Sunday, 28 February 2010

Crash course in social housing etc.

There has been some confusion over my proposal to replace existing cash benefits (and various other bits and pieces) with a single flat-rate universal non-means tested cash benefit (often referred to as a Citizen's Income). The detractors say that this wouldn't be enough to cover housing costs, and as I keep saying, housing costs are a separate issue, and can be dealt with completely separately to any reform or simplification of cash benefits.

Before you think up ways of sorting this out, it is useful to have some knowledge on how it actually works in practice, so here goes. This is all from memory and is simplified version of what really goes on, so don't quote me on exact figures:

1. There are two types of social housing.

Council housing and housing owned by Housing Associations (which are ultimately financed by and owned by the government).

There is no real fundamental difference between the two, except:
* They have slightly different criteria as to whom they accept as tenants.
* HAs tend to set ever so slightly higher rents.
* There was never a right-to-buy with HA housing.
* About two-thirds of social housing is council housing and one-third is HA housing.
* UPDATE: HAs have much more freedom in how they are financed and what they can do with capital receipts (to which see item 4. below and Nick Drew in the comments)

2. Tenants and rents

* 18% of UK households are in social housing, i.e. about five million households.
* Nearly a third of social tenants are pensioners.
* Turnover in social housing is very low, even lower than with owner-occupiers, about 3% of units change tenants every year.
* Average headline rents in social housing are about £70 a week, about half the equivalent open market rent.
* Social housing is subject to Council Tax, average maybe £18 a week.
* Unsurprisingly, there is a lot of sub-letting going on, you'd be daft to hand back the keys to the council when you move out, you just sub-let. Nobody knows how much social housing is sub-let in this way, but it must be between 5% and 10%.

3. Council house sell-off

* At its very peak in the 1950s or 1960s, about 30% of the UK population lived in social housing. Our population was smaller and households bigger then, over the years about two or three million units have been sold off.
* There are about 1.6 million households on the waiting list - there is massive 'pent-up demand' for more social housing.
* The proportion of social tenants who are not in work has gone up a lot over the last twenty years. In round figures, from one-half to three-quarters. This can be largely explained by the sell-offs and is down to basic maths. Let's say that there used to be six million households in social housing, three million of whom had jobs so half were 'workless' households. Two million units were sold off to people with jobs. This leaves us with four million households in social housing of whom only one million have jobs, so three quarters are 'workless' households.

4. Finance

This is where it gets really murky.
* When Whitehall is allocating grants to local councils, it deducts an amount equivalent to the rent it is collecting. In other words, rents are ring-fenced. There is little financial incentive to local councils to increase collection rates above and beyond a certain minimum.
* HAs appear to be able to keep their rental income and capital receipts in full.
* HAs are allowed to borrow money to build more housing, local councils aren't.
* The headline figure for total HB of £17 billion (to which we could add £2 billion in CTB claimed by social tenants) is highly misleading. Maybe a third of that goes to private landlords (update 12/1/2011: 40% of HB claimants are in 'private' rented accommodation from ONS, and these rents tend to be higher, so actually it's probably half of all HB) and is a real cost to the taxpayer. The rest is money shuffled between departments (see below) in ever decreasing circles.
* The cost to the taxpayer of people in social housing is NOT £12 billion (or whatever), the real cost is merely the difference between the cash costs of running it and the £30 or £40 average rents paid (i.e. the cost to the taxpayer is negligible and it might even be a small profit). Feel free to add notional interest to the costs side, but if you do that it is only fair to include notional capital gains on the income side!

5. Housing & Council Tax Benefit (HB and CTB)

You could hardly design a more stupid system if you tried. The council and HA ask the tenant for below market rent (which some of them can't afford) and then also ask them for Council Tax (which some of them can't afford either). So they invent HB and CTB. The way they are calculated and withdrawn again is fairly similar, but we end up with several departments involved and several streams of money going back and forth: one department ask for rent; another asks for Council Tax; another deals with HB claims; another deals with CTB claims; then the council department has to claim it back from the DWP and so on.

This leads to ridiculous situations - when I was clearing up one of my rental properties after a tenant had moved out, I found one cheque from the housing department to cover the rent he paid me; and a last reminder from the council tax department asking him to pay arrears of Council Tax.

* Two-thirds of social tenants claim Housing Benefit and Council Tax Benefit (HB and CTB) for all or part of their rent/Council Tax. Having ground the figures, it appears that the overall average rent paid by tenants is about £30 to £40 a week, in other words, taken as a whole, the actual net rents collected are roughly equal to the cost of running it.
* Conversely, about three-quarters of HB and CTB claimants are in social housing.
* HB and CTB are savagely means-tested. Remember that most families with low incomes will be claiming Tax Credits, which give them an overall withdrawal rate of about 70% (for every £1 earned, they lose 39p Tax Credits and lose 31p in PAYE). HB and CTB are then withdrawn at 65% and 20% of the balance, i.e. out of the 30p you're left with, you lose another 25.5p in HB and CTB withdrawal.
* I once calculated the percentage of income that people pay in rent and Council Tax, plotted against incomes. Clearly, if you earn £nil then you pay 0%; the percentage then increases sharply - if you earn £150 a week, the actual rent you pay (plus Council Tax, net of HB and CTB) is about about a third of your gross pay (so you are no better off by working longer hours, see above); and once you get to £350 a week or so, your HB and CTB are tapered to nil anyway, so the total rent plus Council Tax you pay is about one-fifth of your gross income (and the percentage goes down from there, of course) and the percentage declines from there on.

6. My suggestions...

This is primarily about simplification, and can be seen as a straight swap for HB and CTB for social tenants (if it's in conjunction with other measures like Citizen's Income or at least reducing the withdrawal rates, so much better, but that is by the by):

* instead of councils and HAs asking for rent and Council Tax separately, there would just be one, all-inclusive bill.
* Instead of there being separate HB and CTB, which are withdrawn at different rates depending on income, there would be one system of abating the rent-inclusive-of-Council Tax for no- and low-income households.
* Instead of asking for the full amount and then giving people HB and CTB which pay the full amount but then withdrawing these with rising income, why not just ask for an 'affordable' amount, in other words a certain percentage of people's income?
* Tracking down people's income is notoriously difficult, of course, so why not do this at source? The normal rate of PAYE (income tax plus Employee's NI) is 31% and there is such a thing as a K-code for PAYE where the tax rate is 50%. So if social tenants were not asked for rent, as such, but instead were given a K-code, then to the extent they are working, the rent gets collected automatically. They will overpay while they are working and underpay when they are not working.
* Under the already existing PAYE system, K-codes are set so that the worker pays the lower of (a) an extra 19% of his wages and (b) the actual liability (in this case rent).

PS, item 6 wasn't originally my idea. I explained items 1 to 5 to a UKIP MEP a few years ago, and genius that he is, he asked me why they don't just collect a certain percentage of income and have done with it? The more I thought about it the more I liked it. Collecting it via a K-code was my idea, of course.

7. Intended consequences

The knock-on effects would be that:
* If councils wished, they could nudge the better-off poor out of social housing by setting the headline rents at higher than market rents (i.e. the maximum amount that would be deducted under PAYE). Once your income reaches a certain level, you'd be better off renting privately. This may or may not be a good idea.
* The marginal withdrawal rate for low earners would be significantly reduced, so they are more likely to look for a job.
* Non-earners would not be affected in the slightest by the change (they still would pay net rents and Council Tax of £nil), except they'd suffer a lot less form-filling and hassle.
* Nobody knows what the Laffer Curve for welfare claimants looks like, but a rate of 95.5% must be on the downward slope. I guess that a 50% rate is near the top of the Laffer Curve, so if you care about reducing the net cost to the taxpayer of social housing (and welfare payments generally), then reducing the withdrawal rate has to be a good idea.
* If councils were paid over, and allowed to keep, the full amount of rent collected, then they would have a direct financial interest in maximising their rental income, i.e. maximising the amount that their tenants earn; i.e. attracting businesses to the area etc.
* Applying the reverse logic to the last point under 3. above, if councils built more housing, then instead of just housing the lowest two income deciles, they would be housing the lowest three income deciles, so the average income of social tenants would go up, and the marginal extra income collected from the third decile would certainly be more than the marginal cost of providing that extra housing. And with shorter waiting lists, it would be much easier for social tenants to move elsewhere if that's where they can find work. It's a win-win for tenants, the economy and taxpayers alike.

