Tuesday, 3 February 2015

In which case, Ed Miliband is far brighter than they give him credit for...

From the BBC:

The Daily Telegraph's] editorial accuses Labour of being "inexorably anti-business", arguing:

"Occasional lip service has been paid to the power of capitalism to create wealth and jobs. But it has been drowned out by attacks on landlords, energy suppliers, railway companies, financiers, bankers and anyone else who appears to be, in Mr Miliband's eyes, a 'predator' rather than a 'producer'."

If you look at that list, those people are predators and not producers!

For example, railway companies are providing services and however much some people hate them, they are providing very important services.

But the simple fact that they can increase their fares year-on-year without any [significant] improvement in their services clearly indicates that they are actually collecting unearned rent rather than just a fair return on capital/labour.

The same applies in spades to landlords, financiers and bankers, and, for that matter airlines and broadcasters. It applies to a lesser extent to energy companies, they are not ripping off 'the consumer' so much as they are ripping off 'the taxpayer' (via all these grants, subsidies, guaranteed prices etc).

(If Red Ed went round slagging off car manufacturers or dry-cleaners, that would be truly anti-business.)


paulc156 said...

Good point. 'Red Ed' is 'Hint of Pink Ed'.

Ben Jamin' said...

It no good Ed picking on the right targets(probably by luck), if he doesn't know why they are the right targets. It makes thing worse in fact.

For example. His little spat with Mylene Klass over the Mansion Tax. All he could do was justify it on the grounds the rich need to pay more.

So, there is no economic or moral rational, other than a hatred and envy of "wealth creators" and bashing poor hard working pensioners who through no fault of their own....nest egg...force to sell...etc, etc.

Until the Lefties realise that the Torys defence of Capitalism is entirely bogus, they are on a hiding to nothing.

Lola said...

BJ. Correct re Ed. Correct re Toryism. Trouble is the Tories and Labour are both, in their own ways, rent seekers.

Socialism is NBG and neither is Toryism.

Ou sont les Party of Liberty? Hint http://www.yppuk.org/

Bayard said...

Disagree on railways. The reason that they can increase their fares year on year is that the fares were too low to start with. So long as the trains are overcrowded, the fares are too low. It is only when the trains start to be almost empty that they are too high.

Mark Wadsworth said...

PC, either way he's a loony, I'm just trying to be fair and point out that occasionally he's right, whether by luck or skill is the open question.

BJ, that's a pub debate :-)

L, yup, that's us.

B, no, I disagree.

Maybe fare's were 'too low' to start with, but that is irrelevant.

The point is that It costs much the same to run a full train as an empty train. The number of passengers is nigh irrelevant.

But they do put their prices up year on year for little objective improvement in service. And they can only do this because they have a monopoly.

The Stigler said...

I don't think rail is really a problem, if the bidding process is done right, which means setting minimum standards (and penalties) and then letting everyone bid on it (like the 3G licenses).

They don't make much difference on commuter fares (and commuters should probably pay more considering how full a Swindon-London train is), but off-peak, they're in real competition with cars and buses and a private company may innovate more to get more people onto trains.

I'm not that strongly pro-privatisation or nationalisation of railways, though. It's mostly a monopoly.

Bayard said...

"The point is that It costs much the same to run a full train as an empty train."

Mark, you are falling for the "cost-plus" fallacy. Any decently run business should be charging the revenue-maximising amount for its goods or services, regardless of what those goods or services cost it. It "costs" you just as much to sit in your office all day and do nothing as it does for you to put in a full day's work (eight hours of your time). Does that mean that the amount of work you do is irrelevant to how much you should get paid?

"And they can only do this because they have a monopoly."

On rail transport along a particular route, yes, but on transport, no. You always have the option to go by car, bus, bike, or foot. What does everyone do when the railways are on strike? They use a more expensive or less convenient form of transport. If the railways were a monopoly, everyone would be forced to stay at home. The railway are competing on price and convenience with other forms of transport.

