Fighting poverty

Fighting poverty – the government can’t do it for you.

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I am not sure it is the role of the government to fight poverty. Demanding that the government instate measures and policies in order to combat poverty assumes that government actually has the ability to reduce poverty. I am not so sure about this. Whilst an abusive/corrupt government (e.g. India or Zimbabwe) can certainly cause its people to massively suffer poverty, the reverse is not necessarily true – even the most benevolent and competent government is not necessarily able to reduce poverty.

I am not saying that governments should not attempt to reduce poverty; of course they should! Rather, I am saying that any efforts by the government to tackle poverty are extremely limited in scope and effect.

This might seem counter-intuitive to some. For many people, the agent most responsible for tackling poverty should be the government. I do understand this line of thinking: If the government, being the most powerful agent in the country, cannot tackle poverty, who else is going to do it? However, this attitude appears to betray a fundamental misunderstanding of the role of government.

The role of the government is to represent the people, lay down the law, and enforce the law. That is the aims of the classical understanding of the three roles of government: executive, legislative, and judiciary. None of these roles or responsibilities have any real effect on increasing their citizens’ economic prosperity. The law may help alleviate the abuse and underpaying of staff, but it doesn’t actually give them a job. It may create a tax environment that’s conducive to enterprise and growth, but it won’t actually create those companies for you.

To be fair, government has also taken on the responsibility of establishing infrastructure for the public good. This includes things such as the building of roads, power grid, communications grid, and establishing emergency services. However, all of these are not strictly the remit of government. It is entirely possible for all of these services to be provided by private enterprise. Furthermore, all of these services do not reduce poverty.

When the government builds public infrastructure and enforce laws that protect civil society and individual human rights, they do not prevent poverty, nor do they create prosperity. They only lay the foundations for the growth of economic prosperity. Economic growth occurs organically, when enterprising individuals or groups of people decide to take risks to do something people are willing to pay you good money for.

Even the welfare state, for which Western Europe is so (rightly) proud of herself for, does not actually combat poverty. It only alleviates the symptoms of poverty. The provision of welfare protections is not going to eliminate the true problem, the cause of poverty. It may provide you with the means to survive and even lead a comfortable life, but it will never increase the economic value of your contributions to society. Contributing economic value means making a product that is good value for money, or providing a service for less money and effort than if someone was to do the same thing for themselves. Earning money in and of itself is not necessarily contributing economic value.

The only antidote to poverty is prosperity. Prosperity is achieved when people are able to increase the economic value of their participation in society. When you have a skill/ability to provide a service or product that people are willing to pay for, you will prosper, and the value you contribute to society will improve other people’s lives.

If you want to prosper, you have to provide a skill that people are willing to pay good money for the services you provide, such as plastering on programming. Or, you could produce a product that people are unwilling to make for themselves, such as baking a cake or manufacturing a car.

I would even argue that the belief in governments’ ability to fight poverty actually increases poverty. This is because faith in the government to rescue us actually give us less motivation to rescue ourselves. Ironically, the more you argue for the government to help you, the more faith you are required to have in the government’s ability to help you. The less faith you have in the government’s ability to help you, the more you are willing to do something about it yourself.

My point? Don’t count on the government, whether nationalist or socialist, to resolve your economic woes. The only agent responsible for your economic prosperity is yourself. Granted, not everyone necessarily has the ability to become rich. Not even everyone has the motivation to become rich. However, should you desire financial prosperity, the onus is on you to take the steps necessary to increase the economic value you contribute to society. Nobody else can make you rich. It is true that you can blame the government for causing poverty, but you cannot blame the government for not helping you prosper. 

Brexit: What people say and what people hear…

Brexiters say:
“Uncontrolled immigration has resulted in wage depression” Remain voters hear:
“Get the foreigners out”

Leave says, Remain hears:

Why Leave voters voted for Brexit: “Uncontrolled immigration has resulted in wage depression and the overburdening public services.”

What most Remain voters hear: “Grrr get the bloody foreigners out”

Remain says, Leave hears:

Why Remain voters voted against Brexit: “Membership of the EU is critical for economic growth and peace in Europe!”

What many Leave voters understand: “Yes, the EU facilitates trade amongst the rich metropolitan bubble but it hurts economic growth everywhere else, which actually gives rise to nationalistic tensions.”

Does that sound accurate?

I was wrong about a couple of things

​I was wrong. I am not afraid to admit it when I get things wrong.

I was wrong about the cowardice of the British voting public. I previously argued that the British public were gullible fools who voted for the Conservative government despite all the misery they brought the country and the lack of integrity they displayed in office. I now believe this previous judgement to be wrong. It seems the British public did not vote for the Conservatives because they believed the scaremongering of David Cameron. I think the voters put them in power because they were the only political party able to deliver on the promise of a referendum on EU membership. The sensibility of the British silent majority has given me great encouragement.