8. Fraud etc

And yes, of course there would still be fraud and sub-letting and jiggery-pokery, but:
* There would be a lot less than now.
* As the system would be greatly simplified, some of those people currently involved in pointless paper shuffling could be moved to tracking down fraud instead.
* Sub-letters would be easier to spot - if they have moved elsewhere in the country and are working, then a council in Yorkshire will wonder why it is being sent rents collected by a PAYE district in Kent.
* If a couple split up, then the one who has left social housing will be keen to point this out to the council to get his K-code scrapped and his tax rate reduced to 31%. So this helps the council identify which flat is now 'over-occupied' and perhaps shuffle the sitting tenant into a smaller unit, freeing up the larger one for somebody else.

Saturday, 27 February 2010

[More fun with Roger] Citizen's Income vs Welfare Fraud

Roger Thornhill trotted out one of the usual arguments against replacing the current welfare system with a Citizen's Income-style (CI) system here with this:

"You are creating a system to attract more fraud and you do not recognise it even when it is pointed out to you."

Now, preventing fraud is something I care a lot about, so let's imagine we had a dead simple CI system as follows:
* All welfare payments and poverty-alleviating measures embedded in the tax system (tax-free personal allowance and tax breaks for pensions) to be replaced with a flat-rate Child Benefit of £30 per week (for the first three children per mother); a flat rate cash payment to working age adults of £60 (or whatever current Income Support rate is) and a Citizen's Pension of £130 for everybody aged 65 or over;
* Of course, to minimise 'churn', people in steady jobs would be able to commute their CI to a tax-free personal allowance of about £11,500, that's just details.
* Entitlement is conditional on being resident in this country and having been resident for at least ten years and having British citizenship;
* Housing Benefit and Council Tax benefit to be scrapped, and social tenants with low or fluctuating incomes to be given a K-code for PAYE (which means they overpay rent when they are working and underpay when they aren't).

Let's look at some real life examples of "benefit fraud" from John Page's excellent scrapbook 'blog, taking the last ten at random:

Examples One and Two. Ms Gill overclaimed Housing & Council Tax Benefit (HB & CTB), despite having £20,000 in savings. Mr Abdow claimed HB but did not declare the Tax Credits he was getting; if he had declared them, he would not have been entitled to HB.

The CI would not be means tested, and certainly not asset-based means-tested, so Ms Gill simply would not have committed an offence. Mr Abdow, assuming he passed the ten-year residence test, would not have been getting Tax Credits, he would have been getting the CI (plus CI for his wife and first three children, if appropriate) and nothing else.

In either case, if they were living in social housing and had income subject to PAYE, they would have been paying an extra 19% towards their notional rent/Council Tax anyway. And if they were living in privately rented accommodation, they would have been getting nothing.

Example Three, The Daily Mail points out that for some young women, it makes good economic sense to have lots of babies, claim to be single and go on benefits.

Under CI, young women would be entitled to CI whether they have babies or not. The £30 extra for each of the first three children per mother does not cover the full 'cost' of having a child and is not intended to do so, ergo, there would be no financial incentive to having children. Similarly, CI would be paid out at the same rate whether they are single, co-habiting or married. There would be no incentive to lie about marital status because the question would simply never be asked.

Example Four: Ms Lorton was claiming benefits while working cash-in-hand and pretended to be living alone when she was actually living with her husband.

With a CI, you get it whether you are working or not - in fact CI is supposed to encourage people to work while claiming. Sure, it would still be possible to evade PAYE or income tax by working cash in hand, but the incentive to do so would be reduced - you'd lose the income tax but not the weekly benefit payment. Don't forget that for an employer, the incentive to pay cash-in-hand is that he doesn't have to bother with PAYE, but the flipside is, he gets no corporate tax deduction. With a flat rate of income tax/corporation tax, that incentive wouldn't exist.

As to 'pretended to be living alone' see Example Three. It's not up to The State to use taxpayer's money to encourage people to get married, but it sure as heck isn't up to The State to use taxpayer's money to discourage it.

Example Five. The Daily Mail reports on people who move abroad and continue to claim benefits.

As I said, the CI would only be payable to people who actually live here. It can't be too difficult to keep tabs on those most likely to sign on and then move abroad again (to the extent that they'd been here long enough to qualify in the first place). Sure, even under CI there will be overpayments, but they will be a lot less (and the total amounts that The Mail mentions don't seem horrendously big anyway).

Example Six: The Daily Express writes that Yvette Cooper announced plans to cap rents paid to private landlords of up to £1,800 a week to prevent claimants living in palatial homes on benefits.

Like I said, just scrap HB for tenants of private landlords (or introduce a much lower cap and then keep reducing that cap until it is £nil), as a result of which rents in the private sector will drop. There will still be some people who won't be able to afford to rent privately, so councils can just build more social housing. Those that earn enough to pay the full rent just pay it in cash, and those with low or fluctuating incomes get given a K-code for PAYE (so they end up paying the lower of (a) an extra 19% of their earned income or (b) the full rent).

Example Seven: Ms Stone legitimately claimed money as a jobless single mother but failed to declare changes in her life such as her marriage to security guard David and her occasional work.

See Example Three above.

Example Eight: An asylum seeker who funded a lavish lifestyle after claiming more than £30,000 in Government cash has been jailed for fraud.

Did he have British citizenship and had he been here for at least ten years? Nope. Next.

Example Nine: Ms Mogford had been legitimately claiming benefits but the circumstances changed when her partner Robert Brierley moved in with her. She still claimed she was living alone when she was interviewed after an allegation was made against her.

Why did she lie? Because she would have lost her single-person benefits and would have lost her HB and CTB if she had told the council her boyfriend had moved in. Presumably he was working, so HB and CTB for the couple would have been means-tested down to nothing.

You'd get the same CI whether you are single, cohabiting, married, sharing a flat or living in a commune (see above ad nauseam).

If she was renting privately, she wouldn't have been getting HB or CTB anyway; and if she was in a council flat for one person, is it so terrible for her boyfriend to move in on the quiet? Isn't that just efficient use of housing? If that was a bit cramped and if they had put themselves on the queue for a two-person flat, then of course both of them would have been given K-codes, so at least the couple between them would have been paying something towards the cost of housing them.

Example Ten: this one is really murky. Apart from sitting driving tests on behalf of other people, Mr Akhtar lived in his Bolton Street address - which he claimed to be renting from a family member while unemployed - when in fact no rent was paid and he was employed as a company owner and director.

I don't have a clever solution to the driving licence thing - but if photo licences were issued on the spot, this would make them harder to sell, as you can only sell them to people who look like you. Again, he wouldn't have been entitled to HB for rent he wasn't paying privately (because he wouldn't have been entitled, full stop, whether he was paying it or not). And, as I have said above, the whole point of CI is that you are supposed to work while claiming, it doesn't make any difference. This chap was probably involved in massive tax-evasion as well, but that is a different topic.

To sum up, when somebody bleats about CI being an new opportunity for fraud, can we perhaps first look at all the real-life frauds that wouldn't be possible and minus those off from the amount of fraud that would happen under Ci (and yes there would be some, I'm not totally naive or anything).

Interestingly, there are very few examples where people claim for an entirely fictitious identity, which would be just about the only way of defrauding a CI system. This is something that is relatively easy to police - everybody has to live somewhere, and if more than two or three adults are claiming to be living at the same address, that ought to set alarm bells ringing. Further, the CI would be paid into bank accounts, and the banks have their own rules to prevent identity fraud, thus making CI-fraud all the more difficult.

Weekend Corporatist Fun

From Yahoo: emerged that BBC was going to announce the closure of the digital radio stations 6 Music and Asian Network next month in an attempt to appease a potential Conservative government by showing it that the Corporation understands the effect the deep advertising recession has had on commercial rivals...

The proposal to shut Radio 6 Music also met with the fierce opposition and protest from the music industry, which claims that it is a key component in breaking new bands. Over 60,000 people have joined online campaigns to save the station. The BPI, which represents the record industry, said that 6 Music was pivotal in kicking off the careers of bands including the Killers and the Ting Tings.

"This shows a fundamental misunderstanding about the way their music services work. 6 Music is not going to be replicated by the commercial sector," The Times quoted BPI Chairman Tony Wadsworth, as saying.

There was interest, however, from the BBC's commercial rivals. Clive Dickens, the head of Absolute Radio, said that the station would bid to buy 6 Music from the BBC. Absolute has double the listeners of 6 Music, but less than half the budget. "We would buy 6 Music from the BBC, both the brand and the network, and we'd run it more efficiently than they've been doing," Dickens said. (ANI)


Who's against closing 6 Music? Mainly the trade unions and the record industry (remembering that while BBC 6 Music is technically not 'commercial' broadcasting, it is in fact a series of advertisements for whatever songs they broadcast). I have a lot of sympathy for the UK music industry (whether pop music or West End musicals), but surely it's more efficient to reduce the tax burden on them (by scrapping VAT on CDs or theatre tickets) than it is to collect all those taxes and then to subsidise them, whether directly via The Arts Council or indirectly (by getting the licence fee payer to pay for a radio station to advertise their output).

