Thursday, 18 May 2017

Theresa May, making the same stupid mistakes as Jeremy Corbyn

We've looked at Jeremy Corbyn's waffle, now let's look at Mrs May's bizarre deliberate blurring of the fundamental difference between rent and earned income.

From The Soaraway Sun:

PM's pledge to help struggling Brits is part of a drive to shift the Tories to Left — and follows her pledge to cap energy bills.

THERESA May will vow to target fat cat railways bosses, phone firms, landlords and lawyers who are ripping off struggling families. The PM pledges to tackle a stunning range of rigged markets to ease the spiralling cost of living crisis...

The scale of Mrs May’s desire to use the power of the state to intervene in failing markets will stun some traditional Tories who want to shrink the government’s reach.


The people whom she claims to want to 'target' are basically all collecting rents and/or abusing a monopoly position. These are not "failing markets", that's how markets work when a supplier has a monopoly; his income is largely rent, and rents have nothing to do with the supplier's costs/efforts etc. The people she claims she wants to 'help' are the very people at the bottom of the ladder who are generating the rent and then being asked to pay for it

The obvious conclusion is that the government, acting as agent for society as a whole, is perfectly entitled to ensure a fairer distribution of these rents (by taxing them more and taxing earnings less, or rather more crudely by setting price caps).

(I'm not sure why she singled out mobile 'phone companies, for sure, some of their advertising is misleading, pricing confusing and they gamble on people being too lazy to change providers, but all in all, you can get pretty good deals, like sticking with an old Nokia on a SIM-only contract for £5 a month. And they also pay/paid full whack for the exclusive right to use certain frequencies for a limited duration, which is basically Land Value Tax, they have pre-paid the monopoly/rent element of their profits which they are now collecting, so fair play to them.)

We did energy bills a couple of days ago, nothing to add to that.

The issue with "fat cat railways bosses" is that railway companies have a monopoly position as far as many commuters are concerned, so they can charge pretty much what they like. And apparently, the so-called privatised railway operators receive twice as much in subsidies (net of franchise payments) as British Rail did (not doubt others will say it's half as much, who knows?).

You can't just go round capping train fares if trains are already over-crowded, that makes things worse, but at least you can stop subsidising them (which is halfway to taxing them properly). The "fat cat" salaries are a symptom of this malaise, not the cause. If you address the monopoly/subsidy issues head on, that all sorts itself out.

Unlike Corbyn, she actually mentioned landlords, that's is always top of the list if you are trying to distinguish between "rents" and "earned income", so we'll give her half a bonus point for that.

15 comments:

James Higham said...

"You can't just go round capping train fares if trains are already over-crowded, that makes things worse, but at least you can stop subsidising them (which is halfway to taxing them properly)."

Indeed.

Ben Jamin' said...

Well intentioned policy designed to reduce the "cost" of living, ie transfer payments, ALL end up increasing the real costs to our economy by not ending them directly.

Why are people/economists finding this all so difficult? Its not rocket science.



Bayard said...

"You can't just go round capping train fares if trains are already over-crowded, that makes things worse, but at least you can stop subsidising them (which is halfway to taxing them properly)."

AFAIK, it is not the commuter routes that are subsidised, it is the rural railways which have no monopoly on transport. In any case, as you and I both know, any lowering of fares will just result in land prices increasing to take up the slack.

I would also dispute that the commuter railways have a monopoly: if trains are overcrowded, that means that the limiting factor is physical space on the train, just like it is on the roads, not price. In a true monopoly situation the limiting factor would be price.

Mark Wadsworth said...

JH, ta.

BJ, agreed.

B: "AFAIK, it is not the commuter routes that are subsidised, it is the rural railways..." Quite possibly true, I've not looked into it.

"... which have no monopoly on transport." agreed.

"any lowering of fares will just result in land prices increasing to take up the slack." Agreed.

"I would also dispute that the commuter railways have a monopoly: if trains are overcrowded, that means that the limiting factor is physical space on the train, just like it is on the roads, not price. In a true monopoly situation the limiting factor would be price."

It all comes to the same thing. Rail is the only viable option for getting large numbers of commuters into city centres. The advantage compared to cycle, car, walking etc are huge. It's like saying that Thames Water don't have a monopoly on water in the south east, because people could always catch their own rain water or buy bottled water in shops.

What railways companies charge is rent, pure and simple. Few commuters actually want to be on a train for the fun of it, they are paying to get from A to B. It's Location, Location, Location.

