problem - which is that, by their profit-making loans to customers, the banks now create almost all the money supply.

A monetary reform is needed. It would transfer responsibility for creating money to the central bank as an agency of the state. Creating a stable public money supply conflicts with competitive borrowing and lending. Neither function can be efficient unless they are separated.

The present credit crunch, the latest in the recurring series of credit booms and busts, is the inevitable result of confusing them. Chuck Prince of Citibank explained why it's inevitable from the banker's point of view: "So long as the music is playing, you’ve got to get up and dance".

**James Robertson was said by Mikhail Gorbechev in 2003 to be “An outstanding example of a modern thinker at the service of society’. For more on his ideas for monetary reform see http://www.jamesrobertson.com/books.htm

At every level of public and business life, people are encouraged to asses the risks that might flow from their actions, or lack of them. The way we allow banking to work, escapes this scrutiny and so it is that millions of ordinary people suffer badly from the financial crashes that regularly ensue.

Read The Free Lunch –Fairness with Freedom for more on such problems and how we might move to a fairer society for all.

Land Rent not Council Tax

There are suggestions from Scotland of abolishing Council Tax and imposing Local Income Tax (LIT). This would break the link between property values and tax amounts. Who will be the winners and losers? Low earning renters and owners might gain, especially if they lived in a high-band house. Two average earners co-owning a low-band house would probably pay more. Would tax be redirected to the local Council where a person lived, rather than one in the location of their work base?

With the likelihood of many anomalies the fairest way is to reverse the idea and precisely target property values with charge an annual Land Rent based on the value of the land on which the house sits (otherwise known as: Land Value Tax). If low earners cannot afford to pay now, arrangements could be made to defer some of the payments until the house is sold.

‘Land Rent’ is a probably a better term than ‘Land Value Tax’ as ‘rent’ implies a payment for a benefit received whereas ‘tax’ implies an arbitrary imposition by a government needing funds.

The Free Lunch-Fairness with Freedom examines the options for such a land rent (LVT) and suggests ways of coping with anomalies.

The Alaskan Free Lunch

The hot news awaited eagerly every autumn in Alaska is the size of the dividend to be paid to all citizens of all ages. Paid from a fund built up from the earnings of the state's oil royalties. Last year it was US$1654, so that a family of four received $6616 all without any means-testing.

The payment has rocketed from a low point of $846 in 2005 due to the soaring oil price. With the spotlight on Sarah Palin as the Republican vice-presidential candidate in the forthcoming US elections, maybe this amazingly enlightened citizen-based legislation will be examined by other governments around the world.

The current economic system shows ever more clearly its signs of failure with the most hurt being felt by ordinary people. Should we not consider Alaska's pioneering example of the last 26 years and consider the basic right of all to an annual cash-in-hand share of national wealth? Alaska is showing the way forward here.

It is all explained simply and clearly in the book: The Free Lunch - Fairness with Freedom (see link on left).

Property market predictor

Are house prices approaching freefall or will they stabilize and start climbing again?

Fred Harrison has a record going back 25 years in predicting property price cycles. His 1983 book Power in the Land researched these from the late 1700s and showed that they follow an 18 year pattern, resulting, in recent times, in peaks in 1954 & 1972. Adding another 18 years gives the well known peak around 1990 and another 18 years brings us up to date. The Nationwide UK house price average peaked at £184,723 in September 2007 and in July 2008 was 9% lower at £169,316.

Someone who can predict like this deserves to be listened to by governments. Sadly this is not Fred Harrison’s experience after contacting both the Conservative government in 1983 and New Labour in 1997. They ignored him and let their economic situations boom excessively, leading to the early 1990’s recession and with a new one developing now, yet again.

Click on the link below to watch a short video of only 7 minutes. Hear what happened and, incidentally, also learn some inside information about property prices. With the financial situation looking increasingly dire it is becoming vital to be well informed:

http://www.youtube.com/watch?v=_C-Nd_MStxU&feature=related

See also this BLOG for 5 & 11 Nov 2006 and 9 July 2007.