But, despite what my namesake from the BPI says, along comes the private sector in the form of Absolute Radio, who can do the job for half the cost and is offering to pay for the privilege of doing it.

What's not to like?

Another silly objection to universal benefits

A typical response to the idea of replacing the entire welfare system (and poverty-alleviating measures embedded in the tax system like the tax-free personal allowance) with flat rate, universal benefits is that it would somehow destroy work incentives, or that there are some people who don't deserve to get anything.


If we accept that the existing system destroys work incentives and causes all sorts of distortions (the couple penalty etc), we must also accept that despite this, most people still work and most people are willing to get married, so we know the starting point and it is just a question of heading in the right direction (without knowing the ultimate destination).

More importantly, what most people overlook is that the existing system is nearly universal and there is only really one group of people who are completely left out.

Out of a UK population of 62 million, there are:
12 million people above state pension age;
29 million employees (claiming the personal allowance);
1 million self-employed (my estimate)
13 million children entitled to Child Benefit etc.
6 million working age 'key benefit' claimants (Income Support, Incapacity Benefit, Jobseeker's Allowance etc)
1.5 million full time students, of whom (say) 1 million are entitled to student grants or soft loans.

OK, those categories overlap to some extent, and some employees are part time and earn less than the personal allowance, some people over pension age still work and so on, but if you add up all those groups, we get to 62 million people all benefitting to a greater or lesser degree from some form of redistribution (remembering that, for a required total tax take, the personal allowance means that low income people pay relatively less tax and high income people pay relatively more).

So the only significant group of people* who get nothing are stay-at-home mothers whose husbands are on middling incomes. If the breadwinner is on a low income, the family gets topped up again with the excruciatingly awful Working Tax Credits. Wives of the truly wealthy can use their personal allowance, because hubby just puts all the investments into her name to use up her personal allowance and basic rate band. It's difficult to say how many of these there are - maybe one or two million? Whether we reintroduce joint taxation of husbands and wives or just give the wife the cash value of the tax-free personal allowance is neither here not there.

So replacing the whole shebang with universal flat-rate cash benefits is not that radical, is it? The big difference would be that it is very simple (thus getting admin costs, fraud, error and overpayments down to a bare minimum) and that there would be no means-testing or artificial distinction between out-of-work and in-work benefits, so work incentives would be greatly increased.

So the question is not "How would you decide eligibility?" but "If there were such a system, who do you think should not be eligible?". Commonsense says that there has to be a minimum legal residence period for Johnny Foreigner (which is one of the real drawbacks of the current system); that if somebody has outstanding fines or child maintenance payments that these be deducted from his or her CI payment; prisoners would not receive it and so on, but that's a fairly short and easily identifiable list.

* There are other smaller groups, like students with reasonably well-off parents who don't get any of the means-tested grants, which I find particularly spiteful, seeing as it's the parents of those students paying all the tax to pay for the grants for the not-so-well-off students.

Friday, 26 February 2010

Roger Thornhill of LPUK on The Citizen's Income

Roger Thornhill left the usual list of objections on my post Citizen's Income round-up:
Look, I would love the CBI to be simple as opposed to simplistic.

That's a play on words not based in maths nor logic or anything to do with economics.
Alas I have yet to see a properly thought out set of figures...

I and many others have done plenty of properly thought out sets of figures. Your starting point is to decide what the point is. IMHO the point of a welfare system is the alleviation of poverty with the minimum impact on a free market economy (and yes, there is a trade-off between the two).

As to the maths, first we notionally scrap the entire welfare and old age pension system, plus all those things in the tax system which are there to alleviate poverty. To my mind these are mainly the tax free personal allowance and tax breaks for pension savings. That gives you a notional budget for all this. You then just decide on what you think the CI rate should be for different age bands and multiply it up. Maybe you want to spend the whole of that budget, maybe you want to return some savings to the taxpayer or spend it elsewhere.

I estimate the cash cost of the current system as follows: £163 billion spent by the DWP, £20 billion spent by HMRC on Child Benefit and Tax Credits; £60 billion for personal allowances (30 million @ £2k) and £50 billion for the cost of all the tax breaks for pensions (these are very round figures). That gives me £293 billion to play with.

I suggested a CI of £30 a week for children, £60 a week for working age adults and £130 a week for people over 65 (to be in line with current Income Support and Pension Credit rates) just to get the ball rolling, which would cost £222 billion.
... that work and would not bankrupt the nation. Even if it did not, there is something telling me that such a living entitlement with NO strings would

a) Attract vast numbers of people to the UK to spoof citizenship.

b) Remove any incentive to work for even more people

c) create a movement to raise the amounts higher and higher like some Red Giant star which will collapse and explode.

It's up to you to choose lower or higher CI figures (and a lower or higher income tax rate to fund it) and if you are an authoritarian or corporatist, of course you'll like the idea of tax breaks for pensions (so that £50 billion wouldn't go into your pot), and it's up to you to decide what you'd do with the notional saving of £71 billion (I'd suggest reducing the public sector deficit is the best use of this at the moment).

a) That's why it's called "Citizen's Income", because only legally resident citizens get it. So you just set two conditions: you have qualified for a British passport and you have lived here for a certain number of years (I suggested ten, just to get the ball rolling). I explained that at length in the original post, of course, but will repeat it here for completeness.

b) There speaks the typical Daily Mail reader. Despite the current welfare system, which is more generous that the CI system (at the very lower end) and the savage means-testing/poverty trap (which wouldn't exist with a CI system), most people still work. A CI-system would double or treble work incentives, not reduce them. That is one of the big plus points of a CI system.

c) Agreed. Which is why it helps if we boil taxes on incomes and production down to one flat rate and have on flat rate CI so that people can see the trade-off. Of course there will be pressure from the bottom to increase the CI and increase income tax; there will be equal and opposite pressure from the top to reduce the income tax rate and reduce the CI. It will find its own equilibrium. It's not for me to say what people would decide on.
Where to start? £2000? Where do you get that from? People have a personal allowance of £6k, so it is more like £1200 and 40m people do NOT all use it. Even if they did, it is not a "cost". What a sick way of thinking about it! So, 40m x 1200 = £48bln, not £80bln

Roger appears to be one of the statists who believe that National Insurance is somehow magically not a tax. Of course it is a f***ing tax, it is more or less the same as income tax. The personal allowance for tax is currently £6,475 p.a., and the 'personal allowance' for Employees National Insurance (cunningly named the 'primary threshold)', just to throw people like Roger off the scent) is £110 a week = £5,720 p.a. (that is how f***ing devious they are - the income tax allowance is always expressed as an annual figure and the national insurance threshold is always expressed as a weekly figure).

Maths bit: (£6,475 x 20% = £1,295) + (£5,720 x 11% = £629) = £1,924. Not quite £2k, but close enough for this debate.

I accept that maybe 40 million people don't use it, so I'm happy to assume that only 30 million people use it.

It's a philosophical point whether the personal allowance is a "cost", but I am trying to be consistent with terminology. If a welfare payment is a "cost" then so is the personal allowance. It's all well and good bleating about the cost of the welfare state to the taxpayer, but, for a given total revenue, the lower the personal allowance, the lower the overall rate of tax.

Ergo, higher earners would actually be better off if the personal allowance were scrapped and tax rates reduced by a few per cent. To a higher earner, the personal allowance is very much a "cost" because he faces a higher tax bill so that low and average earners face a lower tax bill.

As to the amounts, Roger has this to say:
£60 is barely enough for a single person to share a room in London, let alone heat and eat. Forget clothing or anything else. No, your numbers suck.

OK, as I already said, if everybody is free to decide on a higher CI and a correspondingly higher tax rate. But Roger is now dabbling in another round of one sided economics: remember that further above he said "a living entitlement with NO strings would ... remove any incentive to work for even more people" and now he's saying it wouldn't be enough to live off in London (one of the most expensive cities in the world) without working.

Er ... if you want to live in London, of course the CI won't be enough to live off, so, er ... if you want to live in London you'll need to find a job as well. So either he doesn't like the idea because he thinks it 'destroys work incentives' (which it clearly wouldn't) or he doesn't like the idea because it wouldn't be enough to live on without working (in cheaper parts of the country, it might be, in London in certainly would not be). I wish he'd make up his mind.