An annual season ticket Peterborough to London is £8,000 a year and they are sold out. That is exploiting the difference in wages between P and L. The same as rents for a home in London being £8,000 a year higher than in Peterborough.

They'd never be able to sell as many annual season ticket from P to Norwich for £8,000, a similar distance, would they, because there is no wage difference to exploit.

Bayard said...

"What railways companies charge is rent, pure and simple. Few commuters actually want to be on a train for the fun of it, they are paying to get from A to B."

They could just as well get from A to B by private transport or bus, neither of which they will be in for the fun of it either. If railways are so essential, how come a huge number of communities have learned to live without them, including quite a few well within commuting distance of London, like Cranleigh. Did those communities shrink or disappear? No they didn't.

If what the railways charge is rent, then all transport is rent. The railways are neither the gift of nature, nor the product of public expenditure. Their entire raison d'etre is the desire of people in one place to move themselves or their goods to another place.

"An annual season ticket Peterborough to London is £8,000 a year and they are sold out. That is exploiting the difference in wages between P and L."

You could just as well say "the average difference in salaries between Peterborough and London is £X000 a year. That is exploiting the existence of a railway between P and L." Those commuters didn't contribute towards the cost of building the railway that enables them to earn more in London and makes their houses that much more valuable than if they lived in, say, Norwich. Why should they not pay rent on the use of a resource that someone else paid to provide?

Dinero said...

> Bayard

Whether or not the way the ticket price was established is good or bad, or prevalent in other services, it ether exists or it doesn't. Its the mechanism that Marks post is identifying.
The railway links give access to the salaries, they don't create the salaries.
If the Peterborough commuters could arrive in London without transport the salaries in London would not go down.
On the other hand the railways do provide transport between accommodation location and job location and are part of the agglomeration effects in themselves to some extent.

Lola said...

FWIW I understand that that weasel Ben Gummer was largely responsible for the Tory manifesto. he is one of my local MP's. I have heard him speak twice and he is a combination of (a) economically clueless or (b) deceitful and (c) playing the 'triangulation' game.

I don't like him.

His dad is just as bad.

Dinero said...

I checked on google maps and http://ojp.nationalrail.co.uk/service/seasonticket/tickets

Peterborough to Norwich is 76 miles season ticket £4672
Peterborough to London is 85 miles season ticket £6316
Peterborough to Doncaster is 88 miles Season ticket £6088

Dinero said...

Peterborough to Sheffield is 94 miles season ticket £7192

Mark Wadsworth said...

Din, good work, thanks.

Dinero said...

Correction Peterborough to Sheffield is 101 miles via Doncaster.

Bayard said...

"The railway links give access to the salaries, they don't create the salaries."

That statement contradicts Mark's argument. If railways are essential to allow everyone currently working in London to continue to work there, thus forming a natural monopoly, then, in the absence of railways, the number of people able to work in London would go down and the agglomeration effect would go into reverse, reducing the salaries available there. So, by Mark's reckoning, the railways do create the salaries, or at least part of them. By your calculation an inhabitant of Peterborough only pays £438 pa for the added advantage of working in London rather than Doncaster. Not only would I guess that the salaries available in London are a lot more than £438 pa higher than the ones available in Doncaster, but £438pa doesn't seem an outrageous charge to make for allowing the Peterborough commuter to make use of the infrastructure he didn't contribute in creating.

Dinero said...

> Bayard

I agree , after some thought . As the last line of my comment said "On the other hand the railways do provide transport between accommodation location and job location and are part of the agglomeration effects in themselves to some extent."

And yes my quick check of prices on the national railway site does surprisingly show
that there is only a small premium for London . The fact is season tickets are pricey all over ,you can buy a modern car , replace it every 7 years, fuel , road tax and insurance every year , and maintenance , MOT, for less than a season ticket.

To be sure , it might be necessary to compare similar journeys that are from the same company

Bayard said...

"And yes my quick check of prices on the national railway site does surprisingly show that there is only a small premium for London"

Doesn't that rather shoot down Mark's argument "What railways companies charge is rent, pure and simple. Few commuters actually want to be on a train for the fun of it, they are paying to get from A to B. It's Location, Location, Location."?

RE the cost of season tickets, this probably reflects the fact that you can work on the train (especially if you are commuting long distance and are likely to get a seat) but not in a car. Now, when driverless cars start to appear on our roads, this dynamic is going to be very different.

Lola said...

Aren't railways and landlords competing for rents?