Tuesday, 1 December 2015

End November Links

# Brilliant: Northern Powerhouse relocated to London

UK’s high-wire act on power supplies laid bare says the FT. Amazing given the reductions in renewables subsidies and the end of the CCS competition, the prioritisation of new nuclear capacity which has extremely long development timescales, and the fact that the transmission charging regime is directly causing the early closure of generation capacity like Longannet.

# At some point in the near future (hopefully) the Commission on Local Tax Reform will publish it's report (cue another self-aggrandising link to my own contribution: The Opportunity for Land & Property Taxes in Scotland). On this topic, I was reiterating the political economy aspects at ScotFES which I think are backed up by the results of the survey run by the Commission which unsurprisingly shows that the general public lean towards income taxes; Brian Ashcroft, in Business rates and the Scottish economy, makes the point that Business Rates optimally should not tax the buildings element - they should face a pure land value tax - but also that lobbyists really should not be listened to!

# I love the whimsical scenarios economists use to clarify thinking. Nick Rowe has a good example this month with "Vortigern's immigration policy", and the most famous example is likely Krugman recounting the tale of the Babysitting Co-op to explain countercyclical monetary policy. I was reminded of this recently by a decent post, which was followed by a dreadful argument in the comments, on the GERS figures, on the Scot Goes Pop blog. The author tries to use analogy to explain his ideas (and does a reasonable job I think) but this is clearly laughable in the eyes of his detractors, for whom I imagine the world is a blinding mess of facts, and expertise involves knowing the detail of all these facts (rather than cutting straight through to an understanding of the main points, by being able to simplify and realise what's important and what's not).

# Interesting article in Washington Monthly on trends in American regional inequalities:
"a story of incomes converging across regions to the point that people commonly and appropriately spoke of a single American standard of living. This regional convergence of income was also a major reason why national measures of income inequality dropped sharply during this period. ... Few forecasters expected this trend to reverse, since it seemed consistent with the well-established direction of both the economy and technology. With the growth of the service sector, it seemed reasonable to expect that a region’s geographical features, such as its proximity to natural resources and navigable waters, would matter less and less to how well or how poorly it performed economically. Similarly, many observers presumed that the Internet and other digital technologies would be inherently decentralizing in their economic effects. Not only was it possible to write code just as easily in a tree house in Oregon as in an office building in a major city, but the information revolution would also make it much easier to conduct any kind of business from anywhere. Futurists proclaimed “the death of distance.” Yet starting in the early 1980s, the long trend toward regional equality abruptly switched. Since then, geography has come roaring back as a determinant of economic fortune, as a few elite cities have surged ahead of the rest of the country in their wealth and income. ... Adding to the anomaly is a historic reversal in the patterns of migration within the United States. Throughout almost all of the nation’s history, Americans tended to move from places where wages were lower to places where wages were higher. ... But over the last generation this trend, too, has reversed. Since 1980, the states and metro areas with the highest and fastest-growing per capita incomes have generally seen hardly, if any, net domestic in-migration, and in many notable examples have seen more people move away to other parts of the country than move in. Today, the preponderance of domestic migration is from areas with high and rapidly growing incomes to relatively poorer areas where incomes are growing at a slower pace, if at all."

The explanation offered in the article for these these trends is policy which either allows or restricts monopolies: "Throughout most of the country’s history, American government at all levels has pursued policies designed to preserve local control of businesses and to check the tendency of a few dominant cities to monopolize power over the rest of the country." - this rings true as the likely driver of similar trends in the UK too.
An alternative explanation, which again rings true but probably has less UK relevance (because almost everywhere in the UK is a "closed market") is that offered by Idiosyncratic Whisk: "We had two housing markets - a closed market where there was massive price appreciation, and an open market where there was healthy expansion of the real housing stock. ... the added gross income for the highest income cities frequently goes to housing expenses."

# Some more links on geographical mobility, inequality and housing
   - Housing supply, rents, and economic mobility from the Washington Centre for Equitable Growth
   - Britain's debate on social mobility is stuck. It's time for a city perspective from CityMetric/Centre for Cities
   - Low Interest Rates, the Housing Supply Constraint, and Picketty's Concern from Idiosyncratic Whisk

# In Automatic Destabilizers, Idiosyncratic Whisk makes a great point about tax design. A good system would encourage investment when factors were abundant and wages and interest rates were low. But the fact that corporate losses can be offset against tax means that corporations face their highest tax burden at the start of a downturn (when they don't have any losses to offset), exactly when expectations of future (medium term) consumer demand is falling, therefore when their investment demand even in the absence of tax disincentives is low, and at the same time as interest rates and wages are falling, and unemployment is rising. Conversely, corporations face their lowest tax burden at the start of a boom because at this point they have a deferred tax asset which offsets their tax payments - but at this point their expectations of future consumer demand is high and so their investment demand before tax incentives is is high anyway, and they are competing for relatively scarce and expensive labour and investment capital. This is a pro-cyclical, destabilising, tax design.

# I've started a new project - just to get into the habit of looking at data, even when I don't have any particular reason to. U.S.E. (Understanding the Scottish Economy) will summarise Scottish economic data, and posting will likely be on a monthly basis. The first post is now up: November 2015 Data Release Summary.

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