Housing costs are a different topic, let's put that to one side for now.
"IDS estimated the economic and social costs of the welfare system at £100 billion. That may well be exaggerated, but it must be at least half that." But this is not £100bn in lost revenue, is it? At best it is 20% of that."

No I did not say it was 'lost revenues', I said it was 'economic and social costs'. However much they are, they definitely exist. Just because they are difficult to estimate does not mean we can ignore them. You can't ascribe a monetary value to sunshine over the weekend either, but we know sunshine makes us happier and has 'social and economic benefits'.

As it happens, I do not know and cannot claim to know what the dynamic increase in tax revenues would be if millions of welfare claimants had their marginal tax rates reduced from 95.5% to 31% and millions of Tax Credit claimants had their marginal tax rates reduced from 70% down 31% (i.e. 20% income tax plus Employer's NI) without any form-filling, means-testing etc. I suspect it would be rather more than £20 billion in the medium term, but hey.
"What's not to like?" Your wonky maths, Mark. 1/10 See Me. p.s. I do want to see working numbers for this, I am honest. Someone. Please?

What a patronising twat. If anybody has the energy and patience to try and explain this to him, feel free to have a try.

I give up, frankly.

Friday night gear change

Samantha Mum's "Always come back to your love", which has a sublimely catchy guitar riff actually.

The song bumbles along nicely until the leaden middle eight/rap bit at 2 minutes 20 seconds, and at 2 minutes 31, for some inexplicable reason, they shift it up a semi-tone. It'd have been better to fade it out before the middle eight, but that way she'd never have made it onto the coveted Friday Night Crimes Against Music slot.

Fun With Numbers

From The Metro:

A single mother who had sex with a 12-year-old schoolboy 191 times – and rewarded him with a pair of trainers when he reached the 100 mark - faces jail.

Angela Sullivan, 36... had a ten-month fling with the boy last year after first seducing him by getting him drunk and performing a sex act on him, Teesside crown court heard.

Sullivan, from Middlesbrough, admitted ten charges and her had case adjourned for psychiatric report before sentencing next month. She could be jailed indefinitely.

UPDATE: she was jailed for nine years, which seems to be totally disproportionate to me, but hey.

Is the reader supposed to do a Carol Vorderman-style job on all those numbers and end up with 69 or something vaguely relevant?

"Whaling worsens carbon release, scientists warn"

Here's classic scare story from the BBC:

A century of whaling may have released more than 100 million tonnes - or a large forest's worth - of carbon into the atmosphere, scientists say. Whales store carbon within their huge bodies and when they are killed, much of this carbon can be released...

In their initial calculations, the team worked out that 100 years of whaling had released an amount of carbon equivalent to burning 130,000 sq km of temperate forests, or to driving 128,000 Humvees continuously for 100 years...

Hmmm, you may think, that doesn't sound like very much. Correct: Dr Missile then sort-of-ruins the whole thing with this frank admission:

Dr Pershing stressed that this was still a relatively tiny amount when compared to the billions of tonnes produced by human activity every year.

Kelly Brook

Euphemism Of The Week

Extract from an email sent to residents by a certain local council, which will remain nameless*:

... We have contacted the Council's Licensing Officers. As it was Punch Taverns who owned the previous license and not the manager of the establishment, the venue can re-open again at anytime... We have asked the police to keep an eye on proceedings.

We have also written to Punch Taverns requesting a meeting to discuss both the future of [the two pubs they run] and to put forward some ideas we have for them, notably as possible arts and cultural venues, complementing more traditional community focussed public house activities.

* And why on earth is the council spending money campaigning for more police officers in the borough? Can't they, er, just employ a few more?

Global Warming causes Global Cooling

From the BBC:

A vast iceberg which broke off the Antarctic continent this month could disrupt the world's ocean currents and weather patterns, scientists warn.

Australian researchers say the iceberg - the size of Luxembourg - could block an area that produces a quarter of the world's dense and very cold seawater. They say a slowdown in the production of this water could result in colder winters in the north Atlantic...

Thursday, 25 February 2010

That French anti-smoking advert which equated smoking with oral sex...

... was not even original.

Compare these pictures from the genuine French anti-smoking propaganda:
... with the scene at 1 minute 20 seconds into this spoof anti-smoking advert from The Onion:
New Anti-Smoking Ads Warn Teens 'It's Gay To Smoke'

More Vaclav Klaus Fun

From today's FT:

... I once asserted, at a conference on the euro in December 1998, that currency unions were unbreakable because the costs to disentangling the accounts would be prohibitive.

Vaclav Klaus was there, and replied: “Nonsense. When Czechoslovakia split in two, we separated the accounts in an afternoon.”

Jeffrey Frankel, Harvard University, Cambridge, MA, US

Grant Shapps: thinks we are stupid.

Duncan Stott left a comment on Shapps challenges housebuilders to embrace corporate suicide:

There's a bit more to it than this... The Tories are also proposing that 'central' government will offer a wedge of cash towards local services for every development that is approved. So not as de-centralising or free-market as they are making out.

Shappsy ought to know that eighty or ninety per cent of 'local services' are paid for by central government out of general taxation, whether as direct grants to local councils, or by funding schools and hospitals - Council Tax is but a small local top-up. But he's probably gambling on most people not realising this.

As these grants are, broadly speaking, allocated on a per capita basis (plus and minus a lot of mucking about like the Barnett Formula), we already have a system whereby central government offers a stream of future grants towards local services for every development that is approved (assuming that people move in).

So his plan is not new and fails for mendacity.

No, that's not what I meant

James Higham asked this question on Shapps challenges housebuilders to embrace corporate suicide:

You know, when I see Homeownerist used in various contexts, Mark, I'm less able to comprehend what you really mean. Do you mean that anyone who took a mortgage and got on the housing ladder, paying through the nose each month is a Homeownerist and is therefore a bad person?

I personally thoroughly approve of people being able to own their own home, and have never proposed a policy which would make it more difficult, because that is what people want and what makes them happy. That in itself does not make them bad people.

What I do not approve of is people, once they have bought a home, doing their damnedest to make it more difficult for others to own a home, by a combination of (primarily):

a) Resisting any new construction, which is like going on holiday somewhere and complaining about all the bloody tourists.

b) Expecting the government to raise taxes on productive economic activity in order to bail out banks, keep interest rates low, reduce council tax and so on.

They always trot out the same tired excuses, that rising house prices somehow make us all wealthier; that we have to protect The Hallowed Greenbelt because of 'food security'; that allowing more houses to be built will put 'pressure on local services' (which is nonsense of course, if you build more houses then it's easier for nurses, teachers etc to afford, so they will be more likely to move to your area, ergo, new housing lifts the pressure on local services in equal and opposite measure).

I used to own where I lived (in fact I've owned three houses and four flats in my long and uneventful life) and I never, ever complained about Council Tax and I have never, ever signed a petition opposing planning permission for anything, although I did once successfully campaign to have a small space at the end of a local car park converted into a children's playground.

Shapps challenges housebuilders to embrace corporate suicide

From Housebuilder:

Shapps challenges housebuilders to embrace free market ideals

Shadow housing minister Grant Shapps has challenged housebuilders to embrace his new planning proposals and shake off the restraints of a "planned system".

Speaking at the NHBC's General Election Lecture series, Shapps confirmed his plans to give local communities (1) more power over new development in their area, an idea that the industry fears could cut off new homes supply.

But Shapps told the audience: "I can't believe that big housebuilders, instead of relying on their own wit and knowhow, want a planned system rather than a free market system."

1) 'Local communitities'? Is this how low the Tories have sunk, just parrotting NewLabourSpeak?

2) Uh, 'free markets', that would be the mechanism whereby people who'd like to buy a new house agree price and quantity with those who are prepared to supply them, yes? Free of intereference by The State?

While I don't particularly agree with 'national plans', what Shappsy is proposing is to give every Home-Owner-Ist a direct veto over any new development (a local council is much more sensitive to the Home-Owner-Ist lobby than a national government - and the homebuilders know that only too well).

So this is even further from the 'free market' than national planning - not forgetting that local councils are 'The State' and to the extent that they bow to the wishes of The Home-Owner-Ists, it is the Home-Owner-Ists who are exercising the powers of 'The State' and preventing a free market for new housing flourishing.

As to how existing home-owners could be compensated for the possible future fall in the rental value of where they live, without them losing any capital value, see this thought experiment.

