What theft?

There’s some hyperventilating about Labour economic plans. At CapX Tim Worstall says that John McDonnell’s proposal to give private tenants a right to buy their home at a discount is “straight out theft.” And the FT says Labour plans to confiscate £300bn of shares*.

Such claims are, I think, an exaggeration.

Let’s take private tenants first. The problem here is that house prices are high in large part because of policy mistakes. We can disagree upon what the precise failure is – restrictive planning laws, promotion of financialization, inadequate public building or insufficient taxation of land. But both left and right would agree that high house prices are, at least in part, due to errors of commission or omission by successive governments.

Which poses the question: does anybody really have a right to profit from bad policy? I’m not sure. If they do, it requires some argument which Tim doesn’t supply. In the absence of such a right, there can be no “theft”. What McDonnell is instead proposing is a different sharing out of the profits of state failure.

This is not to say his proposal is a good idea. It’s not. It gives a windfall to a group – present tenants – which is just as arbitrary as the beneficiaries of state failure. And it’s not clear that expanding owner occupation is a good idea. Andrew Oswald and Danny Blanchflower have shown that higher rates of owner occupation are associated with higher unemployment and lower investment – because owner occupiers are less able to move to where there are jobs, and more likely to resist commercial and industrial developments in their area. And there’s also evidence that more mortgage lending – an obvious corollary of more owner occupation – can crowd out productive business loans.

Labour’s best proposals on land reform – Land for the Many (pdf) – did not propose a right to buy, and rightly so I think.

The FT’s claim that Labour would “confiscate” share is, I fear, an egregious error. What the party is proposing is a gradual dilution (of 1% a year) of existing ownership and corresponding expansion in worker ownership. This is not so much a confiscation as a transfer: the headline could equally well be “Labour to give workers £300bn windfall.” The FT is in this sense committing a common error – of describing something as a cost when it is in fact a transfer.

And, indeed, it’s possible that this won’t cost current business owners anything. We have good evidence that worker ownership (pdf) can boost productivity simply by giving employees more skin in the game. And Labour’s plan might in the long-run be especially successful in this as it would expand public support for business-friendly policies. More efficient companies would be in everybody’s interest.

If you want to make a coherent case against Labour’s plans, you shouldn’t talk about theft, but rather show evidence that worker ownership would not be as beneficial as I think.

In fact, in whining about Labour’s “confiscation” and “theft” distracts us from what is a bigger and more genuine destruction of wealth. My chart shows the point. It shows that there’s a strong correlation (0.56 since data began in 1997) between the dividend yield on the All-share index and global policy uncertainty, as measured by Nick Bloom and colleagues. The cliché is right: markets really do hate uncertainty. It means lower share prices.

Uncertainty now is unusually high, which is costing investors billions. If uncertainty were at its 1997-2015 average, the relationship in my chart implies that the dividend yield on the All-share index would be almost a percentage point lower than it is. Which means that share prices would be £700bn higher than they are**.

The uncertainty created by Brexit and by Trump’s trade wars is, therefore, costing people vastly more than Labour’ plans. If you must complain about theft and confiscation, complain about this instead.

*The original headline to that piece was Labour “would cost UK companies £300bn.” That was obvious drivel, and the FT has rightly amended it.

This calculation is very rough. On the one hand, it understates the cost of uncertain. If we had less of it, capital spending and economic activity would be higher, which would mean dividends would be higher. But on the other hand, there might be some omitted variables which help explain the link between uncertainty and equity valuations. To the extent that there are, I might well be over-estimating the impact of uncertainty on yields. Net, though, I very much doubt that the impact of uncertainty upon valuations is small enough to ignore, as Brexiters and Trumpites are doing. 

Comments

[sine]

You mistake theft for arson.

[Kevin Carson]

The main reason not to call it theft is the landed classes in the UK (like everywhere else) got their own "property rights" by theft in the first place.

[Jeffyguy]

If an owner is forced to sell a £100,000 flat for, say, £90,000, then I'm unable to find a word other than "theft" to describe that discount.

[Anarcho]

Well, as any genuine libertarian would point out: Property is Theft!

[georgesdelatour]

The point is this, surely.

Let’s suppose Labour policies are 20 times worse for the economy than leaving the EU, but those stupid, plebeian voters ignore bien pensant opinion and elect a Labour government anyway. Do we respect the voters wishes, and allow Labour to proceed to implement its policies? Or do we subvert and block that vote the way we’ve subverted and blocked the Brexit vote?

