"The dangers of slot auctions"

From Airlines.IATA.org:

Recently, China experimented with the idea, putting a selection of slots on the market at Guangzhou Baiyun and running a slot lottery at Shanghai Pudong. This raised a substantial amount of cash but, according to an IATA assessment, that is part of the problem.

“The experiment showed that paying a large amount of money for slots is not sustainable,” says James Wiltshire, IATA’s Senior Economist. “If you boil down the money paid for the Chinese slots to a per passenger basis, it pretty much wipes out the anticipated $4.44 per passenger average profit for Asia-Pacific carriers in 2017, and that’s only for slots at one end of the route.”

In other words, even a small-scale slot auction can be the difference between profit and loss for an airline. The same conclusion can be reached from a different viewpoint.

In China, the auction winners have been granted the right to use the slot for three years. It typically takes up to three years for airlines to make money on new routes, given start-up costs, marketing, and the time taken to develop consumer awareness.

Are they saying that airlines are so f***ing stupid, they would a single dime for a slot which is not going to earn them a profit?

Seriously?

I think the three year claim is an outright lie as well. If you want to fly from A to B, you type in A and B on one of these comparison sites and choose whichever time and price suit you, I'm sure most people don't care who the actual airline is. I doubt anybody cares whether that airline has ben flying that route for decades or for a couple of weeks.

As it stands, at the 177 airports where IATA’s Worldwide Slot Guidelines (WSG) are used, demand outstrips infrastructure supply.

This makes slots a scarce commodity. Airport owners, government or private, would have an incentive to keep slot prices high by drip-feeding capacity.

Brilliant one-sided economics worthy of the Faux Libs. Slot prices are only high because ticket prices are high; and tickets prices are high because supply is restricted. So incumbent airlines are actually quite happy with restricted supply - it keeps their profits up. (I am heartily indifferent as to whether there should be more capacity or not, the Greenies would say definitely not).

Secondary trading

Secondary trading is completely different from slot auctions, which concern primary allocation. With secondary trading, airlines can swap slots that they have been given the right to use under the WSG but are unable to use in the future.

Not every jurisdiction allows secondary trading and it is probably only required at the most congested gateways. In the UK, secondary trading has been used successfully at London Heathrow and, to a lesser extent, at London Gatwick.

Airlines must have used a slot for two years before it can be traded but the final deal is dependent purely on the negotiations between the two parties.

And at the major hubs, large amounts of cash change hands.

But that is somehow COMPLETELY different to a public auction. Not.

Confusing two separate issues and tbus drawing the wrong conclusion

It is generally accepted (whether entirely true or not) that

a. Energy, mobile phone, broad band and insurance companies offer new customers discounts and overcharge continuing customers. Some people waste hours every year switching to a different company; and the companies then have the added hassle of closing old and opening new accounts. This is not proper price competition and does not make the companies/the economy more efficient, it just wastes a load of time.

b. Energy companies in particular enjoy a monopoly-cartel position and overcharge generally.

Problem a. is solved by banning new customer discounts i.e. expecting companies to offer the same price to new and continuing customers. This seems fair enough to me. Whichever companies have the most competitive price/service will gain market share naturally, as it should be.

Problem b. is easily fixed with a price cap. It's not difficult to set the price of electricity, gas or water so that providers still make a reasonable return, and the original privatisation was done on this basis. The most efficient companies will still be the most profitable. I don't see how this applies to mobile phones, broadband or insurance, that is proper competition IMHO.

Sam Bowman went off on a tangent in yesterday's City AM:

Even if you’re a savvy customer who remembers to switch insurance and energy providers every year, and cancel your mobile phone contract once you’ve paid off the handset, it’s a near-certainty that you have relatives and friends who aren’t. To many people, it’s too much of a hassle to switch, and the gains are too uncertain to bother checking.

This practice seems like a rip-off, and that was the motivation behind the energy price cap proposed by Ed Miliband and implemented by the May government at the start of this year.

No, that's confusing issues a. and b, which is where he goes wrong.

As critics of the policy predicted, the energy price cap is now being ratcheted downwards, so that more and more customers will be caught in it and the price discounts that energy companies can offer will become smaller and smaller. In telecoms, Ofcom has just reached an agreement with most of the mobile operators to curb loyalty penalty pricing in mobile phone contracts.