Quango Fun

Here's a fine article by the BBC about standards in science and maths teaching:

Science and maths exams should be more demanding and more experts should be involved in teaching the subjects, an independent report has said. The Science and Learning Expert Group (1) says improving science and maths has been a high priority in recent years.

But it calls for more demanding GCSEs and A-levels, regulation of private exam boards and greater use of flexible pay to attract specialist teachers. The government says many of the issues raised are being addressed... (2)

Royal Society (3) vice-president Professor John Pethica said he was "delighted" by the recommendation that expert groups should advise on the development of the curriculum and qualifications. "We believe that by involving those with real experience and understanding of teaching, a more holistic and effective science and mathematics education system will result," he said.

Sylvia McNamara, from the QCDA (4), the body responsible for the development of the curriculum and qualifications in England, said the report made a "valuable contribution" to the debate around the critical role of science and maths. "This summer A-level students will sit the new style exams, which demand a more broader understanding and will better prepare young people for higher education and employment," she said, "Input from teachers and lecturers, awarding bodies, subject specialists and the royal societies all played a vital role in the recent revisions to maths and science GCSEs, as well as the new Science Diploma for 2011."

A spokeswoman (5) for Ofqual, England's exams watchdog (6) said it worked to maintain standards...

1) That's a quango set up by the DCSF.

2) Well they would say that, wouldn't they?

3) Outed as fakecharity e.g. here.

4) Quango.

5) Aren't you supposed to say 'spokesperson'? Naughty, naughty BBC! Actually, seeing as 'chairman' or 'chairwoman' has been shortened to 'chair', why not refer to her as a 'spokes'?

6) Quango.

To sum up, that article is more or less fact free and is just different quangos batting soundbites back and forth.

Killer whales: a bit like cows

People tend to stay indoors over winter, so there haven't been any cow attack stories recently, so I'll have to make do with this:

A killer whale at the SeaWorld amusement park in central Florida killed a trainer a sheriff's spokesman said...

Media reports said the orca at the park's Shamu Stadium grabbed the woman by the waist, thrashed her about and took her underwater. The trainer was killed just before the start of a public performance and the stadium was immediately evacuated... The sheriff's official said preliminary accounts indicated she slipped and fell in, but that was still under investigation...

The orca involved in Wednesday's incident, named Tillikum but popularly known as Tilly, has a controversial past. Tilly was blamed for the drowning of one of his trainers in 1991 while he was performing at Sealand of the Pacific in Victoria, British Columbia, the Orlando Sentinel said.

Sold to SeaWorld as a stud in 1992, the whale was involved in a second incident when authorities discovered the body of a naked man lying across his back in July 1999. Authorities said the man, who had either snuck into SeaWorld after hours or hidden in the park until it closed, most likely drowned after suffering hypothermia in the 12.7 degrees Celsius water.

A former contractor with SeaWorld told the Sentinel that Tilly is typically kept isolated from SeaWorld's other killer whales and that trainers were not allowed to get in the water with him because of his history.

There's no video of the incident, but I imagine it was a bit like Nigel's savage attack on a damp rag. Only with more splashing and an actual death..

Wednesday, 24 February 2010

Citizen's Income round-up

The idea is behind replacing the entire welfare system (including, with a Citizen's Income-style welfare system is rabid simplification. The only hurdle would be being a legally resident citizen (the clue is in the name). We can argue hotly over how long foreigners would have to have lived here before they qualify, but once a decision has been taken, we can see how things pan out and then lengthen or shorten the waiting period. The administration costs would be next to nothing, of course, as with Child Benefit (not to be confused with Child Tax Credits!).

I spotted three stories this week which illustrate what happens when you deviate from the Path Of True Simplification-ness:

Story One: The government is urging anyone who voluntarily cares for a friend or relative for more than 20 hours a week to take advantage of a new scheme to build up their state pension entitlement. It says up to 4.7 million people could benefit from the Carer's Credit, which launches in April.

What's the point of that, then? If your contributions record is patchy you might not qualify for the full Basic State Pension (currently £95.25 per week), so if you're caring for somebody (heck knows how they will police this) then superficially you'd think this is a good thing. Only it isn't, because however much basic state pension you get (assuming you have no savings when you retire), you are still entitled to the Pensions Credit, which 'tops up' your income to £130 a week. Sure, there will be marginal situations where filling in all the forms to get the extra Carer's Credit will be beneficial to you, but by and large, this is a shameless gimmick.

How about being honest about it, and having a flat-rate Citizen's Pension of £130 a week for men and women over age 65 (or whatever amount and age you pluck out of the air. Sure there will have to be transitional measures for those whose existing taxpayer funded pension entitlement exceeds this amount, that's just details) and have done with it?

Story Two: Draft legislation has been passed by a committee of the European Parliament to extend maternity leave across Europe to 20 weeks on full pay. Current European rules give women 14 weeks leave fully paid. In the UK, women get a year off, with the first six weeks on 90% pay, followed by 33 weeks on Statutory Maternity Pay. The rest is unpaid.

The 20-week proposals will now go before the full European Parliament in early March. There are concerns that employers could discriminate against women of a child-bearing age if the rules are passed...

Again, why push the hassle and expense of all this onto employers (who in turn will be wary about employing young women and/or offer them lower salaries, thus being in trouble for breaching equal pay legislation)? The only reason I can think of is that large employers, with hundreds or thousands of employees can cope perfectly well if at any time a small percentage are on maternity leave, but for smaller employers this is a real killer, and as we know, the EU tends to favour large employers who have the most generous lobbyists.

So how about just allowing women who stop working to claim the same Citizen's Income as anybody else (about £60 a week, in practice) to tide them over while they are at home with baby? Surely she and the father will have planned for this, saved up a bit and so on, so with her Citizen's Income and the baby's Citizen's Income (of say £30 a week) they should do OK and there's no need to burden her individual employer.

Story Three: The European Court of Justice has said some migrant families can stay in the UK and claim benefits - even if the main worker has left the country.

The court, which deals with EU law, said some families must be allowed to stay when their child was in education. A child's education was paramount, so parents could not be told to leave if they could not support themselves... The judgement could lead to more foreign national families claiming a right to remain, even if they are not working and have no ties here other than children in education.

Like I said, there will have to be a cut-off point, you can't deny long-term residents benefits on the basis they weren't born here, but we could go on the safe side and start with a minimum residency period of ten years and busk it from there. Of course, applying that logic, the 'right' to a free State education is another kind of universal benefit, and you could argue that a child should only be entitled if the parents had lived here and paid their way for ten years before the child started school, but that's a different debate.

In the case of the two women mentioned in the article, the first one, being a Somali with an ex-husband with a Danish passport would have another three years to wait before she qualified for a Citizen's Income, but the Portuguese woman would already qualify, end of discussion, there's no need for hugely expensive court cases to decide this.

What happens to bent coppers when they are in prison (Episode One)

The first instalment in this hopefully long-running saga was in The Daily Mirror:

Disgraced police commander Ali Dizaei was knocked out and had excrement poured over his head in a violent* prison attack...

I'm looking forward to regular updates on Dizzy Ali's mishaps while he's in prison over the coming months and years.

* That adjective seems a tad superfluous.

Despicable two-faced shit of the day

From the Yorkshire Post:

The Tory Shadow Environment Secretary Nick Herbert told National Farmers' Union conference yesterday that he and his party wanted to bring in "practical, deliverable policies" and vowed to take on the European Union to ensure that any new legislation will not damage UK interests. In an eye-catching move, Mr Herbert told delegates that he would commission an industry-led review of the bureaucracy and red tape which effects farmers within three months of being elected. (1)

He also promised to prevent any development upon grade 1 and 2 agricultural land except in exceptional circumstances. The regulation would cover more than a fifth of English farmland. (2)

And Mr Herbert said he would enforce a shake-up of the Rural Payments Agency in which the farming Minister would be made its chairman, taking direct responsibility for management of the system (3).

Mr Herbert said: "Labour has persistently under-valued British agriculture, failing to understand that we all depend on the production of food (4), while the countryside relies on farmers' stewardship of the environment (5). Despite its importance to our food security (6), the protection of our best farmland has been downgraded and the Government has over-ridden councils who have sought to keep in place local protection of this valuable asset.(7)"

1) All that red tape is EU driven, and there is little you can do about that apart from leaving. You're either in or out. You can't make compromises or do deals with them.

2) FFS, only about ten or twelve per cent of the UK by surface area is built on (or gardens etc) and the rest is nearly all farmland. The existing Hallowed Greenbelt already covers eleven per cent of England (Scotland, Wales and Northern Ireland are even more sparsely populated than England), i.e. as much again as the developed bit. So apart from grabbing the NIMBY vote, what on earth difference is this supposed to make? Why not go the whole hog and declare the remaining eighty-eight per cent of the UK that is not already built on to be Hallowed Greenbelt? Why not just be honest and say that under a Tory government, there will be a blanket ban on the construction of anything whatsoever?

