One of Spudda’s problems is that he’s got absolutely no economic hinterland

He just doesn’t get that other people have chewed over these problems before him and that they also had some useful insights. This isn’t written by Snippa but he endorses it:

The first thing to understand is that land is not like other forms of capital in the economy: it has unique qualities which have to be understood. Land is finite – there is a limited supply of it – and it is permanent – it does not depreciate.

This means it is a uniquely desirable type of capital; as long as populations continue to rise it is likely to rise in value too. As Mark Twain said over a century ago, “buy land, they aren’t making it anymore”.

Land therefore plays a very different role in market economies to capital: whereas Apple will produce more iPhone’s to meet demand, more land cannot be produced to meet housing demand.

This gives land and property owners special power in the economy: their monopolisation of the fixed supply of land can mean they extract the surplus value produced by growth in the economy through charging rent on use of their land.

Sigh, this is just Ricardo on rent. Everything just ends up as land rent in the end. Something which we now know to be empirically wrong. Because we do make more land, by trading with it. The steamship, the railway and the opening up of the prairies and steppes did more to destroy the great aristocratic fortunes than anything else, certainly more than any tax or government intervention. It’s even in the Saez and Zucman work on the subject.

Remarkably, the unique role of land in the economy is ignored in mainstream economics:

Bollocks, it has been endlessly chewed over.

From the late 1970s and early 1980s to today, a great transformation has taken place in housing – land and property values have gone through the roof. The rise in property value has significantly outstripped rises in incomes and growth.

This has created a surge in wealth inequality between property owners and renters, and is the central finding of Thomas Piketty’s globally renowned book, Capital, which used historical data to show that asset price inflation now outstripped profit, making capital investment in the real economy a loser for any business man or woman compared to rentier exploitation.

Twattery. One of the great failures of Piketty’s thesis is that he doesn’t account for the rise in property wealth at the household level.

This transformation has been driven by financialisation – the turning of social goods into financial assets. UK banks’ main role used to be as lenders to businesses. While lending to non-financial corporations has remained fairly static, mortgage lending directly to workers has surged, from 20 to 60 per cent of GDP.

Mortgage lending is now the main function of British banking. Once again, mainstream economics is unequipped to understand the role of financialisation in the modern economy.

Banks’ role is seen as recycling savers’ money to borrowers as credit for productive investment, oiling the wheels of the economy. But what the banks do with mortgage loans has little to do with investment, and even less to do with existing money in circulation.

Idiocy. The “Anglo Saxon” financial system uses public markets, equity, to fund business, not bank loans as with the Continental system. Sure, we can argue about which is better but not to note this is just idiotic.

First, it’s important to understand not all of the world is like Britain. While rising house prices has been a global trend, in countries like Japan and Germany house prices to earnings have been in decline since the 1970s, the reverse trend of the UK.

Germany is a society where most people still rent in a well-regulated sector, the mortgage market has more strict limits on it and most banks are public or co-operative owned and do not engage in land speculation.

The point is that there is different ways to do things, and if we want things to change we have to be open to thinking fundamentally differently about how we do things in Britain. Tweaks will be insufficient.

Fuckwittery. Germany and Japan have “can build” planning systems. Want to build a house on your land? Go ahead. Make the British system like that and we’d be settled. What’s the one thing they don’t advocate? Freer planning permission. Fuckwittery.

38 comments on “One of Spudda’s problems is that he’s got absolutely no economic hinterland

  1. Minor quibble;

    “The “Anglo Saxon” financial system uses public markets, equity, to fund business, not bank loans as with the Continental system.”

    I’m not convinced that this has been the case for many a decade now. Although it does depend on what gets included in “public markets”.

  2. There isn’t a “fixed supply” of land. You can decrease the supply of land through legislation and planning law, and you can subsequently increase it through abolishing or relaxing those laws.

    As Mark Twain could have said over a century ago, “buy land, we’ll introduce zoning laws and the value of it will shoot up. Plus, the poor won’t be able to afford to live next to you and mess things up”.

  3. His pathological arrogance and egocentricity prevent him even imagining that any previous economist had any worthwhile ideas or insights.

  4. I seem to recall that Japanese house price to income ratios were somewhat elevated rather later than the 1970s…Yet another article in which he quite brilliantly manages to be almost totally wrong about almost everything.

  5. He’s right that the German mortgage market is more tightly regulated than the UK’s. But this just means that there are plenty of Germans who would like to buy, but who are locked out of the market by banks’ reluctance to lend.