This may sound like a good thing, but trouble with price caps and contract regulations is that customer switching is good for efficiency overall. Customer switching forces companies to compete with each other and try to find ways of doing business more cheaply. Diminishing the rewards for switching means that fewer people will be willing to shop around, which weakens the incentive these companies have to improve.

Even if domestic electricity prices were fixed at a uniform price, companies would still have every incentive to generate electricity/supply gas as cheaply and efficiently as possible.

'Contract regulations' just means no new customer discounts/loyalty penalty. This reduces the amount of entirely artificial and unnecessary switching, but there would still be the incentive to switch to a cheaper/better provider. The overall competitive pressure would focus on price/service and not on pricing/marketing gimmicks.

The current regulatory approach tries to protect non-switchers by hurting switchers. That’s a dead end, making markets affected by it sclerotic, uncompetitive, and less innovative in the long run.

Neither policy a. nor policy b. 'hurts switchers'. They are entirely neutral.

A better approach may be to make switching easier, or even entirely automatic.

Agreed, but that is complementary to policy a. If companies aren't allowed to penalise existing customers with a 'loyalty penalty', they can't be allowed to penalise them with a 'leaving penalty' (to cancel out the other company's new customer discount). Gym's stay in business with savage leaving penalties, and that is not a healthy business model.

Yeah, Sure

From the BBC

The way of life of a secluded community of nuns would be "devastated" if new homes planned nearby get the go-ahead, a council leader says.

Malling Abbey in West Malling, Kent, which was founded in 1060, is home to an order of up to 15 Benedictine nuns.

We can add penguins to newts and bats in the protected species lists that NIMBYs will use to prevent any new building.

Rev David Green, vicar of nearby St Mary's Church, said: "Their whole way of life is built around isolated prayer and peace and quiet."

...

Trudy Dean, chairman of West Malling Parish Council, said: "The whole community has come together to support the nuns against this highly intrusive plan."

Mrs Dean, who also sits on Kent County Council and Tonbridge and Malling Borough Council, said: "If the sisters cannot carry on their work, we risk them quitting the site.

So? If their way of life is built around isolated prayer, why is anyone going to miss them?

Seems to me that people who want to live in isolation would be just as happy in mid-Wales or rural Wiltshire. Sell up, sisters, pocket the cash and move somewhere really quiet.

Daily Mail On Top Form

Man, 24, is found dead in a swimming pool at £3million mansion after 'drowning at house party'

With French like these, who needs enemies?

From The Evening Standard:

Prime Minister Boris Johnson has been warned that there can be no Brexit deal without the Irish backstop by one of Emmanuel Macron’s strongest allies. Former French EU minister Nathalie Loiseau sent the stark warning to Mr Johnson on Sunday morning, telling Sky News “we would not ratify the Withdrawal Agreement without a backstop”.

Ms Loiseau told Sky’s Sophie Ridge: “The way the UK wants to leave the EU, you have a choice – there is the Withdrawal Agreement which is on the table or there is no deal. Let me say this clearly, there is nothing in between. You have the British Parliament but we have the European Parliament and we would not ratify the Withdrawal Agreement without a backstop.”

Fair enough, that's what the EU wants; we don't and so we'll have to agree to disagree.

Asked what the EU would insist on before starting trade talks, she said: “There will not be – if there was to be a no-deal – any negotiation on the future relationship with the EU without having clarity for Ireland, without having clarity for due payments and without having clarity for protection of citizens.”

In other words, if we go for No Deal, then they want to impose the Withdrawal Agreement on us anyway, which we won't accept... and then what?

I guess there's only one way to find out.

Before/after

A month ago, I was driving along, minding my own business when the radiator exploded. The coolant actually came up under the bonnet and showered the windscreen as well as making impressive clouds of steam. Turned out, the top part of the radiator is made of Bakelite, and after 154,000 miles, it had given up the ghost. The top outlet had disintegrated and the rubber hose popped off (centre of picture):



The radiator (and replacement air con fan) were easily sourced and arrived within a couple of days.

