Meeting People
Amul Pandya converses with independent, adventurous and sometimes courteous free spirits. Creativity is an act of rebellion. Whether they are entrepreneurs, artists, athletes, investors, chefs, or corporate antagonists, Amul's guests all share a common disposition of not just pushing boundaries but re-drawing landscapes.
Meeting People
Akhil Patel: The Secret Wealth Advantage
I confess coming to this conversation as a sceptic. An 18.6 year property cycle feels too deterministic and over-reliant on backfitting data to support a fallacious narrative. Even if it’s true, how actionable is it? However, having sat down with Akhil Patel to discuss his book “The Secret Wealth Advantage: How you can Profit from the Economy’s Hidden Cycle”, I left more open-minded.
He explained, through first principles how Land behaves differently to Capital as a factor of production as per Ricardo’s Law of Rent. Perhaps it’s not exuberant credit expansion leading to excess leverage that causes recessions? Indeed perhaps that’s just a symptom of the true cause: land speculation.
This first-principles thinking meant that in the 19th century, the discipline of classical economics was distorted by wealthy landowners, in order to smother the rising popularity of Henry George. This cemented the property cycle (sorry) which has been the cause of boom and bust ever since.
The book provides thoughts (not advice!) on what might be doable at various stages of the cycle. More than a to-do list however, our conversation will challenge your perception of how the world works. He was articulate, entertaining, and I recommend his book which I’ve linked to below. I invite a dialogue from all sceptical folks. Thanks to Fred Harrison for making this conversation possible.
This podcast was produced by Matt Cooper with music made specially by Loverman.
The book: https://thesecretwealthadvantage.com/
Hello and welcome to Meeting People with me, amol Pandya. Meeting People is a podcast where I have long conversations with rebellious, adventurous and sometimes courteous free spirits. Right Akhil, thank you so much for sparing the time. Good morning everyone. With me, I have the author of a book called the Secret to Wealth Advantage how you Can Profit from the Economy's Hidden Cycle. Now I'm sorry.
Speaker 1:I should have a book of it to hold up to the camera, so should I yeah well, we'll link to it, but I thought an obvious place to start is what is the book about and what motivated you to write it?
Speaker 2:Well, thank you so much for having me on your podcast. I think there are a couple of reasons why I wanted to write it. The first relates to why I got into kind of studying economic cycles in the first place, and that goes back to as many kind of paths do back to the financial crisis of 2008. And my family's business were in pharmaceuticals, were experiencing a really difficult time, largely because banks were calling in loans and credit facilities from small businesses because of the you know their response to the financial crisis, and it was pretty devastating for us. Simple business model you borrow money, you buy a whole load of pharmaceuticals, you sell them to independent pharmacies, you repay the loan.
Speaker 2:It's sort of a very fine business model when it works, when bank credit is flowing, but if it's not, it's quite difficult and it sort of precipitated a series of problems that you know actually even to a certain extent, haunt us today, and I thought you. I thought at the time, how could we have been so unprepared for this event? And, similarly, to a lot of other people, families and so on who had experienced difficult times, and so I made it my mission to find out what was going on and why it was happening and I sort of had a hunch that the early 90s recession, which no one really seems to talk about now, had very many similar characteristics.
Speaker 1:Yeah, which year was that? Sorry, that would have been well it sort of started around 91.
Speaker 2:We had the sort of UK exiting the exchange rate mechanism in 92, you know all that sort of thing.
Speaker 2:It was a pretty difficult time. I remember having a chat with my older cousin so I was about 14 at the time. My um, my cousin, I think, was in his uh, mid-20s at the time and he sort of he worked for bank and he's saying oh well, we're in recession, it's going to be difficult for a few months, years, but then we'll be out of it. And I remember feeling this sense of hopelessness. You know, how can a recession happen? Why is it? You know, why are we, why are things difficult?
Speaker 2:Now, you know my parents were clearly worried about kind of spending and you know the household budget. Anyway, I sort of thought the two episodes have a lot of similarities, but no one's putting the two things together, and so that got me interested in kind of cycles and patterns. My background, academically that is, is in the classics. You know, you study long-term history and you kind of see that actually human experience is very repetitive over a long span, and so maybe I was slightly predisposed to all of that. Anyway, I it led to a series of kind of investigations, trying to find out what was going on.
Speaker 2:That in turn led me to people like fred harrison, who I know you've interviewed on yeah on your show who wrote about the 18-year cycle and he linked it to kind of real estate, and I thought, well, this is it, because both of the you know both of the episodes the the 80s boom, the lawson boom, as it's known now, and the 2000s boom um, I don't know if people still call it the Brown boom uh, after Gordon Brown, um, you know they were property booms and then after that there was a major sort of financial currency crisis that affected a lot of countries at the same time, um, and once I sort of saw that actually it was a real estate linked kind of phenomenon and actually it's 18 years in duration, which kind of perfectly fit my sort of hunch that the early 90s and 2008 was somehow linked in time.
Speaker 2:I thought I need to understand this and I need to be ready for the next one, and so my I come across a few authors who have written about the cycle, I think in relation to my book, I basically wanted to provide a distillation of all of that sort of research and insight and make it practical for people, and so the book is a journey through the cycle, stage by stage. I end each chapter with a sort of set of things that people can look out for at that stage of the cycle and I give them some ideas on how to take advantage of it or stay protected if it's a difficult phase of the cycle. And then in between each of those stages, I also talk about you know why the cycle happens? Yeah, why no one sees it.
Speaker 1:And yeah, I mean banking fit in. You give actionable insights which, um, I'd love to dig into a bit later on.
Speaker 1:I think what would be really interesting then is to sort of try and go into first principles, that journey you've done of educating yourself, particularly for a non-economics crowd let's say, and we can go as deep into the weeds as we need to, because I think particularly economists who do the circuit on, you know, in the media, whoever it might be, kind of maybe insult the intelligence of the audience in some ways. But I've listened to some of your stuff and read some of your stuff and you base your perspective on classical economics. Is that right? And you kind of build from there. So can you just sort of just give us an overview and we can kind of back and forth that?
Speaker 1:So yeah three, three factors of production as per Adam Smith yeah, land, labor and capital. And then what does David Ricardo kind of do from there?
Speaker 2:Yeah. So I mean I should say at the outset to anyone who's watching that I've not had a formal, any formal, training of economics in my life. This is all self-taught and I've taken from my study of economics what I've needed to. So I'm by no means an economist, even though I know sometimes people refer to me as such. Yeah, but you know, I have an interest in the subject. I think that that's fair to say. I'm not one of those people who thinks economists can't explain anything. I think the subject itself has, for reasons that we'll get into, has gone kind of way off the rails.
Speaker 1:Yeah.
Speaker 2:But it's recoverable and for reasons that I talk about in my book and I've seen elsewhere. So, yes, it is a classical kind of stance. It starts with Smith. You know three factors of production land, labor and capital. David Ricardo did many things. He talks about the theory of comparative advantage and so on, but he also articulated what I regard as the most fundamental law of economics, and that's the law of economic rent. And that's very simple. It basically talks about the importance of location. Now, in his day it was about location related to fertility of soil.
Speaker 2:And some places are better at growing crops than others and economic rent is basically the difference between the least productive use of land and the most productive. That surplus is economic rent and it's attached to where you are. It's got nothing to do with how hard you work or how productive you are or how much you know machinery. I mean machinery use. These things are taken into account. It's basically what advantage you get from locational value can I?
Speaker 1:can I? Um, I've been working on an example because I, similar to you, I'm not an economist, but interested in the subject, yeah, and so to understand it I have to use kind of stories or imagery and I've been working on one and I'd love you to either refine it or correct it to try and sort of bring it home yeah, so yeah, just to rewind, to make stuff for an economy to grow, you need three things, as you said land, and the owners of land benefit from that, from collecting rent.
