The truth about your housing wealth? You didn’t earn it

Way back in the mists of time when “Red Ed” Miliband proposed a tax on homes worth more than £2m, no less than Michael Caine considered the idea terribly unfair. “I feel sorry for all the older people who’ve worked hard all their lives and their London suburban house falls into this category,” the actor told the Daily Mail in 2014.

Sir Michael spoke for Middle England. The link between the price of one’s house and one’s personal effort in the eyes of most homeowners is as strong as tungsten.

But that doesn’t mean that the link actually exists. According to a new report by the Resolution Foundation around 80 per cent of net property wealth growth since the early 1990s has been a consequence of a rising housing market, rather than active savings decisions by households.

This equates to around £2.3 trillion of windfall property value appreciation. For homeowners born in the Forties and Fifties the average “passive” benefit is around £80,000. For those born in the Sixties the average windfall is £60,000. The Resolution Foundation report makes it clear that UK overall wealth accumulation is considerably driven by property, which has been largely inflated by a housing boom. If we’re serious about tackling high UK wealth inequality (which seems to be rising still further) we can only do so by tackling housing.

There are a multitude of reasons why UK house prices are so high relative to incomes and homeownership rates are falling. Excessively rigid supply-restricting post-war planning controls, particularly the misnamed “green belt”, around big cities, are a major culprit. Indefatigable nimby campaigns of opposition by existing homeowners when new developments are proposed also harmfully suppress supply.

Sclerotic local authorities that no longer build social housing, big corporate builders with little interest in constructing new homes in sufficient volume, a financial system set up to lend for residential property purchases but not business investment, politicians who offer cynical subsidies to demand: all these contribute to the mess.

But a significant driver is our irrational and grossly distorting property taxation system. The council tax is inexcusably regressive. Stamp duty is only levied on transactions, discouraging people from moving when they otherwise would. There is no VAT on newly built housing.

High-value property is undertaxed. Homeowners face no capital gains tax. And David Cameron and George Osborne removed family homes worth up to £1m from the inheritance tax net.

Bank of England chief economist Andy Haldane got into trouble last year for pointing out what everyone knows to be true: that you’ll tend to get better returns from property than from a pension.

Given such obvious financial incentives, it should come as no surprise that so many of us are obsessed with property as an asset class, that we are so prone to boom-bust cycles, where we bid up prices ever higher and stretch the link with economic fundamentals to breaking point.

As the Resolution Foundation report shows, while residential property wealth has been spiralling as a share of GDP, property taxes have been flat. The problem with Ed Miliband’s mansion tax is not that it was unfair, but that it wasn’t fair enough. The regressive council tax system should be reformed so that all property – not just £2m houses – is taxed at a flat rate on its market value.

The Grenfell Tower tragedy has exposed the property inequality gulf that exists in modern Britain with brutal clarity. We see unsafe, overcrowded and oversubscribed social housing lying next to under-occupied multi-million pound Kensington townhouses whose value has exploded in recent decades.

Ed Miliband’s 2015 crucifixion over his mansion tax proposal seems an aeon ago. In the wake of the conventional wisdom-scrambling following the General Election, there appears to be a healthy new willingness among the political classes to consider solutions that were for so long written off as economically logical but electorally impractical.

But as the “dementia tax” property-based backlash showed, the argument still needs to be made, the case laid out persuasively. “You didn’t build that,” cried Barack Obama during the 2012 Presidential election, making a point about the degree to which private US businesses rely for their economic success on stateprovided infrastructure such as roads and bridges.

“You didn’t earn that,” could be an equivalent progressive rallying cry when it comes to the long-overdue reform of the taxation of British housing wealth.”

There appears to be a healthy new willingness among the political classes to consider solutions that were for so long written off as economically logical but electorally impractical

#EdMiliband #housingwealth #taxation

Populists are a grave threat to democracy – and Jeremy Corbyn is no populist

Jeremy Corbyn is a populist: that seems to be the emerging consensus across the political spectrum.

“Corbyn was the torchbearer of British populism,” writes Freddy Gray in the Tory-supporting Spectator, who goes on to liken the Labour leader to Donald Trump. Conservative MPs are reportedly thinking of swapping Theresa May with Boris Johnson on the grounds that “to beat a populist, you need a populist”.