  6. Try and get a mortgage in Germany and Austria.
    If one hasnÄt got at least 30% of the house price in cash, then forget it, which is why house prices do not rise ( or fall ) to the extent they do ine the “Angl Saxon” world.

    Banking in these countries is not consumer focuseed. One pays 15 euros a month for the privilege of having a current account and huge fees for opening any sort of investment.

    This fact does not seem to stop them making bloody stupid loans to companies or governments in BongoBongoLand, who then default, so that the bank has to be bailed out.

  7. I’m confused .He wants mortgages restricted so that the poorer working class are forced to pay out rents rather than have their own stable home?

  8. Can’t make more land? On my first project in HK we worked in Crocodile House on Connaught Road and I just had to walk across the road to get the Star ferry to Kowloon. Some 10 years later it was a 200m, at least, walk to get there across dry land. Connaught Road itself was built on reclaimed land.

    It’s also worth noting that the main source of mortgages in the ’70s and before we’re Building Societies, now they are nearly all banks, so yes more mortgages are issued by banks.

  9. He’s another classic insular Brit that looks at a single data point of how they do things In Foreign and presumes that everything else is the same as in good old Blights.

    Thereby completely ignoring the rest of the ecosystem in which that data point lives.

    Narrow openings in his stump don’t help this at all…

  10. “UK banks’ main role used to be as lenders to businesses. While lending to non-financial corporations has remained fairly static, mortgage lending directly to workers has surged”

    That wouldn’t be over the period that a lot of the building societies, which do “mortgage lending directly to workers” were converted into banks, so increasing the level of mortgage lending by banks?

  11. “mortgage lending directly to workers has surged”

    So workers are benefitting directly from the banks’ ability to pluck the sweet, sweet fruit from the magic money tree?

    Mortgage lending will also increase if the LTV requirements drop, if more houses get built to accommodate a rising population, or if house prices rise generally.

  12. Germany does not have “can build” where it is currently eeded, in the cities. Its fine if ypu want to get land in the sticks and build a cesspit and oil tank, and pay a fortune for electric connectuon. But the cities are zoned and it takes 10 years of planning then 10 years in court to get a dreary stalinesque estate built.

    Which gives plenty of time for speculators to get in and agree overpriced deals ( the state can only forcibly purchase at a privately agreed price).

  13. Oh dear Murphy is moving on to Timmy’s turf : showing how the great elixir of competition doesn’t work with land but just puts its price up and ruins the economy.So we get a don’t worry children speech from Uncle Timmy saying that nasty Murphy’s ideas are quite different from good old uncle Timmy’s. Which is true: Murphy’s are more coherently expressed.(Rather surprisingly: Tim Worstall is generally ranked as the most eloquent of British land value tax subversives and troublemakers)

  14. Off topic – on the BBC

    “I would like to reassure people that we will not use this tragic incident as a reason to carry out immigration checks on those involved…” said Mrs May

    Why not?

  15. Murphy is Irish, not Dutch. The latter have created land, millions of acres of it.

    They even created some in the UK near Ely by draining the fens. Unfortunately, to observe that Mr Murphy would have to walk *more than a mile* which might put a strain on his legs (this is the guy who *drove* teenagers to school in Downham Market).

  16. I was just remarking that we had not seen DBC Reed in a while – I should be careful what I wish for, I suppose. What an endlessly tedious individual. Oh and you forgot to mention that Banks are responsible for money creation in the modern economy by the way. Would not want people to go ‘off message’ would we?

  17. abacab

    His ignorance of a topic does not preclude him pontificating on it. He is an anti-polymath in many ways…..

  18. “he’s got absolutely no economic hinterland”

    “hinterland” in this case meaning “knowledge”?

  19. “I would like to reassure people that we will not use this tragic incident as a reason to carry out immigration checks on those involved…” said Mrs May

    Why not?

    Call me a cynic, but the number of people who lived in that tower is going to increase by orders of magnitude over the next twelve months.

  20. “Land is finite – there is a limited supply of it – and it is permanent – it does not depreciate.”

    So is, say, iron. Sure, there’s a lot of iron, but its still the same thing in principle. So iron and things made out of iron should be treated the same?

    As for land not depreciating – that’s entirely dependent on the restricted supply (compared to other resources). But its not inherent in land itself. If you could start making new land (through, perhaps, orbital habitats) then you could see the price of land here on earth drop.

