Mark Wallace, recently “seen elsewhere” by Guido, makes a good point, in response to a piece by Tim Leunig in the Guardian, about the nature of the mixed housing economy:
Leunig’s Guardian piece claims to calculate that the benefits cap would leave people living on 62p a day. The most crucial element of his workings is that a 4-bedroom house in Tolworth costs £400 a week. That’s true right now, but it wouldn’t be the case once a cap has been brought in.
The truth is that some of the main beneficiaries of overly high benefits are private landlords. They may not get payments from the DWP direct, but they reap the cash anyway through inflated rents, secure in the knowledge that every time they put the price up, benefits levels are raised to pay them. This is a racket, exploiting the foolishness of officials in pumping more and more money out and the absence of taxpayer power to rein in this behaviour.
Tim Leunig is right that if rents were fixed as they are now then his hypothetical family would pay £400 a week. But rents aren’t fixed, they are fluid. If you remove a large amount of cash from the system then prices will fall. By arguing for the system to remain as it currently is, rather than accept a cap, this supposed “progressive” is effectively fighting the corner of benefit-farming landlords.
Government hand-outs to “the poor” enriching the not-so-poor is a familiar story. It explains a lot about the current state of politics. In fact politics generally, down the ages.
Also, if a house in a certain area is too expensive, move. Why should people who live outside London pay for other people to live inside London?
Also, if people don’t automatically get more housing benefit the more children they have, then people will be less likely to have more children than they can afford, ending the dysgenic effect of welfare.
If the government subsidizes buying something the PRICE INCREASES.
This was something known to Ricardo and to Bastiat – yet the implications of this point never seem to sink in
When the American government started to subsidize health care (via Medicare and Medicaid and SCHIP and …) the cost exploded. OF COURSE IT DID – it is exactly what one should expect.
When the American government started to subsidize student tution fees OF COURSE the cost of college exploded (leading to a one TRILLION Dollar student loan overhang).
And when the British government started to subsidize rents …
The only surprise is that the bill has “only” exploded to 20 Billion Pounds a year.
I expected it to be even worse.
Interestingly I once met one of these landlords on a night out about 4 years ago.
He was an American, he rented houses out in Limerick, which is where I live. His houses were in one of the most criminal suburbs of Limerick, but he charged rents that were the same as the city centre. He explained that the welfare officials judge whether or not to pay a rent by the local rate, and in some areas that rate becomes dominated by other welfare claimants. He said that although he gets the same rent he has to deal with a lot of damage done to his property
He told me quite a bit about his methods, which were interesting. For example, a single-mother will normally know who the father of her child is. In that case he will find the father, bond with him a bit and tell him to make sure that the house is safe.
He bought the houses he owned after they had been burnt-out by criminal gangs as the result of feuds. His job before that was grading floorboards, so he knew where to get the wood to rebuild the inside of burnt-out houses.
That logic handily explains the high prices of medical services in the United States.
Surely the point is rather that you don’t have a right to a 4 bedroom house in Tolworth if that is an extremely expensive way of housing you?
Renting outside of London is considerably cheaper. I am not sure why there is this assumption no one should have to move more than a few hundred yard from where they were born. It’s quite typical for people wih jobs to have to move cities just to find work.
Moreover, exactly how large a family needs a 4 bedroom house? Are we really trying to defend people who deliberately have had huge numbers of kids despite knowing they had no way to support them, on the basis that the state will pick up the bill?
One point that is often overlooked is that, in addition to all of the above, the policy of providing housing for low income earners in central locations forces relatively higher earning individuals to move further out from the centre of town (by pushing up the price of housing in town). Higher earning individuals are usually more productive than lower earning individuals, so the economy loses out by having them spending more time getting to and fro work than they would have to if they lived more centrally. The ‘opportunity cost of travel’ is lower for low income/low productivity earners, although I guess this is moot since a lot of housing benefit receipients don’t work.
I suppose a leftist economist might argue that due to diminishing marginal utility of income the opportunity cost of travel for low income earners is higher in cardinal utility terms (“utils”) than it is for higher earners (or at least that this effect counterbalances the previous point) and that this could justify providing housing in central locations for these people.
From experience I can tell you that making my first point is a sure fire way of getting “heartless libertarian” thrown at you.
£400 a week???
The pound is at $1.5688, so that’s $627.50 per week, or over $2,700/month.
In Chicago, that will get you luxury housing in an upscale neighborhood.
William – do you want me to explain the reasons for the increase in health costs over time?
Not just the subsidy effect (equally true for higher education) – but also the vast web of regulations (the “mandates” on inurance compaines and so on).
I ask because if I do explain, it will become even more clear that the correct course of action is the exaxt OPPOSITE of what is being done.
Not more subsidies – less subsdies.
And not more regulations (mandates and so on) – but less.
However, the establishment do not want the truth (that is putting the matter mildly – the truth is the last thing in the world they want).
After all Milton Friedman showed 60 years ago that doctor licensing (the major bit of interventionism of the time in medical affairs – what an innocent age that now seems) was NOT to “protect the people from quacks” (as the official accounts have it), but was in fact a GUILD RESTRICTIVE PRACTICE.
A move by the AMA (in various States) to raise the income of their members.
For example, if there was an influx of qualfied doctors from overseas (for example Jews fleeing the Nazis),…… as if by magic the number of students who failed medical school (or were not allowed in at all) would go up.
Why?
To make sure the supply of doctors did not increase and the price fall.
Ditto with meds regulations.
They were NOT there to protect people from sugar water being pushed by quacks. They existed to reduce competition and increase the costs of meds – that was not an unintened side effect of the regulations, that is what they were FOR.
Of course people die because of bad meds – but far more people die because the FDA regulations keep medical drugs off the market for years (or increase the costs of development so high that they never appear at all).
By the way – after the 1962 “reforms” the level of regulation became so insane it is doubtful that it even benefits the drug companies any more.
They might actually gain more by getting rid of the costs of regulation than they would lose by the restoration of competition.
However, as so often happens statism takes on a life of its own.
It was the same with the railroads.
Contrary to the establishment history books the ICC (Interstate Commerce Commission) was established in 1887 to crush competition by ENFORCING cartels.
This obviously benefited establishment railroad interests – such as the Union Pacific (i.e. the Harrimans).
However, eventually regulation became so extreme it actually undermined the railroads (they were also undermined by “free” roads provided by the taxpayers).
So by the late 1960s the railroad companies were almost begging the government to take passenger rail off their hands (regulations meant they could neither close it or make other than a loss on it).
So under President Nixon passenger rail was taken over by the government – and most of it shut down (what was left was called Amtrack).
Why do I have a mental image of establishment people with covererings over their eyes and their fingers in their ears?
Oh, I forgot, they do not WISH to know that that statism (interventionism) does not work.
It does not work in health care or anything else.
And it is not an honest disagreement.
If it was the left would not blame such things as the high price of health care on “the free market”.
When you know perfectly well there is no free market.
After all you spend your entire lives increasing subsdies and regulations – so it is only reasonable to assume that you know what you have done.
To assume otherwise would be like having one’s face smashed in – and then meeting the men who did it a few minutes later.
Only to have them say “what happened to your face?”
It is not reasonable to regard such a question as sincere.
The left are guilty.
They know what they have done and are doing – in health care and everything else.