Deadweight loss of excess inequality.

Fair economic system=fair distribution of the factors of production=aligned incentives=optimal economic efficiency

For the above to be true, a deadweight loss due to the unfair distribution of Land, Labour and Capital must also occur. However, on the face of it this isn't necessarily the case. 

Let us assume I own all the land in the UK (unfair), which I rent out. Not the buildings just the land. The rental income I receive from this is £250bn per year. Assuming nothing in the current tax system changes, my discretionary income would be roughly £100bn each year, and everyone else’s in aggregate £100bn a year less.

Because there have been no other changes apart from who gets the land rent, incentives to produce have not changed either, so despite the now massive gap in equality between me and everyone else, GDP should remain the same.

However, I postulate there is a deadweight loss due to a “thinning of the market”, hence a drop in output.  

In other words 25 million households demanding one item priced £40 brings the scope for more economies of scale and cost innovation than one person demanding one item worth £1bn.

All the wealth we see around us comes from agglomeration effects, which are bigger when markets are thicker.

A concrete example of this may be England after the Black Death in 1375, in which the remaining workers were able to demand higher wages and lower rents. The economy started to flourish. This transfer of wealth from the hands of the overlords to the masses seems to be the point where feudalism died and the free-market capitalism we know today took root.

The End of Working Tax Credits.

From the BBC:

... the income threshold for tax credits is to be reduced from £6,420 to £3,850. So, from April 2016, anyone earning more than £3,850 a year will have their Working Tax Credit reduced more steeply.

Sneaky!

Gordon Brown always used to boast that the Working Tax Credit was worth £x to the individual if he worked 30 hours a week, but that was always a lie - if you worked 30 hours, then your income was so far above the threshold of £6,420, most of that promised £x would be clawed back.

Boy George has just taken this twisted logic to extremes and extended it to the 16 hour credit as well (Gordon Brown and Boy George are very similar in many ways).

So here goes:

After April 2016, you work 16 hours a week, so you are notionally entitled to the basic amount of £1,960.

16 hours x 52 weeks x likely NMW £7.20 = £5,990

That is £2,140 over the £3,850 threshold, so your £1,960 is reduced by 41% of £2,140, i.e. down to £1,082. Under the old rules, you would have kept the full £1,960.

If you are on 30 hours a week, you are notionally entitled to the £810 extra WTC = £2,770

30 x 52 weeks x £7.20 = £11,232

£11,232 - £3,850 = £7,382. £7,382 x 415 = £3,027, so your notional entitlement of £2,770 will be reduced to zero. But you can bet that officially, the 30-hour credit will still exist.

If you earn a bit more than the NMW, about £10 an hour (which is still very low paid), then you get precisely nothing in WTC.

So as shit as the whole Tax Credits system was and is, this just increases overall marginal tax rates i.e. reduces the incentive to get a job. In other words, it makes it even shitter.

H/t @JMchools

Pretty Girl, Not Too Bright

From the Guardian

Emily Ratajkowski, the model and actor who became famous after starring in the video for Robin Thicke and Pharrell Williams’s controversial hit Blurred Lines in 2013, has called the video the “bane of my existence”.

In an interview with InStyle magazine the model, who has since won roles in Gone Girl and EDM flick We Are Your Friends, said whenever “anyone comes up to me about Blurred Lines, I’m like, ‘Are we seriously talking about a video from three years ago?’”

There's a first and last time for everything.

I found myself in agreement with Richard Littlejohn. Weird feeling, but there you go.

This child's death was tragic but it was not our fault

The father told the Mail that the family were fleeing the war in Syria when the recklessly overloaded rubber dinghy capsized. Miraculously, he survived, although he couldn’t save his wife and two children.

But here’s what puzzles me. They’d been living in Turkey for the past year. So why didn’t he apply for asylum there? After all, surely culturally Syria has more in common with Turkey, another Muslim country, than with Tunbridge Wells or Trondheim.

I had to remind myself that I also agreed with a fair chunk of what Jeremy Corbyn said yesterday on the Sky debate to balance things out. I mean, at least Corbyn was saying something rather than just spewing out Labour-insider politico-gibberish like the other three.

"Drug deaths in England and Wales reach record levels"

Shock horror from the BBC:

More than 3,300 people died from drug poisoning in 2014 in England and Wales, the highest figure since modern records began in 1993, the Office for National Statistics says...

A Department of Health spokeswoman said: "Although we are seeing fewer people year on year using heroin, in particular young people, any death related to drugs is a tragedy. Our drugs strategy is about helping people get off drugs and stay off them for good, and we will continue to help local authorities give tailored treatment to users."

Hang on one cotton pickin' moment, 3,300 deaths (assuming it to be ballpark accurate and over-reporting and under-reporting net off) is about one per cent of all deaths per year in England and Wales.

So assuming that rather more than one per cent of the population is a fairly regular drug user (the official estimate is 300,000 'opiate and crack cocaine users' plus as many again for other stuff), this means that the chance of a drug user dying is no different to a random person plucked from the population as a whole.

Admittedly, drug users are mainly in the 20 - 40 age bracket, so their chance of dying in any one year is higher than for other 20 - 40 year olds, because the average chance of dying is heavily skewed by old people. But it strikes me that drug users still have a pretty good chance of surviving.

If half a per cent of drug users die each year because of drugs (3,300 out of 640,000, let's say), then the chance of surviving a twenty year drug career is still pretty good i.e. ninety percent (=0.995^20).