Speaker 1:Yeah, you need people to turn up and do a day's job and they earn wages. And you need people to kind of invest and create machinery and take risk and allocate capital and they earn interest. Yeah, for one of a better. Um, it's um near where I used to live in clark, and well, you're an islington guy, aren't you? Yeah, there's a gales bakery on xmas market which does a kind of jolly good trade um and let's say hypothetically that gales bakery turns over a million pounds a year.
Speaker 1:I'm sure it does a lot better than that. But let's say for argument's sake, and to pluck, I mean somewhere, just to pick somewhere random I've been to recently the isle of man yeah, no disrespect, but you know there's no exit market.
Speaker 1:It's not well. Yeah, it's many things and it's different, but the likelihood is that same Gales, the same staff, the same product is, let's say for argument's sake, going to turn over half a million quid a year. And that difference between the Gales and Clerkenwell is basically the function of created by larger, larger footfall, greater population, greater spending power. You've got better infrastructure, connectivity, um more schools, more, um more places of learning where people are like to kind of be around spend money, and in gales, where they wouldn't necessarily there wouldn't be as many people doing that. And that is captured.
Speaker 1:That £500,000 difference is effectively captured by owners of land. Yeah, and it goes through various, you know, in and out of various people's pockets. You know the gales in London might have higher costs because its suppliers will charge it more and that is because they've got to pay, know, rent or live somewhere more expensive and so that, similar to a, you know, a nurse in London will earn more than a nurse in Sunderland, let's say, and that difference is basically money coming from the taxpayer into the nurse's pocket, going out of her pocket into the owner of her landlord or the person she's buying, she's renting from. Is that roughly right?
Speaker 2:That is yeah, I mean so. Say the Isle of man, gales, is the worst kind of location in the United Kingdom, which of course it's not, but it's just about. You know you can just about cover your costs and make a bit of a profit with 500,000,. Say that difference between the turnover there and the turnover in London is a feature of location for all the reasons that you've set out, and actually costs tend to equalize across a country. But the difference is is the locational value and that is the economic rent. And what you find is that as more and more public investment comes in, so as the Elizabeth line opens and people move into London, because there's better jobs and there's more capacity and there's more infrastructure, as maybe the park near Exeter Market becomes nicer, maybe there's another school, and actually Gales do follow schools, they actually find out where a new school is opening and that's where they that's where the moms and dads exactly, exactly exactly, um, they will, they will.
Speaker 2:That surplus will increase relative to the kind of worst location in the country yeah and then that additional surplus eventually ends up being kind of manifesting itself as higher rent, higher property prices, and that capsulises into higher property price and that becomes a magnet for speculation and all that sort of thing as economies get more prosperous. That disproportionately benefits owners of land. It squeezes the entire economy eventually it can take it no longer.
Speaker 1:Sorry to cut you off, but just to step back. My understanding is that the law of rent by david ricardo is kind of pretty widely agreed upon, like if you can be a socialist economist, you could be a neoliberal economist or a classical economist. They all seem to agree on that definition, but it's the implications of that that are disagreed upon. So, as you've alluded to, as things get advanced, as population grows, as productivity increases, innovation happens over time, actually, because when things are made, the first people to get paid from the benefits of that thing that's that, that innovation or population growth the first people to get paid are the landowners, and then what's left is is divvied up amongst capital and labor that is a kind of yeah different implication to what most people assume is happening.
Speaker 2:Yeah, I, I think. I mean I'm personally not totally clear on the sort of history of economic thought between Ricardo and an American economist called Henry George, who wrote Progress and Poverty in 1879, which no doubt we might come on to. I don't know if Fred mentioned it in his interview, but Henry George, again, not a a trained economist but a very clear writer, and you know he essentially pointed out the corresponding kind of economic laws that followed the law of economic rent. One of them was the law of wages and that basically says that wages, for all the various dynamics that we've just covered, tend to go down to the least that people will accept. Yeah, um, and so because there are.
Speaker 2:You know, the labor market is a much more competitive market because people can move for jobs. You can't move pieces of land around an economy, uh, to suit where, no, where business wanted to locate. They kind of have monopoly pricing powers. Labor and, and to a certain extent, capital, do not, yeah, and so essentially everything gets kind of stays at a level because of competition and anything that's in excess of that is ends up, as you know, higher rents or higher property prices okay and what?
Speaker 1:what I've intuitively, what I intuitively thought, or what I learnt, was that the cause of recessions was, as you alluded to, kind of with your personal story, too much debt, credit cycles, or. Some people argue it's like a behavioural thing things are going well and so you take more risk and you borrow more. I believe Henryorge argued actually it's driven by land. It's recessions are caused by land speculation or a property. It's a property cycle which is is that basically what your work is arguing?
Speaker 2:yeah, exactly. Yeah, I mean it's an economy cycle. Because economic economy wide cycle? Uh, because everyone uses land, everyone's exposed to the land market. Henry george's essential argument was that over the course of a period when things are prosperous, the owners of land, land takes all the gains. Um, eventually, an economy cannot sustain that level of rent. There needs to be some kind of reset. And when land prices come down, because of the all the speculative activity, some of which has been assisted by banks lending to acquire land, which is basically most of what the banking system does, um, it all comes, it all. It can't continue, it can't sustain itself. When it starts to come down, it really comes down hard. It brings down the banking system, it affects businesses. That increases unemployment, people don't have any money to spend, etc. Etc.
Speaker 1:And that leads to a major economic depression and you said it's often tied to like a new technology or a new theme the cycle it started off.
Speaker 1:Yeah, yeah and you, you have, um, you have something good going on, whether it's an innovation or some sort, or a location, and then that invites obviously, therefore, people want to live there, in that given place, and so prices go up, uh, land prices go up and that invites, as you say, speculation, where more property investors come in in anticipation of future price rises, exactly, and that keeps going on until the cost of rent who the rent, rent earners get paid first, as we said exceeds the kind of return you can get as an employee.
Speaker 1:Um, and do you think we're kind of seeing this at the moment, for example in the in the working from home argument? That's happening, let's say, in silicon valley, where you've got employees of big tech or whoever it might be saying look, I just I can't afford to come to the office five days a week and live in proximity to Palo Alto because it's just, you know I can do it, but you have to pay me more. So we've kind of crossed that ability to earn a decent living because so much of our outgoings are taken up by property prices. Yeah, yeah, absolutely yeah.
Speaker 2:So what you tend to find is that, yes, a new technology will come in, it will kind of generates of new interest in maybe new areas, and kind of saw that the area around old street and shoreditch and so on, all those adjacent areas, at the start of the current cycle, around 2011. I mean, some of that was assisted by the enormous investment that was going on in Stratford and stuff with Olympics and so on. In California, same thing. I don't know what the. I mean, I'm sure the Californian real estate market was pretty strong in the 2000s, but it really took off in 2010 with all these sort of businesses. Essentially, in my view, the really key thing that started the current cycle technologically was the smartphone and all the enormous cloud services and that sort of thing. But the smartphone 4G, all the enormous innovation going on in the back of that, yeah, that drove businesses to Silicon Valley and actually, I mean, it didn't take long for prices to have gone really quite high. And I remember, you know, the billionaire Peter Thiel.
Speaker 1:Yes.
Speaker 2:Complaining about how all of his VC money is essentially going straight into helping employees who are designing all these amazing new innovative products. It's basically going to helping them pay rent. So it's going directly from him, you know, via the employee, into the, into the local land market he's a bit of a closet georgist, I think he's?