3) At present, these are subsidies to land ownership (and so ought to be scrapped). The rules will change in future, but they are still subsidies - so either farmers are subsidy junkies or that tip-top prime farmland which he wants to 'protect' ain't so tip-top prime after all, eh? Which is it, Nick, you shit?

4) Complete bollocks, of course, or at best misleading. Less than one per cent of the UK adult population actually work on farms, and of course there are more working in processing plants, wholesale and retail, of course, but agriculture is hardly a mainstay of our economy. A more sensible analysis of the position is "we all depend on the production of food somewhere in the world, whether in the UK or abroad, so if we allow small amounts of land close to urban centres to be used for more profitable activities, food from abroad will become, in relative terms, cheaper. Relaxing planning laws would, ultimately, improve our food security".

5) Oh, f*** off. We could just leave parts of the countryside to grow wild - which is what farmers do. They don't bother with the very steep bits or rocky bits or the marshy bits. Has he never looked out of a train window or something? The little copses and forests are all on the steeper bits or the marshy bits that you can't work with a tractor. Leaving farmers to apply commonsense requires no effort or subsidies whatsoever, does it?

6) See (4)

7) What value? To whom? Try giving every young couple a few hundred square yards on the edge of an urban area and leave it up to them. If they choose to live in a caravan in one corner and grow food on the rest, then good luck to them. If they're lucky, they might just about earn the minimum wage from the food they can sell. Alternatively, they might prefer to have a house built. If they choose the latter (and I'm sure most would), it is quite clear that that plot's value as residential land is far higher than its value as an allotment.


Outbreak of commonsense

From the BBC:

Sixty-four per cent of British people think the war in Afghanistan is unwinnable, a BBC poll suggests...

Newsnight commissioned the poll, conducted by ComRes, to assess what people think about Britain's involvement in the ongoing conflict in Afghanistan... 63% of respondents to the Newsnight poll agreed, when asked if they thought that whoever formed the next government after this year's general election should commit to removing Britain's armed forces from Afghanistan by the end of 2010...

When asked whether the war in Afghanistan was unwinnable, older people were gloomier than the young about the prospects of success. Seventy per cent of people aged 55 and over agreed that the war was unwinnable, compared with 58% of those aged 18-24. Otherwise, the response to this question was virtually unchanged since polling last November, suggesting that Operation Moshtarak might not have made an impact on the public.

I'm so used to being in the minority on most issues that it comes as a relief to see that I'm with the majority on this one.

Tuesday, 23 February 2010

She will no longer fight, fight, fight, fight, fight for his love...

"Encouraging homeownership"?

When I post my rants against the Home-Owner-Ists and their insane economic policies, a lot of readers have asked me why I am attacking homeowners or why I oppose homeownership.

The simple answer is that I am not attacking homeowners per se and do not oppose homeownership in the slightest. AFAIAC, if people want to own their own home (and most people do), then they should be allowed to do so, and I have explained at length how a wider spread of homeownership could be achieved (briefly, by adopting economic policies* that are the opposite Home-Owner-Ist economic policies).

Y'see, this is a clever bit of propaganda by the Home-Owner-Ists. They claim that they want to encourage a wider spread of homeownership, but nothing could be further from the truth. According to today's Telegraph, in the last ten years of Home-Owner-Ist madness, the number of households (the article incorrectly refers to households as 'individuals') renting privately in England has increased from 2.1 million to 3.1 million.**

So there.

* Basically, liberalise planning laws and replace as many taxes as possible with Land Value Tax, within the overall constraint of bringing the tax burden down; as opposed to Home-Owner-Ist policies of allowing no new housing being built; taxes on productive activity being increased to subsidise mortgages, bail out banks etc; and taxes on property (for example Council Tax) being reduced.

** Points go to the first Home-Owner-Ist to leave a comment saying the bulk of the increase is down to all those pesky foreigners.

Collective Ownership & The Invisible Hand

Those two phrases tend to split opinion along traditional left and right wing lines.

The lefties love the idea of Collective Ownership ('CO') because they think it means centralised state ownership, and the right wingers hate the idea for the equal and opposite reason. Right wingers appreciate the concept of The Invisible Hand ('TIH') but lefties deny it even exists, which is why they want everything to be nationalised, regulated, centrally planned etc.

Actually, CO and TIH are much the same thing: consider a large plc with tens of thousands of shareholders - instead of each shareholder owning a desk, a delivery van, or some computer records and employing one or two people, they each own a small percentage of a larger whole. The business and all its assets are owned collectively. In theory, shareholders could vote to liquidate the company and take the assets pro rata to the number of shares they own, but in all but the most extreme cases, they would lose out sorely by doing so - you're better off with £5,000 worth of shares than you are with a second hand delivery van, for example (or else you'd sell the shares and buy a second hand delivery van).

Similarly, you could say that this pooling is TIH at work; if there are economies of scale, people end up better off by owning a small share of a larger pie than the whole of a very small pie.

[Further, that plc might have tens of thousands of employees. Of course, they do not 'own' the business in a legal sense, but in economic terms, they very much do, and they speak of 'their colleagues' or 'their desk' or 'their cash till' or whatever. In the long run, an employee has much the same interest in his employer doing well as a shareholder does.]

"What's the point of all this musing?", you may ask.

Let's be old fashioned and assume that this plc is run for the benefit of its shareholders. It may be that they have a shop (or factory) near you, which you visit frequently because you shop (or work) there, but it is making losses and they close it down. As a customer (or worker), you will be a bit miffed, but if you are also a shareholder, you will benefit. TIH continues working.

Or it may be that the plc wants to open up a new shop (or factory) near you. Maybe you don't like this, because it will mean more traffic on your road. Or maybe you do like this because you'll get a job there. If they open the shop or factory, some win, some lose, but the economy as a whole wins. TIH is still working.

The problem is that NIMBYs will always have a stronger voice than people who are looking for a job (because there are more of them). Imagine that every business had to get the permission of everybody within a certain radius of its stores or factories before it opened one or closed one, we'd end up with some quasi-socialist nightmare. No new shop or factory would be allowed to open, and existing ones would not be allowed to close (or would be subsidised, like 'rural post offices').

Oh ... this is exactly what has happened to this country. As this story illustrates, TIH has been largely smashed to pieces in this country by the Home-Owner-Ists; it cannot guide people to the overall optimum outcome. The story concerns NIMBYs and Greenies, both staunch opponents of economic progress, ganging up against the third Heathrow runway, but the same principle applies to anything and everything.

"With you so far" I hear you sigh, "So what's the solution?"

OK, as a thought experiment and not a serious proposal, let's superimpose the CO model that we had with a plc on land ownership. Everybody hands over their land to UK Land plc (which then owns all UK land) in exchange for shares to the same value. UK Land plc collects market rent on everything and dishes it to shareholders as regular dividends, so that instead of owning a house worth £200,000 and living 'rent free', you own £200,000 worth of shares in UK Land plc, pay £8,000 a year rent and get £8,000 in dividends. Shares in UK Land plc would be freely tradeable, of course.

UK Land plc would thus have one aim - to maximise its rental income on behalf of its shareholders. When deciding whether to allow a third runway at Heathrow it would compare the possible fall in rental values of houses in the flight path against the increase in rental values (more jobs in the area, they can collect more rent from BAA etc) and if this gives a positive result, it would go ahead (I'm assuming that it would, for the purposes of this post).

The same applies to power stations, sewage works, new houses, roads - things that help the UK economy and which enhance rental values overall go ahead; other stuff doesn't. Land would be put to its most efficient use without the NIMBYs and Greenies blocking everything.

So, turning back to the people affected by a third runway, some don't like aircraft noise, but they wouldn't have to worry about the capital value of their home, because the capital value of their shares in UK Land plc would go up ever so slightly; and if the rental value of their house goes down, they can either stay there and pocket the difference (their dividend income from UK Land plc also goes up ever so slightly) or move elsewhere. Others are happy to live near Heathrow because they work there and want a shorter commute. And so on.

But all shareholders in UK Land plc would benefit from the new runway, even if they live in the Outer Hebrides. Almost by definition, the gains would outweigh the losses. TIH would sort out who lives where on the basis of free markets; rather than the Home-Owner-Ists first deciding where they want to live and then dictating everything else that happens via a rigid planning system.

Just sayin', is all.

