Thursday, 25 May 2017

Resale price maintenance - maybe DBC was right all along.

Spotted by Lola at the ASI, a fairly long article on a relatively minor but nonetheless interesting topic.

My view is, manufacturers can (or should be able to) dictate the retail price contractually - by simply not selling to shops which sell their products for less than the set price, and it's not up to the government to ban this.

It's all down to market power anyway. If you make a generic product (white sugar, toilet paper), shops can simply switch to a lower-cost alternative; if you have a reasonably well differentiated/distinct product (a Porsche, or a specific book or music CD), you can probably enforce this.

Wednesday, 24 May 2017

Rent v tax v cost of services - you know it when you see it.

From the comments here:

I suggest that the payment for queue jumping is not rent, but the premium paid for convenience and saving time.

Would you classify the premium paid for supersonic travel as 'rent'? Or the taxi fare versus the bus fare plus a walk at both ends for the same journey?

Anything collected by government is tax.


A good way of defining "rent" is "premium paid for convenience and saving time". The magic word is "premium". Consider: it costs the same to build and maintain a home in a good location for commuting or in a bad one. People will pay more for the former, primarily for convenience and saving time, ergo the difference/the premium is "rent".

Tools and capital are labour saving devices, I use an electric drill not a hand drill for convenience and to save time. But there are enough competing drill manufacturers and the price of a drill is a fair price for making it, there is no premium and no rental element.

The Daily Mail article explained that doing a certain operation costs the NHS £5,000, but people will pay £14,000 if they can queue jump and get it done next week. That breaks down into £5,000 actual cost of service provided and £9,000 rent.

Anything collected by government is tax.

Nope. If the NHS i.e. the government collects it, it is £5,000 cost and £9,000 rent. If an NHS surgeon takes the day off and does the operation privately for £14,000, it is £5,000 cost and £9,000 of it is rent.

The fact that the NHS i.e. the government collects it does not make it a tax. A tax is an arbitrary payment with no relation to cost or value of services provided to the individual taxpayer. So VAT, income tax and National Insurance etc are taxes.

Would you classify the premium paid for supersonic travel as 'rent'?

Not a live issue, let's take a real life example

I recently flew Stansted to Edinburgh and back for £49, car parking for a day also cost £49. There must be a small rental element to the £49 ticket price or else the airline would not be able to afford the Air Passenger Duty, but for the sake of this discussion, let's assume it's £nil and £49 is for cost of services.

The price for parking a car is nearly all rent (apart from a few pence for maintaining the tarmac).

London to Edinburgh is 332 miles. London to Paris is only 214 miles, but return tickets cost (say) £200 and upwards. Therefore three-quarters of the London-Paris ticket price is rent; one quarter is for actual cost of services. Of course, the government collects some of that rent in Air Passenger Duty, landing fees etc, but it is still rent.

"Or the taxi fare versus the bus fare plus a walk at both ends for the same journey?"

The cost per passenger of ferrying one passenger is clearly higher than one seat on a bus so of course it a taxi will cost more. In a free market, the taxi driver is charging for cost/value of services provided with no rental element. If there is a restriction on the number of taxi driver permits, then taxi drivers can charge a bit more; that excess is rent (as measured by the value of a taxi permit on the grey market).

There's no point being too scientific about this or pretending that there must be one all-defining way of describing it, but you know it when you see it.

Tuesday, 23 May 2017

More debunking of Piketty.

This time from a hard-left perspective, from

The bulk of Piketty criticism has focused, rather boringly, on whether the rate of investment return will remain steady when the wealth-to-income ratio soars. But economists like Dean Baker, J. W. Mason, and now Naidu have pioneered a more interesting line of attack. According to them, Piketty has not made some mistake in judging elasticities. Rather, he has the entire order of events backwards. It is not an increase in the wealth-to-income ratio that prompts capital’s share to rise — it’s the exact opposite dynamic.

Piketty’s account of how wealth builds over time centers on savings. In his telling, the capitalist is prudent, dutifully investing large amounts of his income every year into capital goods. As these investments steadily accumulate, so too does the national wealth (which, according to this account, is the sum of all the previous years of savings minus depreciation). When the quantity of total past savings becomes very high in relation to the country’s annual income, the seemingly permanent 5 percent rate of return on wealth drives up the capital share.

The problem with Piketty’s story, which Naidu and his peers get at in various ways, is that it doesn’t match reality. Assets like real estate, equity, and debt are not assessed according to the quantity of savings that go into creating them. They are assessed according to the expectations of how much income those assets will deliver to their owners in the future. Put simply: asset values are forward-looking, not backward-looking.

This has quite startling implications for the way we think about the nature of wealth in a capitalist economy. Ownership of something like a company share does not entail ownership of capital goods in any real sense. It amounts to owning a bundle of legal rights to future flows of income. Thus, the value of assets, and therefore wealth, reflects the value of the rights to future income flows — not the value of accumulated savings.

Once this truth is understood, it becomes easy to see why Piketty may well have everything backwards. If capital increases its ability to extract income from the economy, that would boost the future flow of income that goes to owners of existing assets, and thereby increase the capital share. When a greater portion of the national income is being funneled to owners of assets, the market value of those assets will go up, causing measured wealth to go up as well.