Speaker 2:yeah, I've seen something like that. Someone sent me a youtube video um a couple of weeks ago about him saying that I mean, look, if he doesn't get it, given that he's basically been helping to prop up not prop up, but exacerbate the local property market via his investments then there's no hope. But he did see the cash.
Speaker 1:as we say, so the title of your book has two really interesting words Hidden, as we say. So you, the title of your book has two really interesting words. Um, hidden, uh, the how to well the secret. Yeah, advantage is it's it's a secret and it's a hidden cycle the economy how you can profit from the economy's hidden cycle. Why is it? Is it actively a secret? Is it is it actively a secret? Is it being kept a secret? Is it? Is this an active, active commission, that the fact that this cycle is being kept secret from us or it's hidden, or is this just the fact that people just don't understand that the key thing driving recessions, boom and bust isn't credit necessarily? Well, the credit is a symptom, yeah, but the cause, the underlying cause, is property speculation. Yeah, why did you choose those two words?
Speaker 2:Yeah.
Speaker 1:They seem to stand out to me.
Speaker 2:So it's a good question. The idea of the secret is not so much that you know. It's sort of the sort of thing that you just pass from one generation to the next and no one knows about it.
Speaker 1:We can do tinfoil hats if you want. Honestly.
Speaker 2:No, I think it's more in the sense of it not being in public view, in the way that if you go back to classical Greece, for example, you had kind of mystery schools and they were. They were, I mean, we were just before we came on air. We're talking about pythagoras. Yeah, you know, um, he was, he was the head of a one of those mystery schools back in the day, and they are people who come together to study the world in a particular way and they, you know, but you don't necessarily have the ability to talk about it or you're allowed to talk about it outside that group. Now, for me it's obviously not quite like that, but I think the the secret aspect of it is people who understand the fundamental role of land and, in the way that we've just been discussing, tend to view the world in a particular way and we kind of almost talk to each other in certain terms which, if someone is listening in, they might not really understand what we're talking about.
Speaker 2:And the other, the other word, the hidden word, is, I mean, uh, that maybe is probably the only conspiratorial thing that I that I would sort of support. Um, and that is how the discipline of economics was, I think, fairly deliberately changed at the end of the 19th century, start of the 20th century, to discredit the idea of Henry George. The ideas of Henry George, I should say, because, in addition to diagnosing the boom-bust cycle, he came up with a solution, and that was not favoured by those who had money and power in the US and the UK. And so and this is where, going back to my remark about economists not kind of for the economics discipline having gone off the rails because they're incapable of diagnosing the boom bus cycle, for for reasons that, um, for reasons that are related to, uh, that the attack against henry george well, it's, yeah, going back to pythagoras.
Speaker 1:obviously his uh. I only know this from the interview I did with narja mcgilchrist, who read a very good biography of him, which I highly recommend he to join his school. You weren't it's probably apocryphal, but you weren't allowed to speak for five years when you joined the school, so you almost had to have this sort of you had to absorb the world, have this St Jerome style uh, you know wilderness before and if kind of you know feels like you've done that with you, you know your, your, your, your learning and how to understand what you personally experienced with your your family's businesses and you kind of went away, went from first principles, and then you've come back to the world with some actionable insights, much like saint jerome did, let's say, um, and I think that's what what I'm noticing about you know, about economists is the ones that are too trained to you know.
Speaker 1:You, you create accreditation, you try and formalize it as a like science. They can't see the wood from the trees and they're kind of, you know, they're swayed by the popular narrative or the dominant, you know, academic thought of the day, whereas the outsiders, you know adam smith was a philosopher, henry george was a publisher um, the outsiders are the ones that can actually bring a fresh pair of eyes, and you see that in technology as well the ones who kind of it's always the ones, the specialists, who go no, it's always been done that way, you can't do that. And then the outsider comes in and goes well, why don't we do this?
Speaker 1:and then yeah all of a sudden, everyone's like oh, that was obvious. Yeah, and it it certainly feels that um once you see the fact that you know real estate is driving everything.
Speaker 2:You can't unsee it, like you say yeah, exactly I hate the term red pill, but you kind of get red pilled and yes, and then you kind of you see everything.
Speaker 1:Um, should we go to the cycle then what? How is 18.6 years so sorry? Let's talk about the cycle and then I'll, I'll, I'll put my skeptical hat on yeah, and I, you. You talked to daniel crosby about this, actually, and you gave a very good answer, which I do think we should probably go over again because it feels too precise, too much of a kind of narrative fallacy going on where you're kind of backfitting the story to data, and we're always taught to be wary of people that kind of take complex things and reduce them to kind of very precise outcomes.
Speaker 1:So let's talk about the cycle why 18.6 years? And talk us through the kind of different phases that you see and how that plays out.
Speaker 2:I mean, it's 18.6 years on average, uh, and it's rarely less than 17 years. You can, you can. I mean. I think one of the problems that you have is that you can't precisely date the day in which one cycle starts yeah and another, and it ends, and the next one starts you're, you're, it's.
Speaker 2:There's usually phases, and the phases might last several months, and in any case economic data is itself kind of quite lagging, and so you might not necessarily see it until after the fact lagging and messy and full of noise and quite messy yeah and and really we're not, uh, I do my writing, as you know, is not particularly technical, um, and I don't, I don't get bogged down with, you know, sort of um trying to make it too precise, um, because some of the uh, some of the data, particularly the further back you go in history and I should point out that you know we're talking about it you know, over two centuries of history, yeah, um, you know you're relying effectively on qualitative data. You're, you're, you might hear a remarker from a, you know, trustworthy source that you know, eighth year, 1828, for example, was a black year and so, in other words, there was, you know, some really dark times, um, if it's in it, you know, probably rioting, but a lot of economic uh problems, um, and so you, you know that that, because they didn't measure gdp in those days, uh, and didn't for, you know, at least another 120 years, um, years, you know that that was likely to be the end of the cycle. If you've put together the other kind of components, which is preceded by a building boom and a construction boom and bank credit and speculation, and then you've got a major collapse because someone called it black year, you kind of know that that's the kind of timing for that particular cycle. It's rarely less than 70 years, rarely longer than 20 um, and it averages out at about 18.6 um. Why is it that?
Speaker 2:Uh, I think it's probably, and the answer I've I give sort of to people who ask me, because I don't really have a very satisfactory answer to it, at least not one that I really talk about much. It's the time span it takes for people either to forget, or for one generation of decision makers to have sufficiently moved on, that the benefit of their kind of wisdom, as it were, or for one generation of decision makers to have sufficiently moved on, that they, the benefit of their kind of wisdom, as it were, um is lost to the next generation. And in any case, uh, for reasons we've discussed a few minutes ago, people don't think of the world in cycles anyway.
Speaker 1:Yes.
Speaker 2:So what they might kind of notice and what they might do differently if they were still making decisions, might not necessarily be the right thing anyway to prevent the cycle or to kind of warn people that it's going to happen. Now, that's quite a generalisation. You know, we still do talk about the financial crisis nowadays and you know it's clearly had an effect on kind of bank regulation and um and so on. Uh, so it is a bit of a generalization. We also tend to find that the epicenter of one cycle is different to the next one. Yeah, so, for example, the really big real estate boom of the 80s was in japan rather than the united states, even though united states had pretty difficult times, times in the early 90s, and so did we.
Speaker 1:You'd say that the 2000s you gave an example. Sorry, what was the example of? The Imperial Palace in Japan was worth more than? Or Tokyo was worth more than all of USA, or something like that.
Speaker 2:Yeah, tokyo, the land of Tokyo was valued higher than the value of the land of the entire United States and the grounds of the Imperial Palace in Tokyo more than the value of the land in the entire united states, and the grounds of the imperial palace in tokyo more than the state of california yeah and and people at the time were like, well, this is what's happened over the last five years, why wouldn't it happen over the next 20?