Make the UK a tax haven

The UK Chancellor Alistair Darling is facing a growing problem as he tries to prevent large companies from pulling up their tent pegs and fleeing to less arduous tax regimes. The Times today in Business News has Richard Lambert Director-General of the CBI saying that boards of FTSE 100 companies are increasingly near to saying ‘shouldn’t we be discussing this?’

Who will be left to pay UK taxes, when large numbers of businesses decamp to Dublin, Jersey or Bermuda, etc? The answer is to tax things or people who cannot move abroad. This includes the mass of residents for whom no such choice is available – their tax is likely to be raised as businesses flee. But an ideal tax source is the value of land. This would be an amazing source of revenue year on year. It could rapidly replace the tax on goods and work (VAT, income tax and corporation tax) leaving a lower tax burden especially on the poorer citizen who may not own their own home. It could make the UK a tax haven for world businesses. This enlightened tax reform could bring 'The Economics of Abundance' (search for that term!).

The book The Free Lunch - Fairness with Freedom investigates the practicalities of implementing this reform. See also this Blog for 8 April 2007.

Resolving the 10p tax band dilemma

The media is convinced that the government has got itself into a hole by eliminating the 10p tax band. It is reported that over 5m families will lose out (Sunday Times 20 April: Institute for Fiscal Studies). The losses are about £2 per week and this is important to a struggling family (and to a struggling government !). Lord Forsyth (Daily Telegraph website 21 April) says that tax allowances should be raised to compensate, thus taking 2.5m families out of paying income tax. This would also keep the simplification of abolishing the 10p band.

A better way would be to take the opportunity of introducing a Citizen’s Income / Basic Income Grant for all. We have this already for families with the Child Benefit payment (£977 - 1st Child p.a., £652 - other children p.a.); the over 60s get a winter fuel payment of £100 per head p.a.

The Citizen’s Income Trust have worked out the practicality of a non-means tested, unconditional payment to every citizen (www.citizensincometrust.org).

The book The Free Lunch – Fairness with Freedom makes this one of its themes and calls it the Citizen’s Royalty. From UK bookshops, Amazon, www.the-free-lunch.com or e-mail: info@ the free-lunch.com.

Jonathon Porritt & The Free Lunch

This pioneering environmentalist has just endorsed the book The Free Lunch – Fairness with Freedom. He says: ‘I have indeed enjoyed this book…it makes a really important contribution to a much neglected area of debate within the broader sustainable development terrain... contains very fresh thinking.’

Jonathon Porritt is particularly in agreement about the idea of land value tax which Henry George campaigned for over 100 years ago. Had this radical reform of taxation been taken on then, it would have inevitably resulted in a more sustainable future for the earth and for our free society than we are facing now. Our appallingly backward tax system unfairly burdens the poorest, but there is a fairer way. Economists recognize that taxation based on natural resources such as land would not only encourage the more sustainable use of the resources of the planet but also result in a more prosperous and fairer society.

Political ideas of the future are contained within this book. Anyone hoping for the well-being of the planet must also wonder how the important issues of fair shares for all, as well as the need for a freer society will be resolved. The book explores it all.

Visit www.the-free-lunch.com

It’s really as simple as this…

If you thought that the rich always pay more tax than the poor, then watch a short video on Youtube which explains what really happens. Fred Harrison in just 8 minutes highlights the financial unfairness that is rife in all countries, why it is like it is and what can be done to reverse it. It is a simple message but a rare insight and may disturb preconceived ideas.

The link is: http://www.youtube.com/watch?v=6ZkfmY1PMng

See also this Blog for 5 & 11 Nov 2006 and 9 July 07.

David Willetts & Civic Conservatism

David Willetts (UK Conservative MP) in the Oakshott Lecture (20 Feb) at the London School of Economics said that ‘reciprocal altruism’ between people is more likely to happen if people are regularly coming into contact in some way. The challenge for governments is to foster this human response and encourage the maintenance of such co-operation through the good habits and customs engendered by it. He says government should be protective of those institutions that encourage co-operative attitudes and should find ways of maximizing the effect. He points out that small schools are far more effective over discipline and behaviour than large ones. He quotes a figure of 150 as an optimum group size. The challenge is to reduce massiveness everywhere, then the positive effects that everyone can experience as part of small groups might start to affect attitudes in the larger networks that make up the whole.