    Or hell, if the number of people were to be reduced – through war, famine, or choice – the value of land would drop as there’d be fewer people competing for the available acres.

    Treat land as a scarce resource, not as something special and distinct from all other resources.

  21. The easiest and cheapest method of manufacturing more land is to accelerate global warming.

    I look forward to my grandsons owning 50,000 acre highly productive grain farms in Canada’s North West Territories.

    But Tim, being a global warming alarmist, will have Nunavut.

  22. Also, land can depreciate. If you own a building plot and a giant sinkhole opens up in it, or it becomes infested with Japanese knotweed, it will depreciate. Similarly, prime agricultural land, if the topsoil erodes.

  23. I would like a proper reference for the claim

    The “Anglo Saxon” financial system uses public markets, equity, to fund business, not bank loans as with the Continental system

    So the syndicated debt markets don’t exist? Underwritten by banks and owned by pension funds, unit trusts, investment trusts etc? They seem to think they are holding debt

  24. John77 is correct: the Dutch and others brought land into economic use. The supply of land is constrained by the size of the Earth; the supply of economically useful land isn’t . It depends on the resources we are willing to spend reclaiming it, or upgrading it. Hence the importance of allowing owners of land to capture rises in its value and incentives for profitable use. That’s why those evil property speculators and developers are a force for good in responding to price signals about land. Also, if people can’t profit from rises in land value for any reason, incentives to bring it into use will be blunted.

  25. Yes, apologies, I was unclear there. Markets for debt and equity, rather than bank loans.

  26. he can’t even remember his own economic analysis. previously it was the tax gap which was the all important crisis – the govt was being starved of tax revenue (cue end of the world) – this was linked to offshore tax evasion.

    Then one day sitting on the bog he dreamt up the magic money tree. Taxation no longer a prerequisite for spending – just set the presses rolling. No doubt shortly another 10w lightbulb moment will occur negating this. The mans a buffoon.

  27. “From the late 1970s and early 1980s…”
    Ubteresting time, that. In the American Midwest, agricultural land prices rose in the late 70s, and some farmers bought land to take advantage of the higher corn and wheat prices. Banks were only too glad to provide loans, backed as they were by the land itself, which doesn’t lose value. Until it did. in the early 80s, after agricultural commodity prices fell, those farmers could not make their loan payments, and went bankrupt. The banks foreclosed, but then could not sell the land for the balance of the loans, and some of them went under. So that whole first para quoted above, which Murphy agrees with, is just wrong.
    This is another part of the ‘hinterlands’ in the lede; Tim is referring to the academic literature, but apparently Murphy has no historical knowledge either.
    I would also point out you can create new ‘land’ as Johnathan Pearce said, by improving how you use it. Increased ag yield (more bushels per acre) or high rise building in an urban setting both make an acre do the work previously done by 2 acres before.

  28. @ ns
    I wasn’t talking just about improving land – the Dutch have actually created land by draining water from the polders bordering the Ijssel Meer in the Netherlands that used to be underwater. The North Sea is a simple translation of Nord Zee and the Zuyder Zee has become the Ijssel Meer plus a lot of farmland below sea level.
    When I first heard the Mark Twain quote, someone added “unless they’re Dutch”. Murphy’s ignorance seems to have no limits.

  29. I think it is the Johan Norberg book Progress which speculates on the consequences of higher crop yields from GMO, more CO2, more rainfall, warmer weather, reduced desertification from desalination plants, and from people continuing to move to live in conurbations. His thought was something like the size of France being taken out of production every decade from 2050 onwards.
    Might have the wrong guy, but if true, that would shake up the price of land.

  30. One thing I always wondered: after the Dutch have made a new polder, how do they get the salt content of the soil low enough for it to be agriculturally viable?

  31. Land can easily depreciate. All it takes is to have planning commission plan your land out of anything you might want to use it for. Or approved the next plot over for garbage incinerator.

  32. Tim you should also be clear that the vast majority of loans to Smes come from banks

    ://bankunderground.co.uk/2017/06/19/bitesize-how-did-the-bank-rate-change-affect-business-loan-rates/

  33. @ BiCR
    Since they built the big dam, the Ijssel Meer has been an inland sea fed by rivers so the salt content has been gradually washed out.

  34. Quite a bit of this country has been reclaimed under the same principles. Hence why the district that contains most of South Lincolnshire is called South Holland. No idea how they desalinated the soil but it has left some of the best quality agricultural land in the country.

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