I think I was also wrong about the Tories and Theresa May. I previously though her a party loyal coward, but it appears that under her leadership, the Conservative party is willing to take bold steps to challenge the assumptions of the status quo and instate reforms to the education system. Is it enough? I have a lot more hope this time.

I argue my positions very strongly. Far too strongly for the tastes of most Brits (in my experience). But I am not afraid to admit when I get things wrong. This is such an instance. (Even if my declaration of it comes a little late!)

What else could I be wrong on? Time will tell. I eagerly look forward to learning from my mistakes.

What is ‘affordable housing’?

​I assume most people take ‘affordable housing’ to mean accommodation that is affordable, something that people on average levels of income are able to afford to buy. But let’s go back to basic economics: What determines the price of a property? 

Although there is a rough correlation in that, if all else were equal, someone would generally prefer to live in a bigger property than a smaller one.  However, the size of a property does not necessarily correspond to its price, which seems counter-intuitive.  This is easily demonstrated in that a small one bedroom flat in the centre of London is easily worth far in excess of 10 times more than a massive empty barn in Lancashire.

Supply and demand

So what does affect the price of a property?  Essentially, price is determined by the interaction of supply and demand. The greater the supply of something, the less people are willing to pay for it, so the lower its price; the higher the demand, the more people are willing to pay for it, and thus the higher its price. 
For example, tap water  is relatively plentiful, so very few of us would be able to imagine paying £100 for a litre of it. However, were you to be stuck in the middle of the Sahara desert you might find that a litre of water will be of more value to you than the last £100 you may have in your bank account. 
Likewise, a desirable product such as an iPhone can command a rather high price despite many millions of them being in circulation, simply because the product is high in demand.


Going back to economics and the cost of property… 

In terms of supply, metropolitan areas have a greater supply of property than rural areas. High density housing developments will have greater supply than low density developments. 
In terms of demand, things that increase demand are factors such as transport links, access to public amenities, quality of housing, reputation of the area, beauty of the neighborhood, and probably the most significantly: employment prospects.

Within a given area, how does one decrease the cost of housing? Given that most of the aforementioned factors  that affect demand (ie transport links, public amenities, reputation of area, beauty of neighborhood) are somewhat fixed geographically, thus the property developers’ epithet “location, location, location”. It is clear that there is very little one can do to reduce the price of housing by reducing demand. Possibly the only factor left that can be varied is the quality of housing – and surely no advocate of affordable housing would even consider the idea of reducing quality in order to make housing affordable. In a civilised and developed world, it is a natural expectation that houses must be built to meet a standard. 

Next up is supply: within a given area, supply of housing can be increased by increasing the density of housing. This means more flats, smaller rooms, smaller gardens or even non-existent outside areas. This is already happening in London and other cities around the world. Big houses are being converted into multiple much smaller flats. Entire rows of houses have been knocked down to create apartment blocks. Human and road congestion increases, noise and air pollution increases, living conditions deteriorate, and social cohesion fractures. Those living in cramped housing in London will be able to relate to what I am describing. Even worse, even these measures of increasing supply is enough, because the property market is not the same as the manufacturing market: In the world of manufactured goods, supply can always be cranked up in order to meet demand. But you can only build so many houses within a particular area, so supply never rises sufficiently to meet demand. 

Abandoning the free market?

Some might ask, why do we have to let the market dictate the cost? Why can’t developers just sell the houses at the price it cost them to build it? Consider this example: the market price of a 2 bedroom house might be £200,000. The land costs the developer £50,000 to buy, and the construction cost another £50,000. So the developer generously forties the massive profit and sells the property affordable, at cost: £100,000. The lucky buyer becomes a homeowner at half the market price. But then the same lucky buyer is then able to sell the property at market price, reaping a huge profit of £100,000 with next to no effort. Now the property is immediately back at market price, and the developer’s generosity only benefited the first buyer. 

In the UK, property developers rarely, if ever, practice such generosity. They are financially savvy, and will not be taken advantage of. But politicians are not property developers, nor are they necessarily as financially savvy. Thus governments sometimes invest in making ‘affordable housing’ available for sale. Of course, the houses very quickly return to market prices, effectively ripping off the public purse to whomever was lucky enough to be the first buyer of this property. Alternatively, the government can mandate that property developers include a proportion of ‘affordable housings’ in every housing development. How this works out in practice is that property developers dedicate a proportion of the development to low-quality and high density housing, which is actually sold at market price, and frequently still not affordable to those on average incomes!

So what is the solution?