Many of David Willetts' ideas mirror those in The Free Lunch – Fairness with Freedom. In the book ‘love you neighbour as yourself’ has a direct resonance with his ‘reciprocal altruism’. The theme of the book is to show how the socio-economic and political guidelines that accompanied ‘love your neighbour as yourself’ might be fulfilled by practical political measures today. The idea of a Citizens Royalty for everyone is one such. Such an unconditional regular payment would foster a new common bond between all citizens.

Order the book www.the-free-lunch.com or e-mail directly to arrange mailing: baz@chasp.freeserve.co.uk

Dear Gordon Brown…this is a scandal!

I have just launched a petition on the Prime Minister’s Number 10 Downing Street website. It asks him to get Local Authorities to make a register of empty homes in their area and then take steps to put the empty homes to use. The latest Housing Act gives Local Authorities powers to do this, but not much is being achieved. Meanwhile there is a nationwide planning policy review called the Local Development Framework which is forcing these authorities to identify green fields for new homes! Note: It is estimated that there are 870,000 empty homes, which is 4 year's supply.

Wouldn’t you have thought that a green-inclined government also wanting to help people have a decent home would force the empties into use first?

Help raise the profile of this issue by visiting the following link and signing up.
http://petitions.pm.gov.uk/emptyhomes/

The debate needs to be joined on a massive scale and the Empty Homes Agency is fighting hard (see: www.emptyhomes.com).

Read my book The Free Lunch – Fairness with Freedom for many more ideas as to how to bring a fairer society and a greener land. Buy it on Amazon, at bookshops, on www.the-free-lunch.com or email me directly: info@the-free-lunch.com

Do you think you understand banking?

Start to clarify your understanding of banking for the rest of your life by spending under one hour to look at all 5 YouTube videos, as per the links below.

Artist Paul Grignon

1 Cartels - robbing the public
http://www.youtube.com/watch?v=cy-fD78zyvI&feature=related

2 How money is created
http://www.youtube.com/watch?v=hfXavRTM4Fg&feature=related

3 Money as debt
http://www.youtube.com/watch?v=_yvRZoM-2r8&feature=related

4 Monetary Reform
http://www.youtube.com/watch?v=f0p8LepIuVM

5 Warning about NWO, summary and links
http://www.youtube.com/watch?v=PzXZ_Hs1g6U&feature=related

If you have been informed / outraged / frustrated /…by the videos then read The Free Lunch – Fairness with Freedom. www.the-free-lunch.com

Food miles

The BBC is currently highlighting the travel involved in our food and the resulting additional atmospheric carbon. There is the trip from abroad before it gets to the shops, and what we travel to buy it - up to 135 miles per adult per year. Waste food and packaging add to the problems. We are all struggling to find the real facts and effects, and an article by Hattie Ellis on www.bbc.co.uk/food puts as many questions as answers.

Ideas in The Free Lunch – Fairness with Freedom put the issue in another frame. The current planning laws are directly opposed to food production at the level of the household since the permitted new housing densities make this virtually impossible. At 40+ dwellings per hectare the resulting ‘gardens’ are minute. The owners will never be able to eat much food without a lot of travel having been involved.

We need planning law options that allow houses to have a good sized, unshaded food-growing plot. Food grown at home is not only low cost and wholesome but reduces waste food, travel costs, fuel consumption and carbon emissions; it also eliminates the need for packaging and its disposal. The use of geo-thermal heat for a house on such a plot would be more cost effective if also used to heat a poly-tunnel for growing food over a longer season.