What was a bugger was buying new lower hoses to connect the (automatic) gear box to the radiator (the old ones couldn't be shifted and had to be dispatched with a Stanley knife). None of the usual sources had a clue how to get hold of them, except MX5 City who ordered them for me, fresh from the factory in Hiroshima. £67 incl. postage, VAT, duty, blah blah blah and a two week delivery time. An outrage for two bits of rubber tube, but saved several hours faff.

TBH helped me replace it all today (that is to say, he replaced it all and I helped him). I now have a shiny new radiator plus bits:



That's it, car sorted, it will run smoothly for the next decade and/or 50,000 miles. Which is what I say after every repair, as Her Indoors will confirm. One day it will be true!

Rockstar Economics

From the Times

The developer of the computer game Grand Theft Auto V — criticised for a graphic torture scene and sexual violence against women — is paying no UK corporation tax but claiming millions of pounds in public subsidy for the game’s contribution to British cultural life.

You could probably say the same about what the Welsh National Opera puts on. There's a torture scene in Tosca, and attempted rape in Don Giovanni. They also receive a whopping subsidy and I doubt they pay any corporation tax (as a charity). And somehow count towards British cultural life, when putting on operas in Italian set in European countries.

The "cultural life" thing is, if I recall, in the legislation, but actually a ruse. The simple reason we subsidise film, TV and video game production is that it isn't particularly location dependant. Game of Thrones, A Knight's Tale and Braveheart shot their olde worlde scenes of Westeros, England and Scotland in Northern Ireland, Czech Republic and Ireland respectfully. When it comes down to films shot on a soundstage, location matters even less.

OK, there's some restrictions. You can't go shooting Braveheart in Nepal or Saudi Arabia. Soundstages tend to be not too far from rail and air links. But there's lots of places that tick those boxes.

So, it's entirely reasonable for the UK government to offer some tax breaks for video games. If they don't, Rockstar will just have more developer jobs in Toronto. Do you want the jobs, the income tax, the extra money going into the economy, or do you want nothing?

It's called a subsidy, but it's really a correction to the problems of tax not taking account of mobility. We've had this for a long time, right back to Mrs Thatcher offering companies sweeteners to move their TV factories to Wales. So we have these blunt subsidies to correct the problem, when really, I think LVT would do it automatically: somewhere gets poor, land values fall, incentives appear to drive business towards them.

Killer Arguments Against LVT, Not (466)

My self-appointed tormentor emailed me a link to this.

His KLNs kick off with this:

There are precisely three reasons for any tax or subsidy. They are:
1. To directly affect the welfare of the recipient. (Money has a decreasing marginal utility, so you generally want an extremely progressive wealth tax, with redistribution to poorer citizens.)
2. To address an externality (Pigovian taxes/subsidies).
3. Because the income was unearned, thus taxing it away won’t distort incomes. (Incredibly minor in significance compared to the first two.)

Nope, those are actually reasons #2, #3 and #4.

#1, the only one which really matters, is that the rental value of any plot of land is a good approximation of the value of the services provided by society in general (or the burdens placed on them) and the value of government spending which benefits that particular plot.

Therefore it seems fair and reasonable to fund public services out of an annual charge on the rental value of each plot of land ("user pays"), with a corresponding reduction in taxes on "everybody else", i.e. reductions in sales taxes and payroll taxes (and ultimately, reductions in income tax or corporation tax in the narrow sense, but that is not quite so urgent).

Rather neatly, LVT also ticks boxes #2, #3 and #4. These are welcome bonuses, but not really central to the debate.

Once you have understood this, all his KLNs melt away:

Even if we ignore the differential marginal utility of wealth, and buy the argument that we want to tax “unearned” wealth, an LVT effectively becomes a random tax on a name picked out of the phone book.

For instance, suppose Alice buys land at a value of X. It appreciates to X+Y. Then she sells it to Bob for X+Y. Then the LVT goes into effect. Bob suddenly loses the assessed net present value of all future LVT payments, i.e. Y. If he sells it to Eve, she pays X, not X+Y.

So in effect, 100% of the LVT is paid by Bob. So an LVT is effectively just a one-time tax on the poor sap who happens to own the land when it goes into effect. You might as well throw darts at a map and tax the targeted household by some arbitrary amount of money.