To those unable to afford a house where they want to live, the only recourse is to buy a house where they can actually afford to. They can aspire to be able to afford to live in a certain area, and they are free to work their way up the housing ladder until they can afford to do so. There’s no quick and easy way to accomplish this.

The more complicated issue is for those in government setting housing policy. Instead of reducing prices by subsidising house buyers, or increasing supply by cranking up housing density… I suggest that the only feasible solution is to increase the desirability of other areas. If the described factors such as transport links, public amenities, housing quality, and general neighborhood desirability. This would increase supply of desirable housing, create competition for property occupation, easing the demand for housing in congested areas, and improve living standards for all.

In practice, this would mean investing in infrastructure to build high capacity public transport links such as railways to create affordable commuter towns around major city hubs. And within these commuter towns, quality high density housing such as premium apartments or even tower blocks should be built to maximise the supply of housing. 

Along the same vein, to increase employability prospects of living in a particular area, businesses  should be encouraged or even incentivised to set up shop, by setting up attractive infrastructure and financially beneficial arrangements such as low rental costs, and/or government support via advice, free/cheap marketing, or loans/grants.

Conclusion? 

You cannot create ‘affordable housing’ by artifically forcing the price down without regard to market forces. The way to make housing affordable is to influence the market so that conditions are met where people can naturally afford housing by their own financial means.

Brexit aftermath: Scotland

Of course, the SNP wants Scotland to leave the UK. Nevermind the inconsistency of wanting to leave the UK but be subject to the authority of the EU, this stance of the SNP hasn’t changed whether the UK is in or out of the EU. They have just taken hold of this opportunity to argue again for Scottish nationalism and independence. 

I don’t believe this endeavour will succeed. From what I can tell, the Scots voted to remain united to the UK because they identified as British, and did not want to lose that identity. The same argument has been used to argue for remaining in the EU as well, but departure of the EU does not make one any less European, whilst departure of the UK makes one not British by definition.

One of the arguments the SNP had was the strength of their economy. They had control of much of North Sea oil, a valuable global resource. However, with the value of crude oil at record lows, Scotland really cannot claim to still have the strength of economy to stand on its own. As far as I understand it, Scotland still benefits very much from tax revenues from England, particularly London.

Sturgeon also argues that Scotland should leave the UK so that it can remain in the EU without the rest of Britain. However, membership of the EU was granted to the United Kingdom as a whole, not to its constituent parts. If Scotland wishes to be in the EU separately to the UK, it would have to apply on its own behest, which may or may not succeed.

On top of that, with David Cameron’s government having implemented devo-max, devolving even more power to regional governments, it makes little sense for Scotland to leave such a devolved union and join a centralised government as the EU where they have even less power and independence.

So, if Nicola Sturgeon and the SNP does get their desire for a second referendum, there will be three possible results, all of which I look forward to with great interest…

1) If they lose the referendum, that will be the second pie in the face for the SNP. Over a million of their 2.6 million voters at the referendum supported leaving the EU. That is not an insubstantial proportion, and then there are those who are equally worried about their economy, as well as those who still wish to identify as British. So it is not unreasonable to imagine the SNP losing their second referendum. I can’t see the SNP having more influence than being a mere fringe party after such an event.

2) Scotland could win its independence on the second Scottish referendum, but its economy could tank. This would again be more pie in the face for the SNP, and would even further impede it’s accession to the EU. But the EU might, in its hunger for power, be generous enough to accept Scottish membership even if Scotland became a net recipient of EU funds. Well, that would be interesting indeed.

3) in the best case scenario for the SNP, Scotland gains independence and prospers of its own accord, and maybe even gains membership of the EU with no great difficulty. If that be the case, I wish it well on its journey and maybe the rest of Britain could even learn from its example. 

Some may argue that it is hypocritical to discourage Scottish independence from the UK whilst arguing for UK’s independence from the EU. But that is not my position at all – if Scotland wishes independence, they can do as they like as far as I am concerned, for it is no business of mine. I simply wish the nation well whatever they decide.

Brexit aftermath: The value of the £

Everyone, on both the Remain and Leave side (including myself), expected a drop in the value of the pound and a shock to the economy in the event of Brexit. That was never in question. What was always contentious about the Remain claim was the severity of this event. The doomsayers point to a drop in the value of the pound, and a drop in the value of the share price of FTSE100 companies, as an actual loss to the economy. They even say that the size of the UK’s economy has dropped from 5th to 6th place overnight, being overtaken by France.