[Dave Timoney]

In explaining why the Tories' Right to Buy programme was legit but Labour's new proposal is not, Tim claims that "The government selling government-owned houses at a discount is fine. The government compelling private owners to do likewise is certainly not". This strikes me as specious.

If anything is sold at a discount, whether by the government or a private owner, someone is losing out on value. In the case of Thatcher's policy, that was the public purse - i.e. society as a whole. The money spent on RtB discounts was not spent on the NHS or patrol boats in the South Atlantic.

Ultimately, the state always has the right (subject to democratic judgement) to discriminate in how the burden of policy falls. Austerity was sold on the idea that "we're all in it together", but it has clearly fallen disproportionately on the shoulders of the poor.

Tim would be on firmer ground if he claimed it was unfair that the burden of this loss should fall exclusively on the shoulders of landlords rather than being shared by all citizens. In other words, he could argue for a state subsidy or a bailout of distressed landlords. That he doesn't suggests he knows public opinion would wear it.

[Dave Timoney]

*wouldn't wear it.

[Scurra]

@georgedelatour: "Or do we subvert and block that vote the way we’ve subverted and blocked the Brexit vote?"
Would you mind clarifying the "we" in that sentence? The only people who have subverted and blocked the Brexit vote are the people who are now actually forming the Cabinet. They consistently voted against the agreed government policy and forced the previous Prime Minister from office.
Now I accept that it is true that, had Labour voted in favour of the WA, it would have passed. On the other hand - why the hell would Labour vote for something that they were completely shut out of involvement with? As opposed to Johnson and Raab who were actually part of the actual negotiations and still preferred to quit rather than vote for it (oh, and they kept the Tory whip despite that.)

You seem to be doing what a lot of people are doing right now and trying to suggest that because Parliament didn't just roll over and accept the WA it is trying to "block" Brexit. A sizeable proportion of them merely think that the WA simply isn't very good as a blueprint for our possible future, and even more of them think that No Deal would be worse (if it was really trying to "block" Brexit, then the Revoke A50 option would have sailed through and that hasn't come close to happening.)

And I apologise for a Brexit response on a clearly non-Brexit article; sorry.

[georgesdelatour]

@Scurra

I think the WA is vile, and I wish the pox on everyone associated with it.

In her 2017 Lancaster House speech, Theresa May said “no deal is better than a bad deal”. She said the UK would leave the Single Market, and leave the jurisdiction of the ECJ. By the time of her 2018 Chequers meeting with the cabinet, she had flipped 180º on everything. Her WA would keep the UK inside the Customs Union and under the jurisdiction of the ECJ effectively forever; unless we cut Northern Ireland adrift. Yanis Varoufakis’s judgement of the WA, that it’s something ‘a nation signs only after having been defeated at war’, is fair.

You are completely wrong about who was carrying out the WA negotiations for the UK. It was always May and Robbins running the show. I suggest you watch “Brexit Behind Closed Doors” if you want to understand what was actually going on.

Since losing his top job in Brussels, Martin Selmayr has said that, when he first met the UK Brexit negotiating team, he quickly realised it didn’t contain a single individual who actually wanted or believed in Brexit.

Johnson was never part of the negotiating team. When Raab was first appointed Brexit Secretary, he was initially under the illusion that, given his job title, he would be. As Barnier says in the documentary, “He [Raab] comes every week. This may cause, and I am saying this cautiously, coordination problems with the British negotiating team”. Theresa May was then forced to explain that, apparently, the job of the Secretary of State for Exiting the European Union was simply to explain Brexit to non-EU countries, not negotiate Brexit.

Regarding the current House of Commons:

Around 90% of sitting MPs were elected on Party manifestos promising to respect the 2016 vote and leave the EU. But around 75% of sitting MPs actually voted Remain in 2016. So we have a Parliament where most MPs don’t want to carry out the electorate’s instruction, but don’t want to appear to defy the instruction too brazenly. That’s why you will find plenty of MPs who say ALL of the following:

1) We mustn’t leave the EU without a deal.
2) The current WA is unacceptable.
3) The current WA is the only one we’ll ever get.
4) We mustn’t… da capo al fine.

[MJW]

Chris, a few days ago you wrote a post bemoaning 'Corbynphobia'; it's this kind of stupid shit that causes 'Corbynphobia'. Although it's possible to frame expropriation in ways that generate initial popularity e.g. renationalisation without paying, it's very superficial. People quickly cotton on that if you allow the government to steal stuff from other people, sooner or later they'll try to steal your stuff too. The schadenfreude of seeing people you dislike getting mugged lasts just until you realise your next.