It's not a one-time tax on Bob and not arbitrary in the slightest. It is an annual user charge payable by all current and future owners of any plot of land. The selling price of land is the value of all the future tax-free benefits which the purchaser expected to receive by owning it, i.e. the value of all the future taxes which "everybody else" will pay (and the future burden placed on "everybody else").

"Everybody else" was not party to the contract by which Bob bought from Alice and is under no moral or legal obligation to pay for Bob's (or Eve's) future benefits. "Everybody else" could stop paying tax completely by simply moving abroad, and what would Bob or Eve do then?

So Bob made a gamble - expecting that the government would force "everybody else" to pay for his benefits in perpetuity - and Bob lost. The buck has to stop somewhere. Chances are that Bob will end up paying less tax overall, assuming he's still working or running a business.

And if it were a one-off tax, which it isn't, then that's an argument in favour of LVT - it means that in future, we will all be living tax-free, including Bob.

... when addressing an externality, we only want to tax or subsidize the affected party in order to optimize behavior. In this case, we want to subsidize people in order to incentivize those behaviors which added value to the property, e.g. the building of a new road. That does not imply that we should fund the subsidy by a tax on the individual who received the benefit.

Just look at that last sentence. Who the hell does he expect to pay for the new road? Some will benefit from it (their plots now have better access) and some will be burdened by it (their plots now suffer from noise, pollution or congestion). The former group pay a higher user charge and the latter group get a reduction in their user charge, because the rental value of their plots will go up or down.

This is neither a tax nor a subsidy and not to be judged as such. Behaviour is optimised later on - people who don't need better access will sell up to those who do; people who don't mind traffic noise will buy the negatively affected land, and so on.

The second flaw in the quoted argument is this. Suppose the unimproved value of the land is X, and the publicly added value is Y. The correct Pigovian subsidy would be to credit the exact amount of Y back to those individuals who added that value (e.g. the taxpayers who funded that “new road nearby”), as precisely as feasible as possible.

All land value is publicly added (including whatever was provided by nature), there is no need to split it into X and Y. By taxing land values instead of wages and output, this would meet his test of "the correct Pigovian subsidy". "Everybody else" gets their credit by simply paying less tax. So I fail to see how that is a KLN, even on his terms.

Lastly there’s nothing special about “unimproved value of land”... Perhaps the most bizarre thing about the LVT is its core focus on land as opposed to any other arbitrary asset.

Whether there is or isn't anything "special" about land rental values is by the by.

There are other state-granted or natural monopolies which are equally worthy of being subjected to user charges analogous to LVT. This is not an arbitrary list. Most Georgists agree that the LVT logic also applies to other privileges, such as patent rights, exclusive use of radio spectrum, mining rights, take-off and landing slots, driving a car generally (fuel duty, congestion and parking charges), taxi driver permits, and so on and so forth.
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We also note that nowhere in his entire screed does he explain why it is noble and just to tax wages and output in order to subsidise land owners. If we substitute "income tax" into all his arguments, you see just how feeble they are, and would in fact be good arguments against income tax.

What if Bob just started his first job and has a life time expected income of $1 million and then the government introduces income tax. His lifetime earnings have now fallen by the amount of the tax. Is that a one-off tax on Bob? Going by his logic it is Eve, who starts her first job next year pays a one-off tax. Everybody who starts work will be imposed to a one-off tax of several hundred thousand dollars. for ever. Wouldn't it be better to impose a large one-off tax today and then let everybody live tax-free in perpetuity?

I'll probably get righteous grief for this...

MX5 NC/Mk III remodelled

The third gen were objectively good cars which looked fine from most angles, but the headlights are too small, too high up and too close together, especially if viewed from the front, and the front wheel arches are much too conspicuous.

This is easily fixed with Excel and iPhoto.

BEFORE (image from MX5 City, o/t, I have ordered a couple of used parts from them, excellent service)



AFTER


This makes it look a bit S2000-ish, but that car had its own (unfixable IMHO) styling issues which are avoided here.

The curve of the front bumper could do with flattening off a bit so that it doesn't protrude so much, but I think that's a pedestrian safety thing, plus I can't fix that with Excel and iPhoto.