Here’s the problem with this argument: economies cannot shrink overnight. The size of France’s economy has always come a close 6th to UK’s 5th, with some benchmarks even putting France ahead of the UK. The shrinkage of the UK economy is a mere technicality, a direct consequence of the reduction in the value of the pound. The real value of the economy hasn’t dropped yet, and cannot drop so suddenly in such a short period of time. If it does do so, it will be over much longer period of time before it is measurable. It should be pointed out that nobody is expecting there to be no teething issues – the period of temporary pain is always to be expected as the economy adjusts to the change in circumstances.

What caused the drop in the value of the pound then, and what are the consequences of such an occurrence? To answer this, we have to understand what gives value to a currency in the first place. A currency gains in value when its economy grows in strength, because trading with that economy requires using that economy’s currency, thus a strong economy leads to high demand for that economy’s currency. It also gains in value due to the activity of speculative investment, when the market has confidence in that economy and therefore currency investors find it an attractive place to invest their money. A major incident such as Brexit is a shocking event, which understandably increases uncertainty, temporarily reducing market demand for that currency, as well as the confidence of currency speculators. Notice though, that this does not necessarily affect the productivity of the country or how willing buyers are willing to trade with the UK, so the economy hasn’t necessarily shrunk. If anything, the lower value of the currency means UK products are cheaper on the world market, which should directly increase the volume of exports. It would also increase the activity of foreign direct investment, simply because it is cheaper to do so. The only thing that is immediately affected is the confidence of market speculators, whose actions add no value to the economy, and uncompetitively pushes the value of the currency up anyway. A lower value of the pound would mean temporary pain for British spending their money abroad, but it overall means good news for the British economy.

What about the FTSE100? Many claim that the drop in the value of the FTSE100 has dwarfed the potential monetary savings of Brexit. However, the value of the FTSE100 is not the value of the economy. It is the value of the shares of the largest 100 publicly traded companies in the UK. The behaviour of share prices is rather like the value of currency – hugely affected by demand from speculation and confidence. Uncertainty will devalue these shares, but that has no direct effect on the performance of these companies and how much money these companies make for themselves. Saying that the economy has lost money because of the drop in company share prices is like saying the economy has lost money because the value of diamonds has fallen. Some people may appear to have lost money temporarily, but that doesn’t mean the entire economy has lost this much money.

Brexit aftermath: The opposition party

It would appear that there is quite a significant uproar and dissatisfaction with Jeremy Corbyn’s leadership during the Labour party’s campaign over the referendum. The argument goes that he did not do enough or display sufficient passion for the Remain campaign. This accusation has been flying from the electorate, the Labour parliamentary party, and even the leader of another political party, Tim Farron of the Liberal Democrats. There has already been a motion of no-confidence being tabled by Corbyn’s parliamentary members. Given that Corbyn has historically been EU-sceptic, this is not only a very unreasonable demand, but it also betrays a fundamental problem affecting the political left…

One of things Karl Marx taught us is that political power should be devolved from the social elites to the proletariat – the working people. This was one of the strongest driving principles of socialism. Marx believed that power should be in the hands of the proletariat, so that any leaders should be answerable to the people rather than the peasantry being dictated to by the rulers. This is one of the bases for modern democracy, but it appears to me that the Corbyn-objectors from the British political left have abandoned this principle. It looks like these people believe that leaders should be responsible for telling the people what to do, how to decide, how to act; rather than leaders reflecting the wishes of the people. This model of governance represents oligarchy, a form of authoritarianism.

Corbyn is from the old left. This neo-Labourist idea will never wash with him. Indeed, he was voted into Labour leadership on a popular wave of socialist resurgence. The ousting of Corbyn will not be popular with Labour’s supporters, and I suspect it would spell the doom of the Labour party, which has already disenfranchised most of their traditional supporters.

However, this is not to say that Corbyn would save the Labour party if he remained in leadership. One of his perceived strengths was that he was a person of unwavering integrity, holding to his principles even against popular opinion. Indeed, this strength of integrity was what earned him favour amongst even UKIP supporters like myself. Unfortunately, Corbyn has failed to live up to this expectation when he gave in to the demands of his parliamentary members to support Bremain. Although he has consistently argued against the EU prior to his leadership of the Labour party, he gave in to his party’s bullying and has demonstrated himself to be too spineless to be an effective leader. He hasn’t supported the genuine concerns of many of the working class with regard to issues such as immigration, whether or not it is a legitimate concern. Almost none of the Labour party has. There are other issues that I disagree with Corbyn about, but they are not as relevant to the current subject.

With or without Corbyn, the Labour party will have difficult years ahead, unless they find a radically principled and competent leader. I don’t know of any such leader in the Labour party. The closest they had was Milliband the younger, who tried to listen to the genuine concerns of the traditional working class whilst maintaining sufficient integrity to make the tough and unpopular decisions. Unfortunately, the people of this country seemed to be more concerned about his geeky image.