Reader's Letter Of The Day

From The Evening Standard. The letter won't be viewable online for a couple of days, because for some reason it is updated two days in arrears, go figure, but here is the original text as submitted:

If Thames Water was allowed to charge what the market would bear, they would enjoy excessive profits of the scale that London developers, home sellers and landlords do now. Surely a compelling case for heavy taxation or regulation of these monopoly profits?

A Land Value Tax would deal with the problem most efficiently but rent controls and a massive council housing building drive would provide some relief for UK renters and homebuyers. We have the shameful honour of the worst value housing in the world, clearly the market is utterly broken.

Joe Momberg, Young Peoples Party

Fun with student numbers

From the BBC:

More than a million young people will be enrolling in universities in England and Germany this autumn. But in financial terms their experience couldn't be more different.

In Germany tuition fees have been abolished, while England has the most expensive fees in Europe, with every indication that they are likely to be allowed to nudge even higher...

In Germany, about 27% of young people gain higher education qualifications. In the UK, the comparable figure is 48%. The expansion in university entry in the UK has been one of those changes that has been so big that no one really notices.[wot?]

A report from the Chartered Institute of Personnel and Development last month claimed that more than half of graduates were overqualified for their jobs. In contrast, the institute said that only 10% of German graduates were in non-graduate jobs.

Same old, same old.

In either country, about one-quarter of jobs are "graduate jobs". So nearly all of the one-quarter of Germans who go to uni get graduate jobs; and about half of the one-half of Brits who go to uni get graduate jobs.
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If you ask me, the German system makes more sense. The cost to the taxpayer ends up much the same whether you send one-quarter to uni for "free" or whether you send one-half to uni and impose a graduate tax aka tuition fees, and this was YPP policy anyway (there is nothing new under the sun).

The article does make the point that has been made here before (probably by The Stigler) that it might still be worthwhile going to uni, because it gives you the edge when applying for a non-graduate job, but this just pushes the problem onto somebody else (the non-graduates looking for non-graduate jobs).

I suppose the Germans can get away with it because their secondary education system is much more egalitarian, so everybody has a fairly equal chance of ending up at uni. If the UK did it, there would be squealing that the reduction in the number of student places disproportionately hits people from state schools.

The counter-argument to that is: so what? Some people get twelve years "free" state primary and secondary education; other people pay for those twelve years out of their own pockets and then get three years' "free" higher education. The former group probably still gets better value for money.

And also because German unemployment is lower, so there is less pressure to mask unemployment figure by getting a million or two young people off the books for three years.

"Oil tankers swing round the Cape to create profit"

Emailed in by MBK from The Times:

It is a treacherous route that mariners thought they had seen the back of when the Suez Canal opened a century and a half ago, but low oil prices have made the trip from Asia to Europe via the Cape of Good Hope more attractive.

As the price of crude was sent lower again yesterday, research from Bloomberg showed that tankers have been making longer voyages to take advantage of market conditions. At least five have gone as far as avoiding the short-cut to Europe via Egypt, a diversion that adds 4,000 miles to the journey...

The article goes on to suggest that people are not in a hurry to bring the oil to the market because they expect prices to rise, so they are effectively storing it on tankers, which has been observed before.

The other point is:
- Suezmax tankers use a lot of oil per day. Based on this specification, the oil costs about $40,000 a day at $100/barrel and $20,000 at $50/barrel. They also cost $30,000/day to charter. So your daily cost has gone down by about a third over the last year.
- The price you pay for using the Suez canal is largely rent. They know how many days you can save by using the canal and roughly what it costs you per day. As long as their toll is less than this, you are happy to pay it. Panama does the same calculation and both canals cost about the same (they are to some extent competing on e.g. the China to Europe route).
- The toll for a Suezmax tanker is about $300,000 (fun online calculator). (This implies that tanker owners place a value of only $20,000 per day saved which doesn't tie in, does it?)
- So if your daily costs have gone down by a third, the price you are willing to pay to use the Suez canal also goes down by a third.

To sum up, cheaper oil makes the Suez toll worse value and so fewer tankers will use it until toll charges fall. And we would expect to see that there is some correlation tolls and oil prices (if anybody can find a history of changes in tolls).

Daily Mail on top form today

Exhibit One

A pensioner has suffered severe burns after a suspected gas explosion ripped the front off his house while he was sitting in an armchair in his living room.

The victim, named locally as Bob Moss, was pulled from the smouldering debris as rescuers dodged the furniture which was left dangling in thin air. The blast happened at a £155,000 terraced house in Trecalgo View in Camelford, north Cornwall, just before 11.30pm last night.

Exhibit Two

Victims of British music teacher who killed himself at his £1.5m California mansion as he faced arrest on child sex charges are to sue the top school that employed him

It's much easier when the house price is in the headline, it saves you scrolling down to it. And get well soon, Mr Moss.

People value things more if they have to pay for them - part the manieth

From the BBC:

University drop-out rates fell sharply after tuition fees were increased, according to researchers.

A report from Lancaster University Management School examined the impact of the 2006 round of fee increases, when they rose to about £3,000.

It indicated drop-out rates had fallen by 16% - with the biggest reduction in prestigious Russell Group universities.

The study suggests higher fees focused students' thoughts on the need to get a good degree and pay off their debts.

As I always said, this was one the advantages of having tuition fees. People who weren't 100% serious about finishing a course wouldn't start it in the first place; and under the 'sunk costs' fallacy, fewer people would change their minds half way through.

Which sort of justifies nominal tuition fees of up to £3,000 a year, but does not justify £9,000 fees (even if many people will never actually repay much of them - because it's not really tuition fees at all, it is a graduate tax). The article seems to be saying that there was no noticeable further decline in drop out rates when they went to £9,000.