Insufficient evidence

We are presented with the following statement:

[The researchers] studied how New York cab drivers changed their labour supply in response to the higher incomes caused by fare rises. And they found a negative elasticity, of around minus 0.2. That means a 10% rise in cabbies' revenue per mile caused them to work 2% less.

To my mind, that could be explained by simply saying that the demand for taxi rides has a price elasticity of negative 0.2 - in other words, if prices go up ten per cent, the new equilibrium quantity demanded goes down by two per cent. (I'm not saying that this is the end of the matter, but the most obvious explanation is often the correct one).

The statement does not define 'revenue per mile'. This could mean total revenue divided by miles driven with a passenger on board, or it might mean total miles driven (whether with a passenger or while driving back to the taxi rank or touting for business). The statement does not define 'work 2% less'. The fairest assumption is that this refers to total hours worked, whether driving with or without passenger or waiting. In any event, there is probably some sort of equilibrium between the three that would be unaffected by price changes.

Dr Whatson is trying to justify a completely different explanation of the original statement, namely that the supply curve slopes backwards at higher incomes, by introducing all sorts of further assumptions here

1. Assume the demand for cabs is fairly inelastic. [I did - I assumed a price elasticity of demand of negative 0.2]

2.Therefore, (say) a 10% increase in the cab fare (set by the NY Taxi Licensing Commission) will decrease quantity demanded by 5%. [Nope - it would decrease by 2%]

3.An hour of driving around after the fare change will bring 5% less customers paying a price increase of 10% (ceteris paribus). [Nope - an hour of driving or waiting around will bring 2% less customers, which is why they cut their hours worked by 2% to balance it out, that's clearly stated]

4.Therefore revenue/hour goes up. [Yes of course - it goes up 10%, that's one of the two facts we were given]

5.Therefore revenue/mile goes up (assuming the cabbie haunts the Manhattan boulevards and not the line outside the Waldorf). [Yes of course - I already assumed that there is an equilibrium in the proportion of time spend waiting, touting and carrying a passenger. If the taxi rank outside the Waldorf is the best place to find passengers before the fare increase, it will still be the best place to find passengers after the increase].

Maybe you're mistaking miles driven for miles driven with a paying passenger? [Nope - there is no doubt a fairly fixed ratio between the two, so they change in line with each other. You could just as well say that 'average revenue per hour waiting outside the Waldorf goes up 10%', which is probably true as well]

So I'll stick with my original explanation, if you don't mind.

Monday, 22 February 2010

"We are all expert economists now" *

Stumbling and Mumbling starts off a post with this:

What’s the difference between high earners and New York cabbies? This question is central to the issue of whether the new 50% tax rate will actually raise revenue.

I ask it because of this new paper (early version here) by Orley Ashenfelter and colleagues. They studied how New York cab drivers changed their labour supply in response to the higher incomes caused by fare rises. And they found a negative elasticity, of around minus 0.2. That means a 10% rise in cabbies’ revenue per mile caused them to work 2% less.

This means we have a backward-bending labour supply curve, because the income effect outweighs the substitution effect...

I can only read a blog post as far as the first error (grammatical, logical or factual), so I left the following comment:

"they found a negative elasticity, of around minus 0.2. That means a 10% rise in cabbies’ revenue per mile caused them to work 2% less."

How do they know that this is not the quantity demanded dropping by 2% in response to a 10% fare hike? Unless they can prove that it was income-substitution rather than a fall in quantity demanded, the whole theory falls flat on its arse.

* Post title nicked from The Fat Bigot

Basic Home-Owner-Ist Maths

For a given outlay, what would any rational person rather have:

(a) a quarter of something (with no future net cost), or

(b) the whole of nothing (with higher associated future costs)?

In the topsy turvy world of Home-Owner-Ism, (b) is the preferred option. From the BBC:

Some councils in Somerset are offering private property owners money to rent out homes as social housing.

There are currently around 4,500 empty homes in the county and more than 30,000 people on the waiting list. Some of the properties are not suitable for living in and the owners of others do not want to rent as social housing.

South Somerset and Mendip district councils are offering potential landlords grants and loans to try to solve the problem. In South Somerset, grants of up to £12,000 are available towards renovation costs.

Meanwhile, in the real world, it costs about £50,000 per flat to build a block of two- or three- bedroom flats. If the council can build some new ones and rent them out to those on the waiting list who can afford to pay £80 or so a week in rent, the council (and hence the taxpayer) is better than breaking even; but if you give a property owner £12,000 to do up his property, he might well then be bound to let it to the council, but the rent will be considerably more than £80 and no doubt large chunks of that will be paid for by the taxpayer in Housing Benefit.

The problem is, that the Home-Owner-Ists are in charge - theirs is the real world.

[Asbestos] Fun With Numbers

A lobby group does its best to talk up the dangers of asbestos (presumably white asbestos, which is nigh harmless) here:

Experts say that it is when asbestos is damaged or disturbed that it can be dangerous... About 75% of Britain's schools are thought to contain asbestos and 178 teachers are known to have died from asbestos-related illnesses, says the report.

Ho hum.

Even if that figure of '178 teachers' is reliable, we are given no idea of the time scale - so let's assume that they mean the last thirty years, or whatever the average length of a teaching career is (UPDATE: Roym in the comments confirms that this is probably correct). There are currently about half a million teachers in the UK, so there must be about one million current or former teachers still alive. If three quarters of them work, or worked, in such a school, that's 750,000. If 178 have died as a direct result of this, that's a death rate of 0.024%, or one-in-four thousand.

Further, of the current UK population, it's safe to assume that three-quarters were at school for ten years or more, of whom three-quarters attended an 'asbestos-riddled school'. That gives us a population sample of over thirty million - it's strange that they don't mention the hundreds of former pupils who must be dying of asbestosis every year if the one-in-four-thousand fatality rate is correct.

Restaurant joke

Four people go into a restaurant without having booked a table in advance.

The waiter looks at them sniffily and asks, "Do you have reservations?"

One of the four hits straight back: "We do, now that we've seen the place."

Sunday, 21 February 2010

Fulfil our fart area

That's anagram Number 551.

More Tory gimmicks, Labour lies

From the BBC:

The public could be offered discounted shares in state-owned banks under a "people's bonus" plan outlined by Tory shadow chancellor George Osborne. Mr Osborne told the Sunday Times: "The bankers have had their bonuses. We want a people's bank bonus for the people's money that was put into these organisations."

It was expected people would be offered shares worth between a few hundred and few thousand pounds at a discount on the market price, the paper reported. There could be extra discounts for young people, low-income families and parents saving for their children...(1)

"The man who would be chancellor wants a new generation of mass share ownership," said BBC business correspondent Joe Lynam, "And he wants to create a new culture of saving rather than borrowing."(2)

... Chief Secretary to the Treasury Liam Byrne said: "When it comes to the shares in the banks the public expect us to focus on getting their money back.(3) That means selling them at a time and way that maximises their value, not an irresponsible and expensive political gimmick."

RBS and Lloyds shares are currently worth about a third of the prices paid by the government.(4)

1) Hang about here. Taxpayer's money has been used to prop up banks, how about giving taxpayers x shares in RBS or Lloyds for every £100 tax they pay in the next couple of years, that seems to be the fairest way of repairing the damage.

2) I'll come back to the 'savings culture' later on, this is more lies and spin.

3) That's the beauty of plc's - it doesn't matter who owns them. If I, as a taxpayer, get given a few hundred RBS or Lloyds shares (see 1), then it's my decision whether and when to sell them. As like as not I'd dump them on Day One, but others may wish to hold on to them, and if they later sell them at a profit, well good luck to them :)

4) OK, the government cheerfully and deliberately pissed £30 billion of taxpayers' finest up the wall to try and keep the credit and house price bubbles inflated (rather than letting the banks sort themselves out via debt-for-equity swaps), does that not smack of 'expensive political gimmick' to anybody? Sure, the Tories don't really know a way out of this, but they've been given the shitty end of the stick - there is no longer a 'right' answer (short of doing what I said in 1) above).

Saturday, 20 February 2010

Area Liar Fluff Tour

Inspired by Henry North London, I typed in Labour's election slogan into the Internet Anagram Server, choose your own favourite.


"Fresh fish sold here daily"

A more cerebral colleague once told me the following joke:

A man sees a fishmonger admiring the new sign above his shop: "Fresh fish sold here daily".

"That's too many words" says the man.

"How do you work that out?" asks the shopkeeper.