Speaker 1:so they kind of the recent data, the recency bias, was trumping the kind of their ability to look at the full cycle.
Speaker 2:I think that's probably true. Now, japan the cycle prior to that was in the early to mid-70s. The narrative about that kind of recession is all to do with the oil shock of 1973. And that, to my mind, and Fred has written very powerfully about this mind, and Fred has written very powerfully about this kind of exacerbated a crisis that was already brewing with, given what was happening in the land market.
Speaker 2:So, first of all, people don't recognize the kind of early to mid 70s is at the end of a real estate cycle and secondly, japan, which was developing so quickly in the 70s, didn't have a huge downturn. It had a little bit, but not a huge kind of major kind of crisis. And so a Japanese investor in 1985 or 1987 doesn't really doesn't have any knowledge to think, well, this party could end at some point. And, in any case, what people were talking about in the 80s was how japan has a miracle economy, how japan is eventually going to be, you know, bigger economy than the us. Um, you know business schools were sending all their mba students to kind of learn about japanese manufacturing. Uh, etc. Etc.
Speaker 2:They also they're extrapolating a trend they're extrapolating a trend and they're doing things and they're thinking about things in a way that's just almost designed not to see what's actually going on. And then people would say, well, they must have known that they're paying far too much for land prices. But the reality was that until the 80s, japanese had really small homes and offices were really not very nice and so on, and they had this kind of major policy to kind of make the kind of built environment fit for purpose for this. You know this unstoppable juggernaut of an economy, and so of course, things would get expensive. The economy is booming and government policy is that we need to do this and we give you tax breaks and so on, and you know the nature of the Japanese economy was such that there's always bank money available for it, and you know Japanese bank officers are making lots of money out of doing more lending and so on.
Speaker 2:So it's, and then I suppose there's underlying faith that this is going to go on forever, and the reason why people have that faith might change from cycle to cycle. Reason why they have people have that faith might change from cycle to cycle. Um, but you can see how the components come together. Uh, to to get things way over the top and that's tends not to um, that tends not to be any kind of learning from history in that kind of process um, and so there's four phases, yeah I mean I probably break it down into and now I'm struggling to remember I think nine in my book but there are four main phases.
Speaker 2:So if you take an 18 year structure, we typically say it's four years sorry, 14 years up, four years down, and then the 14 years up is broken down into two seven-year halves of expansion, interrupted by mid-cycle recession. So that gives you the kind of four, the four phases.
Speaker 2:So you have a little pause for breath and people get a bit worried and then things carry on and then the party kind of sort of yeah, and I think the mid-cycle recession, people get a bit worried and then things carry on and then the party kind of sort of yeah, and I think the mid-cycle recession, in between, the sort of seven year expansions, serves quite an important function.
Speaker 2:The first is that you know you do get a recession. Sometimes it can be quite significant, but it tends to be one that policymakers think, well, they've done something. That policymakers think, well, they've done something. It's got the economy out of recession and the banking system, crucially, is not particularly badly affected and so is not spending the first few years of the next expantery phase trying to sort out its balance sheets and so on. They can resume lending or, if indeed they even stop lending, in pretty good order. And then, yes, as you have more and more expansion, as as there are more and more opportunities that people take, more and more risk, they leverage builds up in the system and that's when it really can, really can go over the top yeah, and you're.
Speaker 1:You then start seeing sort of sort of how would you describe it Sort of marquee projects or glamour projects being announced and that's a sign of sort of a late cycle or towards the end. Yeah, for the froth.
Speaker 2:Yeah, it's froth. There's a lot of finance, there's a lot of ambition, there's competition for that kind of thing, um, and there is uh kind of high land prices, such that building bigger and taller and so on is kind of is needed to make the project stack up yeah, and we're 16 years from 2008.
Speaker 1:Yeah, at the time of recording um, is this cycle fitting? What you've seen in historical cycles is the data validating your thesis thus far yeah, yeah, I mean.
Speaker 2:So we probably started the current cycle in 2011. 2012. Again, I said there's no one day that the cycle starts, but, um, if you recall, in 2011, which was sort of about four years after the peak of the last one, we were in the middle of the Eurozone crisis in 2011. 2012, I remember quite distinctly January 2012,. We're still talking about the possibility of a triple dip recession in the. Uk and the US. Draghi did his whatever it takes kind of speech in London in July or June 2012.
Speaker 1:So this was just for people. The Europe, the governor of the European Central Bank, basically announced when there were question marks about the euro I will print as much money as we need to print yeah to make sure the euro and that kind of gave confidence to the market. That gave confidence to the markets.
Speaker 2:That gave confidence. I mean he basically. I mean, in reality he didn't have the ability to print money because you know the German government would have stopped that, but he said he'd do whatever it took. And that statement and sometimes this is the problem with finance and credit markets is that it's sometimes just confidence that is holding the whole thing together or pushing things back and forward um, he made that statement. I mean, these are the sorts of signs that actually was starting to turn the corner.
Speaker 2:Um, I think people started acquiring smartphones. To go back to that, I mean, even though the iphone was invented in 2007, I think it was um, it wasn't really until you had 4G and everyone on 4G that you could really take advantage of it, and that was around 2011, if I'm not mistaken. It really started rolling out. And then we were up and away. There was, you know, investments going on. You tended to.
Speaker 2:I mean, london has had a number of very large projects going on during that time, but, um, that kind of helps to get things going in in london. It took a lot longer in other parts of the country. I mean, manchester had a. It started fairly early on in manchester. There's a lot of investment going on there, but elsewhere it was quite moribund for a bit longer. And this is what you tend to find is it starts at the center and ripples out over the course of a cycle, and actually some of those vanity projects towards the end might not be in the center of london, they might be in, in, in, in a, in a more peripheral city for one of a better man maybe man, maybe yeah, or in in the us.
Speaker 1:I think the tallest building in the us is going to be in oklahoma city yeah, so that's a sign of speculative behaviour getting phillipped by where we are in the cycle, you go well. Ordinarily you'll be risk averse and go well that kind of thing. I'd only feel comfortable doing that in London because I know I'm confident of there, the you know the um, there being enough occupants and you get.
Speaker 2:You get more and more emboldened and you start doing it further from the epicenter I mean, you wouldn't get you, you wouldn't get a bunch of lenders to back you in at the start of the cycle in anywhere other than the center of a city, um, and even then you would tend to need so as part of the business case that you're putting together for one of these really big buildings is, you know, very high rents, um, and so, uh, you'd need to, at the start of the cycle, you'd need to persuade people that there are businesses and occupiers that would be willing to pay that towards the end of the cycle. Don't have quite the same level of difficulty in that, because it's been, you know, the economy's been expanding. Businesses well, certainly businesses that you're catering to have got relevant kind of profits and stuff that can be ploughed back into kind of buildings like that, et cetera.
Speaker 1:Okay, and so where are we now?
Speaker 2:so, yeah, um, I I stopped talking about the dating. So if we started around 2011, 2012, we were expecting a mid-cycle slowdown to begin in 2018, 2019. Um, in my view, that's exactly what we got. The global economy was definitely slowing in 2019, had a slight inversion of the yield curve and so on. Covid exacerbated that, or you could say COVID actually ended the mid-cycle slowdown, because governments got around to pumping trillions and trillions of dollars into the global economy, which really sort of got the second half of the cycle into kind of full swing.
Speaker 2:Second half of the cycle into kind of full swing. Uh, seven years on from uh, the mid-cycle start is probably around the time you'd be expecting the peak in 2026, so a couple of years from that. Um, there is sometimes a gap between the peak of the cycle and the onset of the major crisis. So the 2000s an example, probably the cycle in the US, and the US cycle tends to peak about six to twelve months before everyone else. Just we kind of know, know that from looking at history, the US cycle probably peaked in 2006, maybe early 2007.
