What to read about financial bubbles and crashes?

So asks @TimHarford today, linking to a reading list proposed by Noah Smith

“Panics and Bubbles” reading list

itself a comment on another proposed reading list by Tony Yates,

If I was devising a panics and bubbles course…

which, while commended, is criticised for being too focused on ‘macro and money-based models, usually with rational expectations’. Continue reading What to read about financial bubbles and crashes?

Housing expenditure – overlooked and undertaxed

This is a follow up to an earlier post, Since housing is economically a luxury good, why not tax it more?, where the argument was based on a longitudinal study.  For this I am endebted to @RichGreenhill for pointing me to an ONS spreadsheet showing expenditure by income decile, which can be downloaded here. Continue reading Housing expenditure – overlooked and undertaxed

If it wasn’t for the Nimbies inbetween

More evidence that capitalism wouldn’t be so bad if it wasn’t for the Nimbies inbetween.

This graph from Matthew Rognlie’s paper disaggregating Piketty’s overall story of increasing returns to capital is well known (although not as well known as it should be …)

Deciphering the fall and rise in the net capital share

But today I saw this analysis of the impact of ‘closed access cities and states’ in the US

Housing, A Series: Part 77 – Housing is defining politics and the repercussions are dreadful

Kevin Erdman writes

It is frequently noted that American politics have become more angry and more bifurcated.  The housing supply problem has its fingers in many of our problems, and I believe it includes this.  Bear with me here.  This might become a long post, but I think the implications may be surprising.

so I’ll leave it there, but please do follow the link.

As for the title – it’s an obscure reference to the old Music Hall song which somehow seems relevant, but I’m not exactly sure how …

Not why Britain is heading for another 2008 crash

This is mainly for a couple of people I know who have posted links to this article

Britain is heading for another 2008 crash: here’s why

The argument, in brief, is that because of the accounting identity that aggregated debt is zero, (because debt has to be owed to someone),

reducing government debt leads to increasing private sector debt, and that because this, as forecast by the OBR, is projected to reach the level it hit in 2008,

then Britain is headed for another crash.

There’s so much wrong with this argument it’s hard to know where to start, but here are a couple of possibilities

  • The crash of 2008 was not just because of high levels of household debt.  In my view, systematic problems with the banking sector had rather more to do with it.
  • Don’t forget the other part of that aggregation.  If the UK government pursues a policy of austerity, and in the widely accepted Keynesian way, this also slows down the rest of the economy, then the impact is likely to be seen in the amount of UK debt with the rest of the world.

The writer, David Graeber, is by training an anthropologist, which since the publication of Gillian Tett’s ‘Fool’s Gold’ can be no disqualification for writing about the world of finance, but it would have helped if he had brought some of his professional perspective to the argument.  Instead, he uses economic arguments which are just … embarrassing.  As a matter of principle, he should have put in a link to the OBR report from which he took his graph – here it is

Economic and Fiscal Outlook: July 2015

where there is plenty of evidence that professional economists are not complete fools.

Since housing is, economically, a luxury good, why not tax it more?

An exchange in comments on a recent blog by Jolyon Maugham about the difficulties of structuring a sin tax


reminded me of a posting I made in June 2014 on my local forum, but which is now only visible to registered users.  Jolyon’s blog showed the normal regressive pattern for indirect taxes of the two UK taxes most usually considered as being on sin

taking his numbers from an ONS spreadsheet.

As someone who can be quite moralistic about burning fossil fuels, and imagining that richer people might spend more on them in proportion to their income, I wondered whether the pattern would be different.  In fact it isn’t –  ‘Duty on hydrocarbon oils & Vehicle Excise Duty’ behaves by income quintile much like alcohol duties, but raising about twice as much.

So let’s drop the moralising, and ask what are luxury goods in the sense that

demand increases more than proportionally as income rises, and is a contrast to a “necessity good”, for which demand increases proportionally less than income

Source Wikipedia

That ONS spreadsheet has a detailed breakdown of income by quintiles, but nothing about expenditure, other than forms of expenditure with special taxes, such as alcohol.  It would be interesting to see such a cross-sectional study, but my local Forum posting I referred to commented on a longitudinal study for the US

written up in The Atlantic

How America Spends Money: 100 Years in the Life of the Family Budget

At the time I wrote

… this chart shows food as a necessity, and entertainment as a luxury – which is what you’d expect. Spending on healthcare as a proportion of income has increased a bit with the explosion of prosperity of the last 100 years, so counts as a luxury on this definition too – but that will be mainly just expenditure in the last few years of life, Overwhelmingly, however, it’s housing which has become the major apparently luxury expenditure item. Partly this will be because much spending on housing really is luxury, as economists understand it – if most of us have a bit more money, we probably will spend it on making our houses nicer. Even so, it feels too much to me, and I suspect reflects the unnecessary expense of housing as people have moved to cities where excessive constraints have been put on the expansion of the housing supply, so pushing up prices.

but in the context of tax policy, if there have to be indirect taxes, only those on property taxes can be significant and progressive.