3 thoughts on “Are politicians economically illiterate? Or do they deliberately ignore basic economics?”

  1. Posted 04/10/2017 at 18:48 | Permalink

    Please can this article be printed and handed out to every member of the Tory Party at the Conservative Party Conference! The housing crisis is a clear cut issue of supply and demand. Yet the supply side is largely ignored. The best we get is an arbitrary mention of the government building X number of houses by some randomly specified date in the future. In the place of sensible discussions on how to genuinely expand supply we are subjected to yet more counterproductive policies, which have the effect of pushing up demand. People wouldn’t need Help to Buy if more houses were built! Foreign investors wouldn’t buy up every property as soon as it came on the market if they weren’t getting inflated returns on their investments caused by under supply.

    Successive governments responses to the crisis would be laughable if the consequences weren’t so tragic. As Kristian Niemietz so excellently summarised in his paper The key to affordable housing the imbalance in property prices in the UK are responsible at least in part for a whole host of Britain’s social problems. The quote from Alexander Hilton that “people aren’t queuing up at food banks because of the cost of food, they’re queuing up because of the cost of housing” is particularly poignant.

    To add to the woes without radical action on house building we are on course for Britain’s first ever communist government complete with its own SA equivalent army of enforcers – Momentum. A group which has readily used violence and intimidation to crush dissent in the moderate wing of the Labour Party and now emboldened by the recent election is becoming ever more frenzied and aggressive. Corbyn and his stormtroopers can no longer be dismissed as a lunatic fringe. Their Marxist views, however economically illiterate, are gaining traction with an electorate who feel increasingly disenfranchised by a capitalist system where half (or more) of their pay check goes in rent and the chance of owning a home is now a pipedream.

    We really are now balanced on a knife edge if radical and immediate action is not taken to free up the planning system to unleash a wave of house building as a nation we are in for the absolute misery that always follows in Marxism’s wake.

  2. Posted 08/10/2017 at 04:21 | Permalink

    “Are politicians economically illiterate? Or do they deliberately ignore basic economics?” Can we add economists to that list?

    Take the housing crisis. Since 1983, 7 million new homes have been built, while the population has risen by 9 million. Resulting in more dwellings per capita, in every region than ever. The population of London fell to its lowest post WW2 level in 1991 and has only now recovered to its 1939 level of 8.6M. That makes it by far the biggest city in Europe, Berlin at 3.5M being the next most populous. For a whole host of reasons, including its size, it’s hardly a surprise that global demand for London/SE has completely distorted the picture for UK housing as a whole. Londons population has increased by nearly a third in a couple of decades, so blaming planning for its turn of fortunes seems far fetched to say the least. Quite the opposite in fact.

    It is more likely the UK has a chronic over supply of housing. 12 million bedrooms are over consumed in England and Wales by owner occupiers compared to those that rent on a pro rata basis(rental being a perfect market). Economists are quite rightly against rent controls are they act as an implicit state subsidy, leading to misallocation and over consumption of immovable property. Yet the same economists who blame the “housing crisis” on planning regulations then fail to apply the same logic to owner occupiers.

    If freeholders had to pay a LVT(set at the same rental level a tenant would pay) as compensation for their right to exclude others from valuable locations, their housing costs would double. That they do not means they are in receipt of an implicit state subsidy worth around £180bn each year, then capitalised into rental incomes and selling prices. Increasing their monetary value by an average of 200%. This then pushes up demand for housing, causing excessive vacancy, under occupation and the tendency for sprawl.

    Increasing the supply of housing in order to bring down prices may have a small short term effect, at a cost of adding to existing inefficiencies in the housing market. Over the long term this will do nothing to address affordability issues. If more people move to where demand is highest, agglomeration effects increase, as does demand and aggregate land values. All you accomplish is to move the margin of production and further increase prices. An easily observable fact by looking at the growth of urban populations around the World.

    It should be obvious that housing can only ever be optimally affordable(for typical households) and allocated when freeholders pay a 100% LVT. It is perhaps forgivable that the economically illiterate politician should fail to grasp that brute fact. Economists, less so.

  3. Posted 08/10/2017 at 14:13 | Permalink

    While I agree that Uber gave the London taxi industry a badly needed kick up the ar*e, they have had their licence revoked because they failed to report at least two sexual assault complaints to the police. Economics aside, every company should have to follow the laws in place, and in this case were morally bankrupt by not doing so.

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