Speaker 2:And the real most difficult part of the crisis was in 2008. You started to see the first rumblings in early 2007. We had the Northern Rock thing in. I think it was August or September 2007. But really the Bear Stearns and Lehman's were all in 2008. That was when central banks and people had basically lost control of the system and didn't really know what was happening and what they'd done already, which was lower interest rates to zero or close to zero and helped to bail out certain parts of the economy. Why that was not working.
Speaker 1:So actionable insights. Then full disclaimer to everyone listening watching. Neither of us are giving investment advice. Do your own research. Speak to a financial advisor. This is just an opinion based on some research. But what has been a prudent thing to do historically? But what has been a prudent thing to do historically at this stage or in various stages?
Speaker 2:What do you advise in your book as the kind of end of chapters that you do, the actionable insights from this cycle? So, if we're talking about the final couple of years before the peak, which you know historically have been very strong years in the stock market and in kind of speculation and so on, so if you have a stock portfolio and so on, you can take advantage of it. You just need to know that it's not going to go on forever. So what I suggest to people in the book and I write this also for my subscribers is you need to sort of get your house in order. You need to understand your investments. You need to kind of start to get rid of the things that you think are not maybe that good.
Speaker 2:Um, don't borrow too much. I mean, you, you know, if you want to move, of course, of course it's fine. It's fine to move at any time, but don't, you know, don't overdo it. Make sure that, um, you're building kind of reserves if you lose your job and if you're doing a subsequent crisis, if it becomes difficult or reduced income, so you're protected in that way. I think the really key point in all of this is that you do not want to be selling in a crisis, want to be selling in a crisis, so, whatever you do, if you can avoid that situation.
Speaker 1:So you've got the ability to hold on despite the or buy, or buy well, you, you buy more when it comes down if you've got the ability.
Speaker 2:But yeah, number one thing in terms of preservation is you're not forced to sell, because you can't assume that you may be able to roll over finance. You might, you might. You know your income might go down depending on what line of work you're in, and so you need to make sure, from an investment point of view, that you can ride it out.
Speaker 1:Yeah.
Speaker 2:And so whatever it takes to get to that point is what you should be doing in the next five years. From a more positive point of view, the last couple of years tend to be quite strong, so you can take advantage of whatever's going up, but you just need to make sure you don't Be wary. You'll be all wary about it, yeah.
Speaker 1:Yeah, when you were giving your background and history, it reminded me of a scene in Spider-Man Homecoming. I don't know if you've seen that, I can't remember.
Speaker 2:You shouldn't.
Speaker 1:There's the actor in it. He turns out to be the baddie he played Batman, michael Keaton. Is it Michael Keaton Right? And he at the start of the film is running some business, kind of clearance business, which the government shut down because of the Avengers finding alien stuff. Anyway and the government come in and say look, you know we're going to shut you down because of these reasons.
Speaker 1:And he said look, I've you know we're going to shut you down because of these reasons. And he said, look, I've you know, I've got bank debt, I've got loans due, you know, this month, and I've got staff to pay. And one of the bureaucrats says, well, you shouldn't have overextended yourself. And then he just goes nuts and punches him in the face.
Speaker 1:And I don't know why it always stuck with me and it certainly feels that temptation to borrow more and more and more as things go up and up, because it's really difficult behaviourally to sit on the sidelines. It must be a strong one, that kind of siren call to kind of get involved. Um, particularly we saw that, didn't we in, in the global financial crisis, where people were flipping houses every six months and yeah, seen in um, the big short, yeah, where the the stripper was telling, um telling the hedge fund manager that you know I've got five houses.
Speaker 1:You know, yeah, he's like, oh my god, there is a bubble. Yeah, um, so you'll be. This is actually very encouraging for me because I confess, when I first sort of started reading your work, I was kind of pretty like. You know, 18.6 years, it's too precise and what, what?
Speaker 1:your a the fact that human behavior doesn't change, you know, and memories are short, so the cycle is just kind of long enough for you to. You often get a turnover of um, yeah, um, you know, particularly in financial markets you get new, new people coming in and they kind of forget the lessons that the old guys have built up. Um, the challenge is, I guess, for people at this stage, these cycles are so long that you only really get one chance to profit from it. Right, because you've got that window, um, to be in there, the right place, the at the right time, not overextend yourself. So my sort of attempt to steel man the other side, what would you see, what would you need to see to tell yourself that you're wrong about this? You know, beyond war, what have you got out there as the kind of bear case or the kind of yeah, the, the, the reason for being wrong?
Speaker 2:um, that's a good question, um, I have thought about this.
Speaker 2:So the hesitation is not um, is not uh, because I don't have an answer. So I mean just to go back to the war point you just made um, historically, the thing that we know that has interrupted the cycle, not ended. It has been, has been the world wars, um, and you know we are. So I don't think I'd be wrong if we went into kind of a major war and that stopped the cycle. It would sort of delay it, um, so I don't think that really counts, but I think it's worth worth kind of kind of making that historical point. Um, the other thing that has happened, um, and this is actually linked to the war, but um, the other thing that has happened is that the cycle has changed its timing and not its duration, but its kind of start point, and so, um, it used to be the case that the uk and the us being the kind of well, the, the dominant power in the 19th century in the us, being the kind of rising power, as it were, um, they had opposite cycles, so, so when the uk was at the end of its cycle, the us was at the mid cycle and vice versa, right, kind of kind of thing. Um, could we get a situation like that between us and china, for example? Firstly, we don't necessarily know if china has a real estate cycle I mean, they like speculating in property, but you know, it's a very different source of economy, and government can intervene and do things which you can't really do in the West. So maybe it won't have a cycle in the way that we do. And if it does, maybe it's not the same timing, and so that would be an element of of that would change things in the US. China is big enough that it could change things in the US, I don't know, it's also very big, but in other parts of the world, in Europe and so on. So that's one thing. Maybe China is getting its act together, I don't know, I'm just putting that out there, getting its act together, I don't know, I'm just putting that out there, uh, and maybe it kind of blows through the end of the current cycle, um, and because of that we don't kind of see quite the same end of cycle as we've seen historically. I think that's one possibility.
Speaker 2:Um, the other possibility, I think, is that covid was such a change from an economic point of view, yeah, that it somehow reset something. I don't really feel that. Actually I've not seen anything in the second half of this cycle which kind of leads me to that view that somehow we started again at the end of COVID. But I'm open to that possibility. So I might be wrong about the timing, but I'm open to that possibility. So I might be wrong about the timing. The other thing is and I alluded to this earlier is that maybe the way it plays out between the peak of the cycle and the end might be a bit different.
Speaker 2:And something that I've been thinking about a lot recently and I talked to my subscribers about this, is that you had the US cycle peak in 1926 but you didn't really have the crash until 1929 and while property didn't do much, residential property didn't do much, um, between 1926 and 29, commercial property and particularly building all these sort of art deco skyscrapers in manhattan, all this office space really went gangbusters, um, and so students of history might sort of conclude well, the cycle didn't end until 1929, whereas kind of it did peak in 26, really from a pure cycle point of view. But from an investment point of view it didn't really peak till a bit later. Might we get something like that was certainly a possibility. Um, I don't think it's very likely, but it's a possibility that, um, and so that would. That would kind of suggest the timing is also a bit wrong, um, but I don't. I don't really feel that there's anything that would stop the cycle yeah short of implementing henry george's solution yes, well, that's what you gave.
Speaker 1:Some really good answers there. That would maybe get you wrong on timing, but they still sound like they're within your band of the range around the average of 8.6.
