Wednesday, 24 May 2017

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

From the comments here:

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

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

Anything collected by government is tax.


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

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

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

Anything collected by government is tax.

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

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

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

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

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

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

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

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

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

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


Lola said...

Hence 'value pricing'. The 'value price' of the ticket to Paris as opposed to Edinburgh is the premium that can be charged one over the other, all other things being equal. Of course competition will keep 'value pricing' in check; mostly. This is also true of the medical operation. (FWIW I am extremely doubtful that the NHS knows the true cost of anything it does, at all.).

Dinero said...

Where do you draw the line - If you take any component of wages above the minimum wage and call that rent in the pejorative, that is often associated with communist/marxist.

Mark Wadsworth said...

L, yes, but huge price differentials are evidence that there is no competition.

Din, you draw the line at common sense. Of course some people earn more than others, if this is not because of govt subsidies, or being a civil servant who can decided his own wages, a monopoly, privileged access to government etc, then it's not rent.

Anonymous said...

I am interested in your definition in terms of how it applies to "actual" rent, i.e. the thing most readily brought to mind by that word: ongoing payment for exclusive usage of a particular place or dwelling.

As I would understand it, part of the ongoing payment to live in a house is for the costs associated with providing the dwelling itself (i.e. paying a builder to build and handymen to maintain, but in instalments rather than as a one-off). The other, usually larger, portion is a fee to temporarily assume some of the land rights of the land owner (i.e. exclusive use of that physical space as enforced by land ownership laws).

The latter of those is what I suppose I would more naturally use the word "rent" for, but if we use your definition then the former part seems simple to understand: it's payment for the convenience of not having to build one's own house or to maintain it. (But this definition works equally as readily for a homeowner making a single "rent" payment to a builder for building a home as it does for ma tenant making ongoing payments for this service) If we try and fit your definition to the former part though, what is the convenience that is being paid for? I can only think that is the convenience of not having to "take control of a country's land, enforce laws of exclusive use and by some method or other ensure personal profit through use of these laws to the detriment of the rest of society." Someone else has done that already and you are paying for "borrowing" the landowner's rights for a bit. Is that how you would understand it?

If I personally were to try and define "rent", it seems to me that the most obvious distinction between the two things mentioned above is that the former (building a building) is payment for the convenience arising from a socially-useful activity (that builder provides some "added value" to the sum total of civilisation) while the latter is payment for the convenience arising from a socially-useless right (the legal right of land title being zero-sum, a merely extractive process shuffling wealth from one to another and adding nothing to the sum total of societal wealth). That would seem, to me, to be pertinent in whatever definition I came up with: I associate "rent" as being applicable to payments that arise solely through legal enforceability rather than actual production of anything of value.

Mark Wadsworth said...

N, yes agreed to all that. But it's hardly a snappy definition, it's an accurate description. The point us, you know it when you see it.

Mark Wadsworth said...

N, to your narrow point, yes, you pay builders for the "convenience" of them building a house for us because if they are better at it than you are, but as long as there is no "premium"/rent element to their income, it is not rent. That's like my example with a power drill.