The Free Lunch is a book for anyone who wants to increase choice for ordinary people. It addresses other issues that need to be considered along with such topics of the day as food miles.

www.the-free-lunch.com , or www.amazon.co.uk , or order from your local bookshop

Property Truth – Developers’ Secrets

Who will make a TV programme to show clearly the secrets of the property market that a successful developer uses to make his profit? In his final Truth about Property programme on 1^st November, BBC2’s Andy Verity brought to a close his interesting series (to re-run it: www.bbctv.co.uk). It included renting, planning, unaffordability, the desirability of ownership, nimbys, 800,000 empty homes, low house-building numbers, and so on. He mentioned the total cost of land as the largest single item in the price of a house and quickly moved on. He quoted Adam Smith to illustrate the monopolistic character of the housing market.

The programme visited a large site that one major national property developer had bought in the early 1990s – Verity might have pointed out that this was the low point of the approximate 18-year land price cycle. Wise developers will now be taking their gains. They know when to buy and when to cash in their profits. This will give them funds for buying cheap land at the bottom of the coming slump. For more on property price cycles see Fred Harrison’s book: Boom and Bust. Shepheard Walwyn.

Adam Smith’s answer to the land monopoly was to tax the value of the land of each plot. If you owned an empty house or flat, or empty land with planning permission, you would have to pay this tax whether empty or occupied, so you would rent it, sell it or build on it. Prices would drop and become less volatile over time. Rents would drop. Pressure to build on green fields would reduce. More people could buy their own home. Yvette Cooper the Housing Minister who spoke on the low supply of new homes should love this tax which increases supply at a stroke – but no one mentioned it! All monopolies are the target of democratic governments except the land monopoly. Why?

There are several factors that need to be sorted out to bring a fairer housing market – read The Free Lunch – Fairness with Freedom and find out how they would work. www.the-free-lunch.com See also this BLOG July 9 & 19.

Promising new Tory ideas

At the recent UK Tory party conference George Osborne shadow Chancellor of the Exchequer proposed increased taxes on aviation with the aim of reducing carbon emissions. The interesting extra included was a ‘family fund’ that would match these taxes with tax cuts for families. This is central to the ideas in The Free Lunch (pp.65-68) where the raising of taxes on resources, that is, green taxes, is proposed along with reductions in conventional taxes.

Another idea from The Free Lunch and the Tory Party is to protect back gardens from the wholesale high density development that is becoming the norm for new houses. See chapter 5 for a critique of this policy to provide ‘more environmentally sustainable’ cities and towns, (especially pp. 72-79).

The Tory Conference proposal to raise inheritance tax (IHT) to start at £1m was, within days, taken and modified to £600k by Labour Chancellor Alastair Darling in his Autumn Statement. The Free Lunch proposes the elimination of inheritance tax on property altogether (pp. 65,67) following the annual levy of the green taxation on the value of all land including that of homes.

What will now happen with these raised IHT limits is that the huge rises in land values linked to most homes will escape any tax. The families of homeowners will keep the valuable unearned ‘free lunch’ that renters of homes never have to pass down to their families. However this IHT reform is a good start as it clears the decks for introducing an annual land value tax. It would be difficult to launch an annual land value tax with the threat of a low IHT limit still around to raise the opposition of the vast mass of home-owning voters.

The Free Lunch proposes another idea to ease the passage of such a controversial tax, based on bringing greater fairness. Visit www.the-free-lunch.com , read the book.

National motto – Fairness with Freedom

Prime Minister Gordon Brown has suggested the UK needs a motto. What better than the sub-title of the book The Free Lunch: ‘Fairness with Freedom’?

The two ideals summarize the aims of all democracies. The last century or so has seen swings from the left and right of the political arena as each has taken its turn to guide policy. The left emphasizes fairness, but the attempts at state socialism evident in failed communist states show that fairness of itself is insufficient. Freedom is also an essential human need, but it too is not enough on its own, as the rich and powerful cannot be allowed to have free rein irrespective of others.