Speaker 2:So sometimes it's 14, sometimes it's 20. In real estate and borrowing to do so, and maybe there's some kind of bank regulation uh, that comes in, that really, and and it applies to shadow banks as well that kind of stops that process. Then I think that will interrupt or indeed stop the cycle in some way. Um, or maybe everyone decides that china is very successful as an economy and we have a lot of state capitalism and governments can kind of pull levers and do things in a way that they can't now. That might kind of at least ameliorate the worst parts of the cycle potentially.
Speaker 1:But the cycle would I mean as long as going back to first principles, ricardo's law of rent. As long as land is privately held, there will be a real estate cycle which is the cause of recessions yeah effectively. Um, until that, until, yeah, you cannot speculate on price, yeah, land that, then that's the key bit.
Speaker 2:So, regardless of, um, you know, title per se, it's who gets to keep the benefit of that increase in value yeah and and how does that kind of influence the economy in general and where you know activities distributed and you know credit that's created against it?
Speaker 1:and um. What about good hearts law? In that you know the when, a when the measure becomes well known it, it loses its predictive power. Like you know you. You see that, for example, stock picking price to earnings ratio is so it's it's so widely known that it's kind of doesn't actually help you anymore. Yeah, one of the things that you said which gives me confidence that good hearts law doesn't apply here is that the data is quite messy yeah you know it's quite.
Speaker 1:You know it's unstructured data. Yeah, so you're looking at anecdotes and looking at bits of history through like um so, but I, and also the fact that these cycles are so long, yeah I'm sorry answering the question, but which I have a bad habit of doing, but is there a point where everyone knows that it's 18.6 years, so therefore it stops becoming 18.6 years, if that makes sense?
Speaker 2:That is possible.
Speaker 1:I'd like to think that my appearance on your show would get us to that point where everyone knows about it.
Speaker 2:But actually it's a very sort of fringe topic at the moment, so I think it will remain. So I mean partly it, um, but actually it's uh, it's a very sort of fringe topic at the moment, so I think it will remain. So I mean partly because and I've noticed that I've been writing about the cycle now since um, really since 2013, 2014, so just over 10 years and my business partner, phil anderson, has been writing about it for even longer um, and at the start of the cycle, um, you know, what we were telling everyone is this is the start of the cycle, this is what you should be doing. You should be getting out there and finding good. You know good locations and you know buying prudently and borrowing against it. And what was really selling in terms of kind of newsletters and other things was, you know, this is the end of the euro, the end of australia the end of the uk.
Speaker 2:You know you've got to buy again.
Speaker 2:It's like trend extrapolation downwards exactly um, if we do have as we, as we should have, at least from a global point of view I think the uk has some peculiar kind of narratives going on at the moment um, but if we, if we do have a typical end of the kind of final two years of the cycle into the peak, where everything's going gangbusters, um, me standing up and saying, well, you know, be a bit cautious, you know it's not going to end, so it's going to end, it's not going to last very long.
Speaker 2:I don't think that's going to sell either no um, it might sell in some with audiences, people who typically look to our work because they tend to be sort of fairly contrarian thinkers, but in general, it's not going to be what people want or feel they can understand or they have any kind of relationship to, and so I think we're forever going to be kind of talking into the wind, as it were, and I don't think too many people are going to hear us.
Speaker 2:Having said that, if, for some reason, we find the marketing hook such that everyone is paying attention to us, then yeah, I mean, if people are not going to be speculating when they when they shouldn't, and things have gone up, then, um, then then it might well influence, or at least dampen, the cycle.
Speaker 2:My sort of feeling about that, though, is that and going back to the comments I made earlier about why Henry George was attacked intellectually and sort of politically basically, um, there are, you know, interests, should we say, who, um want the system to stay as it is, and so I don't think they really want people to understand the cycle, if, I mean, they probably don't think about the cycle at all, but you know, there'd be a lot of people, reasons given in the narrative, in the media and elsewhere to would get a lot of scrutiny and you know people picking holes at the sort of theory and the process and the approach and the methods and so on, um, and would cast enough doubt about it on it. So I don't think, um, I don't think it's really likely that good hearts law would ever apply to this particular thing yeah, and it goes back to that point of it.
Speaker 1:Also, you're using the word hidden and secret. Like I remember, after the global financial crisis, the news would call it the credit crunch. And yes, it was. There was a crunch in credit availability, but it wasn't exactly. That wasn't the cause. It was a yeah, it was a symptom. And people, people still, until they wake up to the fact that real estate drives yeah drives economic behavior which then drives kind of boom and bust. Uh, we're not gonna um um, it won't be widely understood yeah, one one. Sorry, you want to come in with something?
Speaker 2:yeah, I just wanted to say I think the credit crunch point is is a very good observation. You know there's some narrative at the time is almost a barrier to you understanding what happened in the early 90s the banks aren't lending, you need to get the banks lending again.
Speaker 1:It's like no, no, the banks aren't lending for a reason exactly. It's an outcome and similarly.
Speaker 2:I mean, you know I can talk about the 18-year cycle, but I was actually sitting in the pub the other day and I was looking around, uh, as I do sometimes, and you know people are talking with every so often you pull out your smartphone and you know people are either communicating that way or they're partly distracted or they're playing some kind of game on it. And I was thinking, you know, if we were back in 2005, 2004, 2006, some of that sort of time, you know the world is totally different. You know the way where we, how we work, how we socialize, you know. You know, maybe someone was on a date at the pub. They'd probably met through some dating app. You know it's.
Speaker 2:It's completely different ah, okay, and it's so there's just, I think even you know, the world feels different. No one's talking about ai, no one's talking about blockchain. You know the green transition, all the things I mean it's and, and in addition to all of that, we've then been through the pandemic. We've had this sort of cost of living crisis, um, which kind of explain a lot of what's the problems that we have today in terms of, you know, high cost of living and you know, and so on. It's fed into this narrative in this country about broken Britain and so on, and that atmosphere is very different to how it was in the 2000s.
Speaker 1:Yeah, I mean there's that Fred Harris talks in his notes about that. He refers to someone, I think called Will Hutton who talks about shit life syndrome, and I guess this is one challenge to what might end the cycle is. To me it feels like we're at a tipping point, like where it is just impossible for most people to get on the housing ladder yeah, okay, so like when a recession happens I think it was henry george says like three things have to happen.
Speaker 1:Basically, land prices, because of anticipation of future rises, go up so much that the returns to you don't get the right. And because land gets paid first, you as a laborer or a capital investor, you don't you you don't get the return you you would ordinarily get.
Speaker 1:So you three things have to happen either land prices have to come down, or you get some innovation, some sort of like efficiency gains, um, productivity gains from technology, or we all settle for less and accept that. You know we're just going to earn less and you see, kind of wages have been stagnant, household incomes have been stagnant for the last 10, 15 years and it just particularly the younger electorate. The ability to get on the housing ladder without some sort of generational wealth transfer is so out of reach for your median income earner that you know. But on the other hand, for the UK we're not building any houses and Henry George kind of predicted for America at some point we're going to run out of land, we're going to run out of the next plot of land being available nearby and you'll get that poverty in the progress that's sticky once you've kind of maxed out your economic potential and so you'll get this sort of stubbornness of poverty that we see in the homelessness problem and also just people just barely clinging on. So something has to give from a policy perspective to remove that and that may end as you said you know if we get a
Speaker 2:land value tax if we're all totally impoverished um we might end the cycle, or if we get a land value tax that's any well, um, I just wanted to come back a little bit on what you, what you said.