In other words, the capital share drives the wealth-to-income ratio, not the other way around.

Or as I always say, it makes most sense to look at incomes and disposable incomes after housing costs (and other rents), forget about "assets". Let's say a tenant and a home-owner next door, do the same job, have the same gross income, pay the same in tax and live in very similar homes. Clearly, the home-owner is "richer" because he owns an "asset". But that's comparing apples and pears. Far easier to say that the tenant has a much lower income after housing costs.

Superficially, you could say there is income equality between the two. Of course there isn't. Whether somebody is a net collector/enjoyer or net payer of rents makes the biggest difference to real inequality.

Compare that with two home-owners living next door with the same gross incomes, but one has a priceless masterpiece hanging on the wall. The value of that painting has nothing to do with the way society is run, it is not subsidised by the taxpayer, does not generate income and does not place a burden on anybody else. If the painting were destroyed, the owner is poorer but nobody else is better off. Their net disposable income is the same, the fact that the one with the valuable painting is "richer" is of no concern to anybody (and certainly not a suitable subject for taxation).

Monday, 22 May 2017

Fun Online Polls: NHS charges for queue-jumping; Rhyme and Reason

The results to last week's Fun Online Poll were as follows:

Is it acceptable for the NHS to allow patients to pay extra to jump the queue?

Yes - 31%
No - 46%
Depends on how the extra money is spent - 23%

It seems like a fine idea to me. That extra payment (way in excess of actual cost) is "rent" and so to the extent we can't eliminate it, it might as well be the government that collects it.

DP came to exactly the opposite conclusion and thought the rent should only be collected privately. As we know, many NHS surgeons do private operations on the side, if the NHS won't let rich people pay to queue jump, NHS surgeons will just take a day off and do the operation privately. So the normal NHS waiting list stays as long as ever. If the surgeon uses an NHS operating theatre, the NHS could claim a fair chunk of the rent as, er, rent, I suppose.

The last option was a trick answer, it is nigh irrelevant because it is a futile exercise trying to match up sources of government income with particular items of expenditure. It's pretty futile for most people, as a matter of fact.

But clearly I'm in a small minority on this. Thanks to all 71 who took part.
This week's Fun Online Poll is hair splitting (and I don't know whether there is a right or wrong answer).

"The word "seam" rhymes with...
Seam (the word itself)."

Vote here or use the widget in the sidebar.

"The number of passenger journeys has doubled since rail privatisation"

From The Guardian:

The number of train journeys made each year has more than doubled since the late 1990s, according to a new report.

About 1.65bn passenger rail journeys were made in the past 12 months, compared with 801m in 1997. The figures come from analysis by the Rail Delivery Group, which represents train operators and Network Rail, and is based on data from the auditors KPMG.

Sounds impressive, but so what?

The number of passenger journeys on the government-run, state-owned London Underground in 1997-98 was 832 million; the number of passenger journeys on the London Unddergound and the DLR in 2015 was 1.44 billion.

Daily Mail on top form

Sickening smirk of the suspect who’ll never be tried for the shooting of PC Yvonne Fletcher as he enjoys family life in his £600,000 home in suburbia

Friday, 19 May 2017

Social care costs: The Homeys are muddling up two entirely separate topics.

From The Guardian:

Dilnot, a former director of the Institute for Fiscal Studies, said that by refusing to implement a cap, the Conservatives would be leaving people without any protection against care costs.

“So people will be left helpless, knowing that what will happen is that if they are unlucky enough to suffer the need for care costs they will be entirely on their own until they are down to the last £100,000 of all of their wealth including their house,” he said.

“I do feel very disappointed for all of us, the millions of people who are very, very anxious about this, and I’m a bit surprised, because what social care is a classic example of a market failure where the private sector cannot do what’s needed...

“The changes just fail to tackle the central problem that scares most people. You are not tackling the big issue that people can’t pool their risks. There is nothing that anybody can do to pool their risk with the rest of the population, you just have to hope that you are not unlucky.

“It is not providing insurance. You could easily have care costs of £300,000 each if you are a couple; you are not able to cover that extreme risk which is what we all want to do faced with anything else which we can insure. That’s the market failure and these changes do nothing to address that.”

Classic bit of Home-Owner-Ism there, the bit that stings is that your wealth includes the value of your house, well duh.

Amazingly, Mr J Hunt takes the non-Homey/free-market position:

The health secretary, Jeremy Hunt, confirmed the Conservatives were planning to abandon a previous manifesto pledge to cap care costs.

Speaking from West Yorkshire, where the Tories will launch their manifesto, he told Today: “We’re dropping it because we don’t think it is fair because you could have a situation where someone who owns a house worth £1m or £2m, and has expensive care costs of perhaps £100,000 or £200,000, ends up not having to pay those care costs because they are capped. And those costs get borne by taxpayers and we don’t think that’s fair on different generations..."

When it was suggested the plans amounted to a death tax delayed, Hunt said: “It is not a tax. We are saying that the assets that you build up over your lifetime should be used to pay for your own care costs.”