The book The Free Lunch suggests that mature democracies need to move to a more citizen-focused policy. The book works out how this might be done, beginning with a basic citizen’s income for everyone. Many groups world wide are seriously encouraging these ideas which are quite practical economically. Fairness and Freedom is an ancient tradition. Read the book to find out more: www.the-free-lunch.com

Polly Toynbee - Hard Work

This prominent journalist used some time off from her usual occupation of writing for the Guardian newspaper, and lived in a semi-derelict block on a rough estate in South London, trying to live off any low paid job and whatever state benefits or charity help she could get. Her book Hard Work (Bloomsbury) is the outcome which showed the limitations of the state welfare tax-credit system which merely acts as a top-up for the wages of low paying employers. It also shows how the hallowed ‘free market’ in jobs which is supposed to be the ultimate encourager of labour mobility and self-help for the lowest paid is a sham. (See also this BLOG: New Paradigm in Economics, Aug). We are deluded by this false economic theory that condemns the poorest 30% of our society to a lifetime of servility and struggle, with few ways of escape.

But Toynbee can only point to ‘more of the same’ as a solution. She advocates encouraging trade union membership, pressure for a higher minimum wage and continued tax-credit welfare. However, her own findings deny their effectiveness: (a) union representation of the low-paid has been one of broad failure over the years (b) the 10% lowest paid in 1970 were better off then than now - they now get £164 whereas the 1970 equivalent should be £262 a week; and (c) tax credits are fiendishly complicated and many qualified do not claim them.

She should champion a Citizen’s Income, a non-withdrawable regular payment to every person, as of right. At one move this would (1) raise the average wage for those in work (2) enable people to cover the costs of looking for new, more fulfilling and better paid work (3) through the increase in economic power to workers, incentivise employers to train and look after their workers better and (4) enable workers to pay union subscriptions to press for better terms.

The Citizen’s Income Trust www.citizensincometrust.org has much information as to how a new system is quite feasible financially. We already have the beginnings in the Child Benefit payment. Alaska pays an oil dividend to all citizens every year. Read The Free Lunch for more good news! The hardest work is opening closed minds. See www.the-free-lunch.com , look at the cartoons.

Wealthfare – a new definition

Many people object that welfare goes to too many people who do not ‘deserve’ it. The phrase quid pro quo illustrates the idea and is behind the move to force people into work by giving tax credits rather than handouts: ‘You do your bit of work and the state will help you out.’

The book The Free Lunch –Fairness with Freedom takes it as given, that the earth is here for the well-being of all and is to be fairly shared. However, selfishness and inadequate governance means that poverty abounds and the rich get proportionately richer. This tendency has been called wealthfare, meaning that powerful businesses and people (with access to clever advisers), whilst gaining more wealth often manage to pay declining tax contributions for the essential needs of society and the poor. Quid quo pro does not seem to apply to a fair share of tax on their increasing gains.

There are ways of paying for the needs of society and of providing for the needs of the poor in ways that would not engender the wasteful deviousness of tax avoidance followed by the rich, and would not burden the poor with bureaucratic form filling and the invasion of their privacy as to their means.

The Free Lunch is positive, practical and economically sound. For an exploration of the ideas of what might be called ‘New Wealthfare’, based on fairer shares for all from the plenty of the earth, read the book: www.the-free-lunch.com

New paradigm in economics needed?

Since early this year there have been increasing reports of distress in the US housing markets as more people lost their homes. In the UK too, home repossessions are up 30% on last year. The credit malaise is spreading so that some international blockbuster deals to buy out mammoth size firms with private money are in trouble. Supplies of credit are getting tight at this cutting edge of business that has had such a heyday for some years.

To understand what is happening it is most enlightening to read Richard Werner’s book New Paradigm in Macroeconomics ISBN 1403920745. (See the review on www.amazon.co.uk ). The book clarifies what seemed so puzzling as to why Japan boomed to the early 1990’s, then suddenly crashed and seems to have been mostly in the economic doldrums since. Werner is the Professor of International Banking at the University of Southampton and has studied the Japanese economy first hand. His book is written to prove certain things to economists, but, apart from the formulaic proofs for the specialists, its clarity makes it very accessible to anyone else. It is a fundamentally important book that explains the reasons for the boom and bust nature of our western economy which leads to such things as housing price bubbles, volatile employment patterns and widening disparities of personal wealth.