Corbyn fans seem pretty comfortable with the idea of their leader as a populist too. His lieutenants are said to have embraced the concept last year. Corbyn has presented a “positive version of populism”, one of his supporters wrote for The Independent last week.

But it’s wrong. Which is to say, this is a terminology that’s, at best, empty of content and, at worst, dangerously misleading.

What theory of populism are those who describe Corbyn as a populist using? How would they define it? That populists enjoy mass support? Any successful politician has that. It’s the objective of democratic politics, after all, to win the most votes, to whip up the most enthusiasm. That populists are charismatic and inspire an unusual level of devotion? Again, this is what all politicians hope to achieve.

That populists pose as political outsiders and insurgents, decrying economic elites and the political establishment? Such rhetoric is the staple of many mainstream campaigns. US presidential candidates almost always promise to shake up Washington. And when was the last time any political party adopted a platform (rhetorically at least) of looking after the establishment?

Is it that populists pledge to divert money from the well-off to the common man? This doesn’t really work.

Was New Labour, which performed considerable redistribution, a populist movement? Was the welfare state founder Clement Attlee a populist? Was the former French President François Hollande, who put up taxes for the highest earners, a populist?

That populists offer simplistic solutions to complex economic and social problems and make incredible promises that are bound to disappoint? The sad reality is that all politicians do this to some extent or other, particularly during election campaigns.

To get a serious, rigorous, theory of populism it’s necessary to consult an expert. Professor Jan-Werner Mueller of Princeton University, synthesising the consensus of political science, says modern populists have two essential characteristics.

First, they conceive of “the people” as a unified and morally pure whole – and claim for themselves the exclusive right to speak for this group. Second, they are intrinsically anti-pluralist, meaning that they don’t recognise opposition as legitimate and have little respect for democratic norms.

They act as if those who are not part of “the people”, as defined by them, are corrupt enemies to be vanquished rather than reasonable citizens to be persuaded. If they fail to prevail in elections it’s never because they have lost the people’s confidence but because they have been thwarted by nefarious elite conspiracies.

Neither characteristic is sufficient on its own. Stalinists and religiously inspired authoritarians don’t respect democratic norms or democratic opposition, but that doesn’t make them populists because they don’t claim to speak on behalf of a morally pure people.

And Corbyn doesn’t satisfy the latter condition. Yes, he inveighs against elites, complains about a “rigged system” and places a heavy emphasis on his own definition of an oppressed British majority. “For the many not the few”, as the party’s election slogan put it.

But he’s never threatened to lock up Theresa May. He doesn’t claim that it’s illegitimate for the Liberal Democrats or the Greens, for instance, to challenge him. He doesn’t hint at armed revolt in the face of electoral setbacks. Indeed, Corbyn’s final Twitter message on election night was the benign observation: “Whatever the final result, our positive campaign has changed politics for the better”.

Boris Johnson, of course, isn’t a populist either by this rigorous definition. But someone like Nigel Farage, with his sinister talk of the “real people” of Britain, his intolerance towards any opposition to Brexit, his weakness for conspiracy theories and his dark allusions to impending popular violence can fairly be so described.

Farage’s friend Donald Trump is plainly a populist for all the same reasons. Think specifically of Trump’s pledge to prosecute Hillary Clinton if he won the presidential election and his refusal to say whether he would respect the result if he had lost. Contrast that behaviour with that of Bernie Sanders, the Democratic primary challenger to Hillary Clinton who, despite often being described as a populist, respected the result and even urged his supporters later to vote for Clinton.

This isn’t a left-right distinction. The left-wing Five Star Movement in Italy has the characteristics of a populist movement under its demagogic leader Beppe Grillo. The late Hugo Chavez, in Venezuela, was plainly a populist, consistently seeking to shut down opposition. The Islamist Recep Tayyip Erdogan in Turkey is manifestly a populist, as is the secular Viktor Orban in Hungary and also Marine Le Pen in France.

The crucial point is that populism is a profoundly anti-liberal political style, not a specific economic or social programme. Populism is a description of how political actors conduct themselves, not the nature, or breadth, of their support base.

Depending on your judgement, one can legitimately call Corbyn an existential threat to the economy, a socialist saviour, or a bog-standard European-style social democrat who is likely to prove a crashing failure if he ever accedes to power. But populist isn’t right, because populism is a very specific category, a distinct threat.