Dilnot's ramblings about "market failure" and "people losing the family home" miss the point, probably deliberately, that there are two completely separate issues here:

1. Taking out insurance against the risk of ending up with expensive long term care costs.

2. Taking out insurance against falls in value of your home/estate.

Re 1, another Guardian article says that the average cost of care is £20,000, i.e. £nil for the vast majority that never need it,  up to £100,000s of £1 million for the few who do.

I'm sure that insurers can cope with that basic idea. You pay in £1,000 a year from the age of 50 onwards (or whatever) and hope for the best. The problem will be who decides whether somebody requires long term care; how much they need etc, and there will be a veritable punch up between the insurance company's assessor and the GP who makes the call. I can't see that GPs are going to appreciate wasting hours defending and justifying each and every claim.

That's not "market failure", it is just too many unknowns. Insurance companies don't want to put themselves at the whim of government employees (yes I know GPs are technically self-employed). So the only agency who can sort this out is the government itself by providing low-cost, compulsory  mass insurance i.e. taxpayer-funded 'public' services. And as we know, the best source of revenue to fund this is LVT, which completely goes against Homey principles, they want it to be funded with more taxes on workers and businesses.

Re 2, clearly, the taxpayer should not be called on to subsidise the value of other people's assets, in particular their homes. In an ideal world, land values would be taxed away with LVT, so homes would largely fall out of the "wealth" equation. That leaves other assets (which in an ideal world would not be subject to Inheritance Tax), if people could get insurance against long term care costs, they wouldn't need to worry about those assets being sold to pay for care, be definition.

Daily Mail on top form

From The Daily Mail:

A widowed teacher with arthritis froze to death in her garden after she fell and neighbours failed to respond to her cries for help, an inquest has heard.

Ann Waddington, 61, slipped and fell in her back garden in her nightdress late at night, but nobody living on her road who heard noises realised what it was.

Her body was found the next day on the lawn of her £87,000 semi-detached home in Blackburn, Lancashire, when one neighbour became concerned for her welfare.

Thursday, 18 May 2017

YPP (London) meet-up, tomorrow Friday 19 May

We'll be at The Brewmaster from 5.20 onwards or so - if you think you'll turn up later than 6.30, please get in touch or 07954 59 07 44.

Leicester Square Tube Exit 1, turn left and left again into the alleyway (St Martin's Court). We put a yellow YPP leaflet on the table so that you can find us.

Topics: We have three members standing as candidates in the General Election, in Epping Forest (west Essex), Cities of London & Westminster and City of Durham. If you live in or near any of those places and have time, energy and/or money to contribute over the next three weeks, please get in touch.

Theresa May, making the same stupid mistakes as Jeremy Corbyn

We've looked at Jeremy Corbyn's waffle, now let's look at Mrs May's bizarre deliberate blurring of the fundamental difference between rent and earned income.

From The Soaraway Sun:

PM's pledge to help struggling Brits is part of a drive to shift the Tories to Left — and follows her pledge to cap energy bills.

THERESA May will vow to target fat cat railways bosses, phone firms, landlords and lawyers who are ripping off struggling families. The PM pledges to tackle a stunning range of rigged markets to ease the spiralling cost of living crisis...

The scale of Mrs May’s desire to use the power of the state to intervene in failing markets will stun some traditional Tories who want to shrink the government’s reach.

The people whom she claims to want to 'target' are basically all collecting rents and/or abusing a monopoly position. These are not "failing markets", that's how markets work when a supplier has a monopoly; his income is largely rent, and rents have nothing to do with the supplier's costs/efforts etc. The people she claims she wants to 'help' are the very people at the bottom of the ladder who are generating the rent and then being asked to pay for it

The obvious conclusion is that the government, acting as agent for society as a whole, is perfectly entitled to ensure a fairer distribution of these rents (by taxing them more and taxing earnings less, or rather more crudely by setting price caps).

(I'm not sure why she singled out mobile 'phone companies, for sure, some of their advertising is misleading, pricing confusing and they gamble on people being too lazy to change providers, but all in all, you can get pretty good deals, like sticking with an old Nokia on a SIM-only contract for £5 a month. And they also pay/paid full whack for the exclusive right to use certain frequencies for a limited duration, which is basically Land Value Tax, they have pre-paid the monopoly/rent element of their profits which they are now collecting, so fair play to them.)

We did energy bills a couple of days ago, nothing to add to that.

The issue with "fat cat railways bosses" is that railway companies have a monopoly position as far as many commuters are concerned, so they can charge pretty much what they like. And apparently, the so-called privatised railway operators receive twice as much in subsidies (net of franchise payments) as British Rail did (not doubt others will say it's half as much, who knows?).

You can't just go round capping train fares if trains are already over-crowded, that makes things worse, but at least you can stop subsidising them (which is halfway to taxing them properly). The "fat cat" salaries are a symptom of this malaise, not the cause. If you address the monopoly/subsidy issues head on, that all sorts itself out.

Unlike Corbyn, she actually mentioned landlords, that's is always top of the list if you are trying to distinguish between "rents" and "earned income", so we'll give her half a bonus point for that.