Werner shows how much of the underlying thinking behind current neoclassical economics is remote from practical reality. He exposes the realities of ‘the market’ and how they do not match up to the expectations of theorists who nevertheless take the idea as holy writ. He suggests that the prevailing wisdom of current economics favours the established economies of the world to the detriment of those of developing nations that are at the mercy of the false paradigms peddled by the strong for their own purposes. The book strengthens the case for key points made in book The Free Lunch – Freedom with Fairness. See www.the-free-lunch.com

A rare sighting of land

In the Sunday Times (UK) 15 July, an article by Robert Booth and David Smith tells of the problems of producing affordable housing which really is affordable. Builders are able to produce a house for £60,000, which looks promising, but these homes are actually on the market for five times the build cost, at £300,000. George Wimpey Homes, the developers, say that ‘the high value of land’ is to blame, and the ‘cost of land is proving to be a huge issue’.

Over the past few years many newspaper have started issuing regular property supplements, and there are now regular TV and radio programs on the subject. These thousands of articles mention just about very aspect of the property market except for the most important one in the equation for aspiring home owners: land values. So for land to have three mentions in the ST article is a very rare thing indeed.

Why are journalists so quiet about land costs? You would have thought that a serious writer would like to carve out a niche in explaining to the general public exactly why property is so costly. It is not bricklayers and plumbers who are raking off huge pay increases which match the rising ‘house + land‘ prices. It is the high and rising land values that are reflected in every house sale and purchase, whether a new or an old property is being sold.

For more on this and some solutions to the affordability of houses read The Free Lunch – Fairness with Freedom. See: www.the-free-lunch.com.

The UK’s North-South divide

In The Times today (9 July) Gary Duncan in his Economic View quotes an Ove Arup study which covered 1971-2004. Over the period, in the North of England 10,100 net jobs were created, whilst in the South the figure was 2.73million. The article is worth reading for its details into the appalling disparity in wealth between the two areas. He points out that some counter measures such as planting government jobs in the north are counterproductive as they drive wages up faster than regional productivity growth and undermine the area economically. He has three suggestions for reform, and the third is of particular interest. He says that corporate tax incentives must be introduced to make the overheated south less attractive.

The full answer can be found in Fred Harrison’s Ricardo’s Law. Taxation is indeed the answer but it is not just corporate tax that needs reform. Harrison clearly and thoroughly argues that the way we allow land value gains to accumulate privately without taxation is a scandal and is the root cause of the comparative poverty of the North. The solution was clearly spelt out by the economist Adam Smith in the late 1700’s. If you want to see the solutions to this problem in a very different way to almost every commentator in the popular media you must read Ricardo’s Law (www.shepheard-walwyn.co.uk ). See also more about it on this BLOG for 5 Nov and 11 Nov 2006.

Poverty related to location is world-wide. Every nation is polarized into rich and poor areas and in the interests of fairness they would all respond to the solutions suggested by Harrison. For more on these themes see: www.the-free-lunch.com

(Proven) Green Taxes – 2

Do green policies achieve what they are aiming at, or actually aggravate environmental problems? On 28 June a BBC Radio4 Today programme discussion on bio-diesel crops, it was suggested that to replace ordinary food crops with bio-diesel ones may not be environmentally clever. The point was made however that if the only crops that will grow in a location are bio-diesel ones then it probably is effective. Sometimes so many side effects of green policies need taking into account that it is difficult to justify them.

There is one area of green taxation that has proved to be effective on several counts. See the website: www.wealthandwant.com (click ‘Themes’ and then ‘Split Rate Taxation’). Look at the various examples of the property taxation of land values and building values. The higher the ratio of land value tax to buildings tax the less farmland is taken for building, the more efficient is the use of existing roads and drainage, and the less urban sprawl results. For over 25 years in the US State of Pennsylvania the results have been coming in to prove these facts. Comparisons can be made with similar towns which have not taxed the land of plots more highly than the buildings on them and in these cases such environmental (and also social) results are markedly poorer. Someone has studied 237 cases of Land Value Taxation world-wide and found similar improvements in all of them.