"Well, you don't need the word 'here' because the sign is above your shop - where else are you going to sell them? You don't need the word 'daily' because you're hardly likely to advertise that you were selling them yesterday or will be selling them tomorrow. You don't need the word 'fresh' because nobody wants to buy fish that aren't fresh. And you don't need the word 'sold' because it's a shop in the middle of a parade of shops - of course you are selling them and not giving them away."

"Hmmm ... right" muses the fishmonger "so I can remove all the words apart from 'fish', is what you are trying to say?"

"You don't need the word 'fish' either, to be honest" concludes the man "I could smell them from a hundred yards away."

Just for fun, try applying the same logic to Labour's new campaign slogan A future fair for all.

Nope, sorry, still not big enough to be "too big to fail"

For the benefit of the majority of people who talk a lot about banks, but have never bothered looking at a bank balance sheet, here's the RBS balance sheet as at 30 September 2009 (full results here, pdf):
1. The only bits that the real world cares about are:

A. Loans and advances to customers of £631 billion. This is real money that real people (mortgage borrowers, credit card holders, businesses) are contractually bound to repay to the bank. Buried away in 'Other assets' of £102 billion are a few quid for proper fixed assets, buildings, safes, IT systems and so on.

B: Customer deposits, which are on the liabilities side of course, of £483 billion. This is real money deposited by real people, and the banks are contractually obliged to repay them when they ask for it.

All the rest of it is jiggery pokery, and even if I could explain what it all is and people understood it, that's of no real interest to real people in the real world.

2. We also know that the UK government has historically given implicit or explicit guarantees to depositors (which is fair enough, apart from the fact that the banks didn't pay for the insurance). So, next time RBS is in a bit of a mess, there's no reason why the government or the bankruptcy courts or whoever shouldn't do something similar to what they did with Bradford & Bingley or Northern Rock, which is to write down A to its market value (knock off twenty percent = £505 billion) and then transfer A and B into New RBS, the balance of £22 billion is non-repayable share capital in New RBS, which gets given back to Old RBS (so there's no net transfer of value away from actual Old RBS).

3. The non-repayable shares in New RBS and all the other rubbish gets left behind in Old RBS for the shareholders and long-term bondholders* and so on to squabble over. Whether they get back more or less than they expect to get back is a different topic - the total market value of all RBS shares is currently under £20 billion, so shareholders (mainly the government, having invested taxpayers' money) have already pencilled in losses of £37 billion. We could do the same exercise with bonds and we'd find out that they have also pencilled in losses of £50 billion or something, so splitting the bank is not depriving anybody of any money that they haven't lost already.

What's not to like?

* There are grey areas where it's not clear whether something is a deposit or a bond, but hey, lines have to be drawn somewhere. I suppose the acid test is "Would this bond have been included in the government's deposit guarantee scheme?"

Matchstick Puzzle

Move three matchsticks to sort out the economy:

Friday, 19 February 2010

Angie & Nick

Friday night gear change

Submitted by Alexander Van Ingen, it's repeat offenders S Club 7. Watch out for Tina Barrett (the dark-haired one with the lovely big bum) singing "Wooaaah!" at about 3 minutes 17 seconds, then there's a funny missing half-beat and they merrily continue a semi-tone higher.

Percy Jackson & The Lightning Thief

The Lad wanted me to take him to see this sub-Harry Potter film today.

There were two government sponsored adverts before the film - one inviting members to become social workers and the other paid for via Cancer Research UK, inviting women to take part in the Race For Life.

During the film itself, the most blatant product placement was when the hero had to battle Medusa, and he remembered the trick about only looking at her in a mirror, so he whipped a 160GB iPod out of his backpack and used the back of that.

Apart from that, the film was all right, I suppose. The hero's posse was wonderfully PC - there was him, his Afro-American satyr sidekick (who pretended to be disabled), a slighly older girl who was pretty handy with a sword, and his Mum, who had had the hero out of wedlock (but had remarried in the interim and was divorced again by the end of the film). Steve Coogan as Hades was wonderfully out of place as ever. The Lad enjoyed it at least.

The highlight was actually in the supermarket on the way home, where we overheard a rather imperious shopper asking a shelf-stacker "Excuse me, where do I find jam and all that rubbish?" which is the sort of thing that I get into trouble for saying.

"Economists back delay on government spending cuts"

The BBC give undue prominence to the letter supporting the government's borrow'n'spend policies. This idea that the government can 'kick start' the economy or 'provide an economic stimulus' is an inverted pyramid of piffle, of course.

Luckily, Philip Booth and Richard Wellings at the IEA 'blog have saved me the hassle of explaining why these policies are doomed to failure with this:

There are two main points. Widening the fiscal deficit does not increase so-called “aggregate demand” – it simply transfers demand and economic resources from where they are valued to where they are less valued. Secondly, the problem of funding the deficit does matter. If credibility is lost, there is a long-term cost in terms of the rate of interest on government borrowing.

You have to take into account the deadweight cost of subsidies; the deadweight costs of the extra borrowing and the deadweight costs of the taxes that will have to be collected in future. All of these added together mean that borrow'n'spend is clearly a negative sum game.

PS, a system based purely on taxing land values, paying for the core functions of the state - in particular those things that increase land values - and then dishing out the rest as a Citizen's Dividend does not have any deadweight costs, of course. But in the real world, we don't have those sort of taxes and the government is not dishing out money as a Citizen's Dividend - it is throwing massive amounts of money at its family and friends.

Thursday, 18 February 2010

Joined Up Opposition

Exhibit 1: From Marketing Magazine, 1 February 2010:

Shadow Chancellor George Osborne yesterday pledged that the Government's advertising budget would be among the first to be cut by a new Conservative government... Osborne confirmed the marketing budget handled by the COI, which last year amounted to £540 million, was the place to begin the necessary changes... The Government was the UK's largest advertiser in 2009 following an increase of 43% year on year. It was responsible for campaigns ranging from recruiting teachers to helping people give up smoking, and recycling to tax returns.

Fair enough, money well worth saving, you might think.

Exhibit 2: From The Daily Mail, 18 February 2010:

David Cameron today pledged to clamp down on the 'inappropriate sexualisation' of children as he vowed to give them their childhood back. The Tory leader outlined proposals for punitive measures against firms found flouting rules against targeting youngsters... It came as he suggested firms found guilty of inappropriate marketing to children could be banned from bidding for Government contracts for three years.

Er ... right, so George says that a Tory government will stop giving taxpayers' money to advertising and marketing firms, full stop, but George's boss says that a Tory government will stop giving them taxpayer's money if they don't do what he wants?

Doesn't that suggest that Dave will only stop giving taxpayers' money to advertising and marketing firms if they don't do what he wants, i.e. that as long they comply, they will continue receiving taxpayers' money? Blue Socialism, anyone?

Oh sod it, I'll say it.

Mossad 1; Hamas 0

Fun Online Polls: England & Estate Agents

Due to very good turnout in this week's Fun Online Poll, I shall call the result after three days:

Which do you consider to be your 'nationality'?

English - 53%
Scottish - 7%
Welsh - 4%
Irish (Northern or Southern) - 1%
British - 28%
Some other country - 2%
None of the above - 5%

To cut a long story short, over two-thirds of people who could have chosen 'British' actually see themselves as English, Scottish, Welsh or Irish (i.e. 88 out of 127). So as Wonkontsane suggested, politicians who try to push the idea of 'Britishness' are probably missing the point.

UPDATE: As James D points out (in the comments) out of 127 who were eligible to choose 'British', 9 chose 'Scottish' and 6 chose 'Welsh', i.e. 7% and 5% of eligibles, which is very close to their share of the population of the UK 8% and 5%, so by subtraction, English people are most likely to have chosen 'British'.
There's a fine article on the BBC about people calling for 'better regulation of estate agents to protect consumers'.

"The Office of Fair Trading (OFT) has given a clean bill of health to estate agents in a year-long report into standards in the industry. The OFT said sellers should shop around to save money on fees. But an estate agents' body said the report had failed to propose "robust" protection for buyers and sellers..."

As far as I am concerned, this is just a smokescreen (and a pretty thin one at that) for existing estate agents to raise barriers to entry and hence boost their own profits. Remember always, that less competition = higher prices; fewer estate agents = incumbents get a larger slice of a larger pie; and that estate agents have high fixed costs (basically rent on their high street premises), so a ten per cent increase in income leads to a twenty per cent increase in profits (or whatever the numbers are).

Will this benefit 'the consumer'? Nope, IMHO, they'll end up marginally worse off.

So that's the topic of this week's Fun Online Poll - who will benefit more from the regulation of estate agents? Established estate agents or their customers? Vote here or use the widget in the sidebar.