One of the pleasures of being abroad or somewhere different is to read the local/national newspapers. Right now in San Francisco I have been doing that and have to say, for an exciting, dynamic country they are surprisingly dull. I’m now not altogether surprised that so many regional newspapers have gone to the wall in the USA.  If you can forgive the tub-thumping patriotism, the likes of the Yorkshire Post knocks spots off the San Francisco Chronicle. And the Sunday Times for half the price is about 3 times better that the $6 plus sales tax NY Times on Sunday.

In contrast, the magazines though are a delight. They are a whole new level of vibrancy, content-rich and colour – as good as America’s newspapers are bad. And so to the theme of this post.  Today I picked up a copy of the Yale Economic Review – an academic magazine no less that I could actually buy in the shop. Would that be so in England !

In a piece entitled “A New Measure of Economic Performance”, Daniel Hornung points out that measuring growth in production, as in GDP, does not impart good information about actual living standards. Citing a report by Stiglitz and Sen,  amongst other points he posits that’s what needed is a measure that takes into account income and spending.  How much people are taking home and prepared to spend is a much closer indicator to how well off they really are.

Of course in most countries, we know what the data is on income and spending, the questions is how to roll it all into one and get something better than GDP?

The original report was commissioned by President Sarkozy and can be dowloaded here.

News today that house prices were up 0.5% in May goes down well of course with Estate Agents, owners in negative equity and speculative buy-to-let landlords. It is bizarre how the UK has gone so overweight real estate – once tellingly decribed by Prof. Niall Ferguson as a “one-way, highly-leveraged bet on a highly illiquid asset“.

These figures though are a somewhat meaningless national average which actually contains extremely diverse regional bursts. Just look at the breakdown of those figures on Nationwide’s website here.  So here are  just two reasons for pessimism.

The ascendance of Sterling – you may recall that foreign buyers and foreign direct investment in general is at its strongest when the pound is at its weakest. Last year, there was actually quite a lot of buying at the premium end in upmarket areas by wealthy foreign investors. Since the beginning of the year, the nascent implosion of Euroland has led to a flight to relative quality – UK Gilts, driving up the value of the pound, but not to UK housing which is typically purchased through debt rather than cash in hand which you can’t get out of easily either.

A Capital Gains Tax rise – if you can’t risk a lot of your capital to make a substantial gain from buying property would you do it?

Probably not and the government should take note. Personally I’m all in favour of people making Capital Gains and big ones, especially if Banks are still not lending, consumers aren’t spending and the scope for government to increase aggregate demand through Keynesian pump-priming is limited by the size of the budget deficit. So it seems to me reasonable to aim long-term to reduce and eliminate all taxes on capital like CGT. Unfortunately Britain’s LibCon coalition does not see it that way and there are plans afoot to raise it considerably.

I hope very much that they will agree to something like John Redwood MP’s excellent compromise involving tapering relief.  Mr Redwood gave a superb and ever thoughtful speech to the EPC the other night some of which he flagged up on his blog here.  And because bank lending is still so meagre, the government could also endeavour to make tax-free gains made by retail investors who risk their capital on the purchase loan market organised by Zopa.