Our new UK Prime Minister, Gordon Brown should allow local authorities the option to tax land values as well as building values to raise their Council Tax. It is not a risky green tax policy – it has been proved to work. Read the book The Free Lunch –Fairness with Freedom for more on such themes and their beneficial outcomes.

See: www.the-free-lunch.com

Green Taxes and Fairness -1

Planet saving activity is getting increasingly popular. Regulations get ever stricter against pollution and businesses face high fines if they transgress, thus there is commercial sense in finding greener solutions because they cut such costs. They also gain favour with consumers which is so important for marketing - see the example of Marks & Spencer (Blog: January 25).

But if the habits of tens of millions of ordinary people are to change in order to lower the use of natural resources on a meaningful scale, there will be a financial cost to them. The living standards of the mass of many voters are going to be cut. There is substantial resistance to the idea of green policies and anything that will help to overcome this should be tried to pacify the skeptics – just in case the measures will later be seen, even by them, to have been necessary.

The book The Free Lunch –Fairness with Freedom explains how one attraction of a Citizen’s Income, a regular payment to everyone, is that compensation is targeted at the extra cost of the basic use of essential resources if green taxes are imposed. High usage would be surcharged without a compensating Citizen's Income payment and thus force some lowering of consumption.

The other way to overcome the poverty-inducing effect of green taxation, is to extend means-testing of welfare benefits for more and more people. This would lead to higher taxation due to the increase in bureaucracy. Besides many of those who are entitled to help fail to apply due to the complexity and the risk of state claw-back when mistakes are made, or earnings rise.

There is a choice on how green taxes are handled and it depends on which viewpoint is taken as to the relative importance between the individual citizen and the state. The Citizen's Income idea is rising in international importance (see: www.basicincome.org ) - in the UK we already have part of it, in the form of the unconditional Child Benefit.

See: www.the-free-lunch.com and buy the book.

The G8 & Third World Development

The Sunday Times (3 June 2007) reports of demonstrations in London and Rostock, just before the 2007 G8 summit, about its failure to keep its 2005 promises on world poverty. But how successful will the plans be even if carried out fully? What all such plans for aid should be aiming for ultimately is to help the assisted nations to become self-supporting through their own development. For this to become a reality a huge infrastructure cost is needed for features like roads, docks, airports which facilitate the citizens to run their businesses.

The book The Free Lunch – Fairness with Freedom reminds that every such improvement raises the value of land nearby. It also shows that the most efficient and fairest way to fund these public investments is to charge all land owners an annual tax or levy on their land's value. This is known as land value tax or location benefit levy. Such a tax is relatively simple to raise and impossible to avoid, which should make it especially attractive to less developed countries which have no history of complex state bureaucracy such as we have in the more developed world.

The book suggests that a priority for aid should be for help in setting up land registration schemes.There is expertise available from the UK through http://www.landreg.gov.uk/ on land registration and in Australia for this and also in raising land value tax http://www.osr.wa.gov.au/ (click on Land Tax Brochure) where the taxing of land has been used for many decades.

Visit http://www.the-free-lunch.com/ to buy the book with PayPal.

Abolish VAT?

The Times (14 May) says that the business leaders in the UK are pressing for a tax overhaul, involving simplification and lower rates (see also: Blog - 8 April). The Free Lunch – Fairness with Freedom argues for quite a different tax reform for individuals which would help business too. Governments raise tax mainly by taking away some of the effort of workers and producers of products or services, thus VAT is a tax on every slice of value added to a product or service, and income tax takes some of the effort of every individual’s hard work. These taxes directly penalize creativity and can sometimes be a disincentive to work, especially for those on welfare benefits.

A far better tax is to take a slice of the value gained by land. Land values rise when a community is considered to be a good place to live in or invest in and this happens because virtually everyone in that society is contributing to its success and it is considered to have a settled future. A large percentage of the spending needs of Governments could be met by an annual levy on the underlying value of all land. Income tax, VAT and other taxes would be cut and eventually abolished.

The Free Lunch suggests that part of the money raised would be recycled back as a Citizen’s Royalty - an annual payment to everyone - so that everyone would be rewarded for their contribution to the economic success of the whole. This would also help poor homeowners to pay their land tax. An added advantage of a Citizen's Royalty (also known as Basic Income or Citizen’s Income) is that welfare payments would be hugely simplified. For more on these radical yet simple ideas buy the book.