Speaker 2:So, um, I you know, I know that people being squeezed is a feature of the end of the cycle, so we talk about booms and so on, but actually, what you really need to see is it just not being possible for people to kind of keep continuing in the way they have been? Um, now, I am not of the view that this cycle and this is probably quite a controversial thing to say, and it it's, you know maybe comes across in the wrong way, but just, I'm not of the view that things are necessarily worse now than they were in the run up to the 2007 crisis.
Speaker 2:What I think is different, though, is that there is more exposure to the problems, that sort of working you know this term that's been used in the budget this week working people and working families. There's a lot more scrutiny of that. I think they have more of a voice now than they did in the era of Tony Blair and New Labour and so on. I think we were distracted by more things is what I'm trying to say, because I mean, in many parts of the country, things were really quite squeezed. Maybe, you know, the government was spending a bit more to alleviate some of the symptoms. I know there was quite a push to, you know, stick government offices out in each region and that sort of thing, and that was a big local employer. So you know, there might have been some policy differences, but people were very squeezed. I just don't think that it fed into the narrative people were very squeezed.
Speaker 1:I just don't think that it fed into the narrative. Okay, so we're not in a new regime where I have it in my mind that we're at a new regime or tipping point where your economic rent you're paying indirectly or directly is at such a high proportion of your wages because we've advanced that it cannot carry on in that way I mean it's a it's a it's a high proportion of of household income, for sure, um commuting.
Speaker 1:You know you're most of your most of your money goes to commuting or yeah, but paying yeah, but last time you didn't have a choice about doing that.
Speaker 2:Now you do, um, in a lot of jobs not everyone, of course, and you know for and that disproportionately affects poorer people.
Speaker 2:Um, my point is simply that, um, we and going back to your matrix reference earlier um, we see the world that's been pulled over our eyes, yeah, and, and the world that we have that's been pulled over our eyes, yeah, and, and the world that we have that's been pulled over our eyes is one in which, you know, kind of the law of economic rent doesn't apply in this kind of practical way and so on. And so I, I mean, you know, at the moment, the idea that everything is broken, which you know, I, I agree it is, I just think it, you know, it wasn't. Maybe in some areas around the health service it was, was better before the pandemic and so on, but a lot of things didn't really work. The kind of speculation and all the problems that that created and the problems of homelessness and other things were there in the 2000s. Maybe the government felt it had more money or that it was a slightly different fiscal regime and they could paper over some of the cracks. I'm not so sure that it's much worse now.
Speaker 2:I mean it's bad, don't get me wrong, but I think we're sort of somehow kidding ourselves and this is again a feature of why we get repeats is because we think of the world in a very different way, even though we shouldn't be. I'm putting that out there. I don't know. I mean I need to do a bit more investigation into that, but I'm sorry to come to you in that view.
Speaker 1:No, but going back to that kind of the matrix being pulled over us. From an economic, theoretical perspective, that is basically because there was a move away from classic economics which had land, labour and capital as separate factors of production, and land was shifted to be a subset of capital.
Speaker 2:Yeah, is that right? So I kind of feel like you look at a company balance sheet or people think about company. Yeah, yeah.
Speaker 1:You know, land is like a capital expenditure. Yeah exactly. You know, like building a factory or like buying equipment. And actually the reality is economically it's very different.
Speaker 2:Yeah, so Henry George in 1879, progress and Poverty most widely read work of economics in history, even taking into account Samuelson's economics textbook etc. Very, very big. I probably would have been called a populist. Uh, if, if you were alive now.
Speaker 2:Um, and he basically said that actually you shouldn't have taxes on people's wages, and you should have taxes on business earnings, but you should have tax on this unearned increment that people get just by virtue of owning a piece of land or owning a natural resource or a you know something that's not generated by themselves, essentially so you know natural resources and rights to mine things and other things. Um, and he said that is a just system. That is actually a free market system. That is a system where economic activity is dictated by the market, but in a way that doesn't privilege certain groups in the economy. Well, the groups in the economy that were most affected by that solution were sitting in the House of Lords or owning kind of massive franchises rail franchises and other things.
Speaker 2:Landowners. Basically in the US, in the UK, the Liberal government tried to pass a land value tax regime in the 1909 budget, as I say in my book and it's been documented elsewhere, and the House of Lords rejected the bill, even though it wasn't supposed to, given that it was a bill that had been passed by the Commons in relation to the kind of finances, created a constitutional crisis and and so on. And some people say that, um, you know, the rush to war in 1914 was somewhat exacerbated by kind of people wanting to kind of deflect away this attention, uh, to land movements. That wasn't just in the UK but elsewhere In the US.
Speaker 2:They took a more insidious approach and that was to say well, you can't support Henry George's thesis because land is actually a type of capital. And if it's a type of capital, you know you may as well, you can't distinguish land for kind of taxation purposes. You know you, you tax in the same way as other things. And they gave all these reasons why land is doesn't have any distinction between, uh, with, with capital and actually in some cases with labor. Some people were talking about the rent of ability.
Speaker 2:So right ability because you're slightly more capable than someone else, you earn a rent, um. So so, given those kind of two issues the political opposition and the intellectual opposition it became impossible for people to diagnose the kind of boom and bust cycle and offer the solution. It's never really been proposed in any serious way in a major economy. Uh, since then, I mean, you do have you had it in denmark in the 50s for a bit of time? Um, hong kong and singapore were kind of founded on these principles, which is one of the reasons why they're sort of, you know, have got very high levels of infrastructure spending but very low taxation, um, uh, the city of canberra was set up along these lines, etc. So there's been some evidence that it works in practice. But in a major economy it's never returned, even though the solution's been around for over 140 years.
Speaker 1:No, and it feels like it was kind of smothered by was. It was a form of progressivism that you know had legs, because you could get free marketeers into the room with you know you could get to use a UK example the taxpayers alliance with Owen Jones together, and they should be able to agree if you got them around talking to each other, for two hours, three hours, you know if you had you or fred you know doing that, yeah they would they, they would go hang on, but they'd both kind of be on the same page.
Speaker 1:But then that kind of scorched earth approach to progress, progressivism from from marxism, kind of crushed it in some ways and it kind of threw the baby out of the bath water and saw all speculation of all types, not just land, as kind of abhorrent, and you saw that in france, didn't you?
Speaker 1:with um, you had the physiocrats who were kind of proposing, you know, removing land entitlements. Then you got the french revolution that just kind of smothered it and maybe now the time is right for these ideas to kind of resurface or rekindle. They're kind of they're embering away, but they need a bit of a bit more exposure.
Speaker 2:The Liberal Party in the UK has kept it alive and I think they you know, I mean actually the coalition government is an example of how it can get deflected very easily. So I think the Lib Dems, when they were in partnership with the Conservatives, tried to float the idea. It gets called a mansion tax or it gets called a tax on gardens, yeah. Or what about the granny living in her house but has no income? There are many ways to deflect it.
Speaker 1:Well, it's so interesting you say that because at the time I was working in Westminster and I was a kind of ideological free marketeer and a lot of my perspectives, you know, remained with me, kind of a big believer in kind of limited government where appropriate, and low taxes.
Speaker 1:And I remember that at the time I was much younger. Oh God, this is just the politics of envy, this is socialism, this is it, and call it a mansion tax. You know what? Which people are going to flee and all that kind of stuff and and it. It is so hard to be discerning. Um, when it comes to unpicking value creation, letting that flourish and removing that from rent-seeking and letting that be captured by everyone else, at the danger of being a hedgehog, the kind of Isaiah Berlin hedgehog and I'm starting to sort of I better interview someone who kind of takes an opposing view at some point, or maybe we can do a little debate, kind of head to head, if you're up for that.