Democracy provides a framework for peaceful power struggles between vigorously competing parties with divergent views of the good society. The values of pluralism and tolerance lie at the system’s heart.

Disagreement over the appropriate distribution of economic resources is the normal substance of democratic political debate.

But populism is something different. It is a political virus that attacks the very core of the system. “A danger to democracy” is how Professor Mueller sums it up. Definitions matter. Open societies need to have an unclouded view of their true enemies.

#JeremyCorbyn #populism

Why did we really get this shock general election result? Answer: it’s complicated

They say we’re intelligent apes. But to read some commentary on the shock election result we’re not just intelligent but we each have a mental calculating capacity that surpasses the most powerful supercomputers and a forecasting ability that puts Nostradamus to shame.

“Voters found a way to deliver the outcome they wanted,” argued the Evening Standard’s editorial on Friday, saying that what voters “wanted” was to deliver a vote of no confidence in all of the main parties.

We heard similar talk after the 2010 election surprisingly delivered a hung parliament. This unexpected result, we were told, signalled the fact that the eminently sensible British public were not convinced by any of the main parties and had, yes, “found a way” to say that to politicians.

If that sounds like wisdom, pause to think through the logic. To “deliver the outcome they wanted” in the national vote would require some 30 million voters to cast their ballot not only with a clear view of how their tens of thousands of neighbours would also vote in their particular constituency – and then to calculate how their own constituency’s result would interact with 649 others in delivering the make-up of the Parliament. 

This, of course, is quack mysticism masquerading as political analysis. It is an anthropomorphising of the electorate; thinking about a mass of voters as a single individual with a controlling mind. It’s akin to the demagogic nonsense about the inviolable “will of the people” that one hears from hardline Brexiteers.

In reality, people took a voting decision based on the information available to them in the (erratic) polls and their own views and preferences. Yes, many may well have voted tried to vote tactically in their own marginal constituency. But the vast majority of voters will not have made a calculation on how their vote would affect the overall result of a hung parliament because it would simply have been impossible for them to do this. There was no “hung parliament” option on the ballot paper.

The outcome of the vote in terms of the make-up of Parliament was an emergent phenomenon . It didn’t reflect any “general will” but, like the forces of supply and demand in markets and the prices that emerge from their interaction, it flowed from individual choices and preferences.

Certainly some people might have got what they “wanted” in terms of the overall result. Many people might have been relatively content with the simultaneous humbling of Theresa May and the absence of Jeremy Corbyn from 10 Downing Street. It’s undoubtedly true that neither the Conservatives nor Labour won the support of a majority of voters (although in fact they both received very high vote shares by historic standards). But voters didn’t personally “find a way” to deliver the headline result because they can have had no idea how their individual ballot would affect the overall outcome.

The twin of specious anthropomorphism in evaluating election results is monocausal explanations. People voted in surprising numbers for Labour, some tell us, because they were mainly pro-EU young people.

Others insist there was actually a Northern swing to Labour because locals were firmly pro-Brexit and Jeremy Corbyn had cannily refused to resist May’s EU departure plans.

A red herring, say others, because this election wasn’t really about Brexit at all – it was really a judgement on austerity. All nonsense, another group says. It was an election that was essentially lost by the cackhanded Conservatives. People didn’t vote Tory because they were put off by the “dementia tax” and the catastrophic manifesto. No, it was the dismal lack of hope in the Tory marketing campaign that did it, say others.

But many things can be true simultaneously. All these factors can play a part – and, of course, others unconsidered. The important question is the relative importance of them. But rather than recognising this profound complexity, many pundits simply stress the factor that reflects their own preferences and values.

Complexity economics is an exciting research field. It aims to move away from the assumptions about homogeneous “representative agents” with fixed preferences and market “equilibrium” used in many mainstream economic forecasting models. Complexity economics seeks to get to grips with emergent, even chaotic, phenomena instead. One branch seeks to gain insights into the real world by running computer simulations of how agents programmed with different and evolving preferences interact and the many scenarios that might emerge through the interplay of individual choices, network effects and feedback mechanisms.

What our political debate could do with is a fuller appreciation of the multi-faceted and emergent properties of democratic elections: complexity politics if you will.

#agentbasedmodelling #anthropomorphism #emergentphenomenon #generalelection