Link: www.the-free-lunch.com

Miliband and Cameron

These two Davids are starting to identify that UK politics is about the issues raised in The Free Lunch – Fairness with Freedom. David Miliband (New Statesman 2 April 2007) who is a possible future New Labour leader has described a progression from the ‘I need’ of old Labour in 1945 through the ‘I want’ of the Thatcher 1980s, to his vision of ‘I can’ for the future, where we are all empowered more to contribute to the solutions for society. He wants us to be more locally effective.

David Cameron (Daily Telegraph 25 April 2007) leader of the Conservatives says similar things: we need a new ‘revolution in responsibility’ and puts a simple test for new legislation: ‘does it give people more responsibility, or does it take responsibility away from them?’

Miliband talks of ‘different government institutions’ and ‘a genuine partnership … between government power and citizen power’ for his ‘I can’ theme. Cameron talks of’ a mindset in which government treats its citzens like adults, to be trusted and respected’.

Will any of this result in anything very different? Will any party trust the citizen enough to establish a non-means-tested Citizen’s Royalty for all? A new institution for organising such a payment would, as the Royalty increased, effectively shift power to citizens so that many of the old statist institutions could shrink and wither. People would increasingly become empowered. The two Davids could usefully study The Free Lunch for some ideas of how their similar aims might be realised.

Buy the book through PayPal: www.the-free-lunch.com

The poor will pay more of the tax

Countries compete with each other to attract foreign capital investment by lowering tax on companies. 20 years ago the UK used to be a leader in these low taxes with a 30% tax rate when others reached 50%. In the recent budget this was reduced to 28%, but the competition is strong – the Cayman Islands and Switzerland are very much lower. With high tax rates there is some fairness in taxing companies over wage and salary earners, since companies are owned by wealthier people.

But as businesses locate to countries with low tax rates (wherever they actually make their profits) the tax burden for the countries they have deserted needs to come increasingly from income tax and consumption taxes. Thus the poorer residents who have no spare wealth for low-taxed company investment to offset these other taxes, will be increasingly paying more of the total tax.

To hear an informative radio discussion on this topic by John Christensen, Krysztof Bobinski and Michael Devereux go to the BBC World Service website and click on World Business Review for 4am GMT 7^th April. What was missing in the discussion was a way forward to combat this problem of suddenly disappearing sources of tax, that would also be fairer. The book The Free Lunch - Fairness with Freedom has details of a tax on land values which would not only be unavoidable and produce a steady stream of tax income, but also be fairer since it would take some of the gains that go to those with land wealth which are currently tax free. Poor wage earners who only rent their homes would be exempt.

See www.the-free-lunch.com

The UK Budget

There seem to be new problems for some of the poorest within Gordon Brown’s recent UK budget. Whist some better-off people are going to benefit a little, many poor are going to get less. Apparently some can apply for tax credits to even-up the losses, but the take-up of these is not good and is not really the answer. Has Mr GB, the champion of the poor, taken his eye off the ball? Perhaps he will give in to the criticism and adjust something later to sort it out.

But this problem could show that even someone as skilled as Mr Brown at tailoring welfare to special situations is coming to the end of such possibilities. The sub-title of the book The Free Lunch is Fairness with Freedom and one of the solutions in it that would bring greater fairness is a Citizen’s Income (in the book: Citizen’s Royalty). This would be paid at a level amount to all citizens. It would provide a simple answer to Gordon Brown’s problems, make a permanent difference to the well-being of the poor and is workable.

Another budget item was green taxes. They are a major theme of the main UK political parties. This can only be good for the acceptance of the ideas of The Free Lunch. People are becoming accustomed to the idea that taxation is a way of promoting sustainability for the earth’s resources. The necessary combination of such taxation with a Citizen’s Royalty will become the simplest and fairest way to cover each person’s essential-use cost of these resources.

Visit the website, buy the book: www.the-free-lunch.com