Speaker 1:But you know one example, you know this whole bringing manufacturing back to the West, you know, away from China, let's say, or the you know kind of French niche. You know I was taught that the reason manufacturing left the US and UK and Europe and went to China was because of this labor cost arbitrage, where it's, you know, staff employee costs are lower in China. Is it actually a land cost arbitrage Because the reason the labor cost was higher is because the labour had to earn more to pay their increasing property prices, or is that? Am I just sort of seeing, seeing the land issue everywhere where it doesn't belong?
Speaker 2:I mean, no, it's right. So I mean, even if you had a, a sound system, you know one thing that in a country, within a country, one thing that a poorer era could offer a business that was looking to locate is essentially free land.
Speaker 1:Yeah.
Speaker 2:And it's been much easier to start on. I mean, of course there's a reason why it's kind of free, because you know it's not as good a location, but you know it has that ability. So when you get a global system where we're all kind of part of the global village, when you get a global system where we're all kind of part of the global village, as it were, as the term was in the 2000s yes, at the time more peripheral regions can offer very cheap labor and very cheap land. And as the law of wages is, it goes down to what other worker will accept much lower wages and much harsher conditions and have to work much longer hours than you're able to or permitted to in Western countries. And so you know over time as those countries get, if they're not artificially suppressed in terms of you know economic development and so on, that would rise and know economic activity would shift elsewhere.
Speaker 2:But there are many kind of barriers to that and countries kind of, um, you know some countries a bit more in favor of allowing their kind of workers to earn a decent wage than others and so on. So there's a lot of different factors. But tariffs are definitely not the answer and the other thing that henry jaws wrote very passionately about was a free trade and so there's a lot of tariffs around in the world in the late 19th century and he said that's ultimately benefits. Um, it's not good for consumers, not good for workers, it's not good for business owners, but it's very good for landowners yeah, okay.
Speaker 1:Well, look, I, as you know, I try to wrap these conversations up with something that I call the long bet, which is a 10-year prediction from today for something you would like to happen or something you think will happen.
Speaker 1:Feels a bit peculiar asking you because we've been talking about these predictions of these cycles but maybe, maybe an opportunity for you to either reinforce, re-summarize what you've been saying, or something completely off field, or something that you would like to happen. If it's something you'd like to happen, um then yeah, answers like world peace are to be discouraged, yeah, in almost in the same vein, because I think it'll never happen.
Speaker 2:What I would like to happen would be a immediate uh and uh and precise shift in the tax base. So stop stop taxing wages and business profits, start taxing unearned incomes From rent-seeking, from rent-seeking.
Speaker 2:And it's actually kind of ironic because we've had the last week, we've had a series of interviews with the government and they're saying there's going to be no tax rises on working people. And they got into massive difficulties trying to explain what a working person was. But I mean, this is, this is precisely the point. They don't want to tax and they kind of you don't want to tax people's wages because it's disincentive to work and it makes it much harder. But you do want to somehow raise tax from things where you should be doing it. And you know they gave the example of people with a massive property portfolio but also has a job. I mean, it's the. You know people are incapable of diagnosing the problem in in a precise way.
Speaker 2:Anyway, that would be my um wish for the next 10 years.
Speaker 2:I think it's probably more likely to have, more likely to have world peace than we are to have that. Um, yeah, uh, so what I think will happen I mean, we've been talking about sort of the end of the cycle and the start of the new one um, maybe on what I think will be the kind of powering technology for that should we say, because this is, you know, really not my area and, um, I mean, everyone has spoken about ai. Um, you know, I'm I'm a great believer that actually, these technological developments really, um, create more jobs. Um, the problem is that they don't create jobs in the same areas and with the same kind of groups of people, and so if the crisis happens, as I think it will, in the kind of late 2020s, um, I think it's going to cause enormous difficulties, because I think that's precisely the moment at which companies will really roll out ai in a major way to kind of reduce costs, um. And so, if governments are paying attention, what they, what they will be doing, hopefully, is helping to retrain people, um, and you know, because they're enormous opportunities.
Speaker 2:Um, the second thing is probably, uh, we'll be arriving at places like this to do interviews like this, um, flying taxis or something yeah, yeah maybe not necessarily in central london but evie toll, that kind of stuff, yeah, yeah, no, I, I think to your point.
Speaker 1:You know, sadly in history the kind of blue collar disintermediation by technology kind of tends to get forgotten. It's when the white revolutions tend to happen, when the white collars are disaffected, when the academics or the you know the, the surplus elites are, are kind of put out, and then they can rabble, rouse in the way, so like the third estates in front in revolutionary france was all lawyers, you know, robespierre, all that lot yeah, yeah, yeah put out lawyers and um um well, I think the way ai is going, there's gonna be a lot of put out lawyers.
Speaker 2:To be honest, yeah, fingers, well, I hope.
Speaker 1:No, but no bad thing. Um, but just on the thing that you very quickly on what you would like to happen, which is, uh, um, you just said something quite interesting about you know the tax on ni, for example, national insurance, for example. One thing that people don't understand, particularly policymakers, which just baffles me, is that they don't understand that taxes just get passed on, you know, so you tax a. It's as if they think a TV pays a TV license right, when it's actually a human being.
Speaker 1:So, like you increase employers, ni, it just goes past. And an example of that is corporation tax. You know you increase corporation tax, the company pays its staff less, pays lower dividends, which hurts savers, yeah, or it raises prices which hurts consumers.
Speaker 2:Yeah.
Speaker 1:And the one thing that you cannot pass on as a tax is if you own land, because you're the one. That's quite clear. A friend of mine works at HMRC and used to work in the stamp duty division looking at complicated cases and challenging him Come on, it's such an unfair tax, this, that and the other and he goes yeah, but it's such a good, easy tax to collect. Yeah, absolutely yes, because you know the transaction, I mean.
Speaker 2:So mason gaffney, who has now sadly passed on, big georgist, big kind of student of you know these sorts of issues, pointed out that ultimately all taxes come out of rent yeah the problem is is that, if you do it via people's wages and businesses and so on, is it's a disincentive to economic activity and so you reduce it, but ultimately it kind of it has the effect of reducing, via that mechanism, rents, whereas if you go straight for the source, what you actually do um, and it has to be done in the right way it has to be an annual charge on the kind of rental value of land, not the building on top of it, just the land.
Speaker 2:So regardless of what you're doing on it, whether it's a massive building or a small building or nothing at all, you're still paying the same for that location. You're still paying the same tax. It brings all this underutilized land into the marketplace because people have to do something with it, and then that then generates the need to employ people, to build and to occupy and so on, and so the difficulties in starting a business or moving to a better office or something go away straight away.
Speaker 1:Land banking stops. Land banking stops. You're owning land for speculative price rises. A better office or something? Go away straight away, and so what you're doing stops. He's land banking stops.
Speaker 2:You're owning land for speculative price rises you get a, you get a, you get a major boom in activity.
Speaker 1:Yeah um well look, this has been a lot of fun. How can people find you? Um for before before you answer that. So your book is called the secret wealth advantage um, how you can profit from the economy's hidden cycle. So everyone, please order it, and order it for a friend for Christmas as well. But where can people find your work? And you're on social media, do?
Speaker 2:you have a website. Yeah, that's right. So if people are interested in kind of understanding the cycle better and so on, they can go to our website and sign up for our free newsletter, the Property Cycle Investor better, and so on. They can go to our website and sign up for our free newsletter at the property cycle investor and you go to wwwpropertysharemarceteconomicscom. If you want to follow me on social media my twitter or x handle is akil g patel.
Speaker 2:Yeah, I don't post much elsewhere and do a bit on linkedin, but mainly on on x and um, mainly writing for our subscribers well, thanks for spending the time.
Speaker 1:Let's do it again soon, sure, cheers? This has been meeting people. I've been your host, hamil pandya. This is a podcast produced by mass cooper with music composed by loverman.