Monday, 12 February 2018

Old McDonnell had a farm...

And on that farm he grew... mostly fantasy. They say that to be a good liar you first have to convince yourself and Labour’s John McDonnell appears to have done an exemplary job on himself. I wonder, does he gaze into a mirror and say “Look into my eyes...”? He certainly has the demeanour of a man not fully in charge of all his critical faculties and when he says he wants all Tories to face direct action – insurrection – every time they leave the house, he must surely send a chill down the spine of any sane person. I expect psychologists would pay a pretty penny to be able to study him once he has been de-activated and made safe.

And talking of money, he has been all over the airwaves expounding on his plans to renationalise everything that hasn’t been relocated offshore when he comes to move his favourite armchair into Number Eleven. Make no mistake, he seems to sincerely believe he will one day – and one day soon – have the keys to the Treasury. Last week he tried several times to explain how Labour would massively increase public spending and yet cost the country nothing. He seemed to think that by calling borrowing ‘investment’, sufficient numbers of eager acolytes would be convinced by his alchemy to vote for another socialist economic experiment.

One of his gambits was to imagine buying a house – and for many Labour voters, imagining is as far as they will ever get. He suggested that should you buy a house in London and borrow half a million quid to do so, you could rent this house out and make a small profit thus paying for the valuable asset you now owned. Of course this misses a few small, but not insignificant points. Firstly, where do you live? Secondly – and the whole buy-to-let mortgage lending criteria is predicated on this point – will the rent actually cover the mortgage? Without a substantial deposit this is unlikely; and where do you get the deposit? Thirdly, what about the overheads such as repairs?

The left seems to be convinced  that all landlords are neo-Rachmans, raking in huge and ugly profits. This ignores the simple truth that there are millions of accidental landlords – I am one – who effectively subsidise their tenants. For instance, while the rent (almost) covers my mortgage it goes nowhere to meet the costs of repairs and replacements and general upkeep of what is still my house in a habitable state. Many more people who bought into the industry, on the back of successive governments failing to maintain the level of public housing stock, struggle to make any operating profit, relying entirely on hoped for increase in capital values. Should any government actually deliver on the promises to build more council houses, the arse will fall out of that market.

As an example of how a Labour government would ‘make money’ from borrowing money this is far more illustrative than Big Mac might realise: Tenants unable to afford the true costs of housing themselves will have their rent paid by the benefits system. Landlords will desert the private rental sector as the capped rents won’t cover their costs. A glut of properties thus for sale will depress values, thus deterring private involvement in low-value housing. Unless the government takes them into public ownership those which can’t be sold will stand empty, unmaintained and become a hazard. The whole sector would become a vast money pit.

The true economic basis behind McDonnell's Farm

Add to this the massive sums they intend to pour into the NHS, social care, police and infrastructure and you compound this fiction of ‘investment’. The fag-packet suggestion that becomes a pamphlet espousing some nebulous concept of public ownership evolves into a gargantuan novel with no end in sight. When you don’t pay your debts, sooner or later the big boys with the clubs come calling and it never ends well. Has anybody in the Labour Party actually read Animal Farm? Old McDonnell had a farm all right – a funny farm.

5 comments:

  1. Ever since I read Shirley Green's biography of Peter Rachman I've had some sympathy for him. His reputation has been greatly traduced and he died before he could defend himself. Basically, he bought large properties where the leasehold had only a short time to run and hey could be picked up cheaply and he let to recent immigrants especially from the West Indies, whose exuberant life style made them often unwelcome tenants. But the stories of hounding out tenants with dogs etc. were not him but Michael X who took over his empire. Rachman was not a bad landlord.

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    Replies
    1. Interesting.

      But what kind of a landlord would John McDonnell be?

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  2. Yet another classic example of the confusion between asset value and cash flow.
    As any trainee accountant knows, it's cash flow that bankrupts business not sales or profit. McDonut will bankrupt Britain by claiming that you can pay your bills be revaluing your assets.

    Cost neutral does NOT mean cash neutral.

    It just ain't so...

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  3. Sorry but you're missing the point. You may as well argue with the Pope about the virgin birth, citing it's scientific impossibility. The Pope doesn't care about that, it's a faith and symbolism thing; and so it is with Corbyn's labour party: its purpose is not to solve any economic problems or make anyone richer or better; its purpose is simply to get them into power and pursue class warfare against the "Tories", which in turn is simply code for anyone who disagrees with them, especially if they're better off.

    Economic technicalities, or even plain simple arithmetic, simply don't enter into it.

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