Sunday, 5 April 2020

"Basic Income During Quarantine: The Only Way To Avoid Societal Collapse"

John McCone explains on his blog why only Basic Income, Combined With Freezes In Rent, Mortgage and Debt Payments Can Stave Off Calamity.

This is not the usual landlord-bashing. Fact is, at present, the rental value of most business premises is zero as they can't be used; residential rents are set by local average incomes - if average incomes have plummeted everywhere to the same low level (the level set by UBI for most people), then residential rental values are to all intents and purposes zero as well.

The same goes for mortgage payments; they come out of the rental value, and if that is effectively zero, then there's no income to cover mortgage payments (for owner-occupiers or for landlords).


Piotr Wasik said...

@MW, you wrote many times that universal basic income does not end up in land rent, because "land rent is driven by difference in location values, not absolute location values", or something along this line. It certainly looks that way now, because there are places with 0.0 location value, like all the plots with unknown owner in the middle of nowhere, or maybe even some inhabited places in the middle of nowhere. How can we be sure that some part of UBI will not end up in rents after all? as long as tenants have money, landlords can try to wring it out of them, no? surely not in unclaimed plots, as they are not inhabited, but what about everywhere else? from forgotten little villages to London, all tenants would suddenly have a little bit more money.

Mark Wadsworth said...

PW, none of the UBI will end up in rent. We've done that one a few times, see here.

Imagine an extreme lock down, where everybody is stuck at home on £75/week - apart from food supply chain, police and NHS.

Most of that £75/week will go on food and other bare necessities, like broadband and mobile to stop you going insane.

Rents would fall to zero in most places (logic explained in linked post).

Some landlords decide to collect £75/week in rent anyway. The tenant now has a choice - stay there and starve to death, or move in with family, friends, other tenants. However annoying, at least they won't starve.

Landlords who tried to collect rent notice that they have made things worse for themselves - no tenants to start paying rent again once lock down is over.

Even if - which is not admitted - some of the UBI goes into rent, that UBI has to be paid out of tax on other people, who now have less money to spend on rent. So overall effect nil or neglible.

And even if - which is not admitted - some of the UBI goes into rent, so what? Under an LVT system, it gets clawed back.

Bayard said...

Not going to happen. It is a non-negotiable principle of the Right that people should be paid according to what they are worth, not what they need, or the country needs. You can't have the captains of industry being paid the same as the lowliest unemployed scrounger, you just can't.

James Higham said...

Thin edge of the wedge, particularly when there is evidence the whole situation is artificial, that there is a different agenda going on.

Piotr Wasik said...

MW - right, I get now how difference between rents in cities A and B are the same as difference in income - if the differences were different, people would migrate between these cities en masse.

It is also observable that the lowest limit on rent is 0 NOW, which you called fixed point in the older article. If the fixed point stays the same, all rents higher than zero stay where they were - based on rent setting logic before. Differences between places A and B in terms of income are the same with or without UBI, therefore rent difference will be the same.

1. UBI that mostly replaces existing tax breaks and means-tested benefits will not change anything (replacing like for like).
2. Any UBI that is roughly equal to food and heating costs does not leave anything for landlords to collect in poor areas - like in your example above with £75/week in lockdown, where landlords trying to claw into tenants' necessities budget shoot themselves into foot. Fixed point is still 0.
3. UBI that coexists with LVT will be unlikely to change fixed point because it does not make sense for landlords to raise rent and get higher tax bill at the same time immediately.
4. I did not get this "Even if - which is not admitted - some of the UBI goes into rent, that UBI has to be paid out of tax on other people, who now have less money to spend on rent. So overall effect nil or neglible." but let gloss over it for now.
5. It is still concievable for me that a high UBI above bare food and heating costs without corresponding LVT is an easy target for landlords in the poorest areas and the fixed point would go above zero. It is probably not a problem though because high UBI is not practical.

Mark Wadsworth said...

B, maybe not, but by giving more unemployment benefit to people who had better paid jobs, they are breaching their other sacred principle - means testing.

JH, we have to accept the way things are. Most countries are doing the same thing, for whatever reason.

PW, thanks, I think we are agreed.

Re point 4. Imagine UBI is funded out of income tax. High earners pay more tax so they have less money to spend on rent. So rents would be depressed in high earning areas. Which is a big help to lower earners in high wage areas (office cleaners in London).

Piotr Wasik said...

MW, re point 4 - got you know. if some part of income tax funded UBI goes into rent, it is a very convoluted way to transfer money from good earners to low earners - by lowering rents in London for example. because high earners pay more tax then receive in UBI, so they have less disposable income. something like that I think. Thanks!