Mark Wadsworth said...

TS: "I don't think rail is really a problem, if the bidding process is done right"


B, you are now doing a DBC Reed and accusing me of saying things I never said.

Of course there is no 'cost plus' rule. We know that. But in a competitive market, that is how things pan out.

If an industry can earn far more than cost-plus in the long run, then it is not in a competitive market ergo it is a monopoly ergo what they call profits are really rents.

And I am also aware that there are hardly any 100% pure monopolies, there's always some second best alternative, but it's a question of switching costs.

If people are accustomed and used to using railways, and the alternative is a longer commute time or a worse paying job or paying higher rent, then the railway will soak up the difference.

Lola said...

MW. Therefore railways are competing for rents with other landowners along their routes. Running the actual railway is a hobby. That makes sense, and the answer to that ( in the case of railways) is proper privatisation and....LVT!

Mark Wadsworth said...

L, the answer to anything is always either a) more competition; b) LVT; or in marginal situations where neither works, c) price caps.

Lola said...

MW. Price caps! Maybe, but don't ever tell any politician or bureaucrat that, because if you do they will use the argument to price cap - aka control - everything.

Mark Wadsworth said...

L, true, but price caps are a large part of the explanation for the rapid increase in owner-occupation in the UK between 1945 and the 1980s. There are some situations where there's just no other way to defeat the monopolies.

Bayard said...

"you are now doing a DBC Reed and accusing me of saying things I never said"


"If an industry can earn far more than cost-plus in the long run"

That is a completely meaningless condition. An industry, in the long run, cannot earn more than cost plus. The "plus" is the multiplier of cost that the product earns, regardless of the size of the mark-up. In the short term, yes, but it is the long term that dictates the value of the "plus".

In any case, the term "cost-plus" means, pricing goods as a fixed multiple of cost, regardless of demand. I cannot see you can only do this in a monopoly situation. Indeed, if there is plenty of competiton about, then sticking to "cost-plus" is a sure way to bankruptcy.

Just stating that because the railways don't use cost-plus pricing means that they are de facto a monopoly is a pretty unconvincing counter to my point about customers being able to use other forms of transport. If your employer offered you a free car, with free petrol and paid for your travelling time, would you still use the train?

"And I am also aware that there are hardly any 100% pure monopolies, there's always some second best alternative, but it's a question of switching costs."

It's true of many businesses, that it is a hassle for customers to switch to another, but that doesn't make them monopolies. I would agree that railway companies often (but not always) have a monopoly providing rail transport down a particular route, but that's not saying much. Every company has a mmonopoly of selling it's particular product, e.g. only Apple can sell iPhones. You can probably buy a similar phone from Samsung, but it wouldn't be an iPhone.

Lola said...

MW. Maybe. There were also 'caps' on credit creation and building society lending ratios and sensible limits on the maximum LTV without some sort of guarantee. But these 'caps' are what I would call sensible banking. But of course we don't have sensible banking or building society rules now. Better these sorts of what might you call the natural price caps of prudent banking than actual price caps.

DBC Reed said...

At the risk of doing a DBC Reed, I would have to say that I agree with MW's initial assessment that the original list comprised a lot of rent seekers.

Mark Wadsworth said...

B, I know all this stuff and I don't need lectures. I'll do a separate "Economic myths" post to clarify.

L, correct, three out of three. Whether there were hard and fast statutory imposed rules, or whether building societies just acted collectively and sensibly of their own accord is unknown to me.

DBC, thank you. If my enemy's enemy is my friend, then Red Ed is my friend.

Lola said...

MW. When you get down to it, or follow it back to first principles, the answers always are (i) Land Monopoly and (b) Bad Money. By Bad Money I don't just mean 'Bad Money' I am referring to the whole corrupt infrastructure of nationalised money. Or in short, rent seeking.