If 50% are to go to university then we'll have studentification, won't we?

Today’s lesson in the basic fact about our universe that there are costs and benefits to everything. Those free lunches simply do not exist.

If we’re to send some vast number of young people off to university then there are going to be vast numbers of young people at university. Quite why this should surprise people is unknown but there we are:

Down with 'studentification': how cities fought for their right not to party

From Bristol to Nottingham, university towns across the country are facing up to the negative impacts of large student populations

If we’re to send 50% of the age cohort off away from their parents for 3 years then we’re going to have 50% of the age cohort off away from their parents for three years. It’s not necessary to be a particularly assiduous student of human nature to catch that this is going to mean loud parties, lots of drinking, staying up late and all the rest of that.

The term “studentification” – coined by the academic Darren Smith in 2002 – refers to the impact student bodies have on the cities around them. For all the vibrancy a large influx brings to a local culture and economy, the indirect consequences can be profound: family homes make way for buy-to-let HMOs (houses of multiple occupancy), bars and fast-food outlets replace primary schools, and “street blight” takes hold as properties lie unkempt and deserted outside of term-time.

There is a useful solution of course. Start charging the students - perhaps financed by loans - the costs of their education and perhaps we’ll have fewer of them doing economically non-useful courses in grievance studies. If people are doing economically useful things then obviously, we’re happy enough to put up with the costs.

Our definition of economically useful being, as always, that the benefits are greater than the costs. Again, as ever, we’re trying to find the optimal balance between student education and studentification. Which, again again as ever, is something we find out from the interplay of market forces.

More common errors of the Left

Many of the errors they perpetrate have already been tried and tested and found wanting. Some of them have been found disastrous, as has been seen in Venezuela. Yet they persist as if in some hypothetical world that bears no relation to what goes on in the world around us.

6. State ownership is efficient because it does not need profits

This has been shown countless times to be untrue. It is the pursuit of profits that leads private corporations to seek to be lean and efficient. They try to cut costs and to keep prices competitive to attract customers. The state has no such incentives to drive it to be efficient. In practice, state industries are subject to producer capture, and are usually directed to serve political rather than economic ends. They tend to be over-manned and costly, compared to their private equivalents.

7. Capital Gains Tax is paid from windfall gains

This is not always untrue, but usually is. Capital gains can be made on property when the price people are prepared for it rises. This can be caused because government will not issue sufficient planning permissions to meet rising demand. Or government's central bank might keep interest rates too low for too long to "steer" the economy, making conventional returns low, and leading people to invest speculatively in property. More commonly, capital gains accrue because investments rise in value, especially in a growing economy. To call them a "windfall" is to suggest they are unearned, simply the result of luck, when they often result from shrewd calculation. Profits are taxed when this is successful, but losses are not refunded when it is not.

8. Rent controls make houses affordable

This is a subset of price caps, with rents as the price of accommodation. When rents are capped, existing tenants might benefit for a time, but not future ones because the availability of rental property will diminish. Maintenance will fall, too, with not enough income coming in from property to justify high standards of care for it. Landlords tend to sell under rent controls, reducing existing rentals as well as deterring new ones. The economist Assar Lindbeck compared rent controls to bombing in their ability to destroy cities.

9. Inheritance Tax hits only the rich who can afford it

Thanks to rising property prices, Inheritance Tax hits many middle class homeowners. People are motivated to work and save to provide for their children after they die. A death tax makes that less worthwhile. It also acts to break up the capital pools that could be funding new businesses for middle-aged people when their parents bequeath them their estate. Those new businesses could create future wealth and jobs, so it indirectly hits less wealthy people. Its fairness is questionable because it nearly always taxes funds that were already taxed as they were acquired.

10. Top salaries and bonuses are best limited by law

If they are limited by law, then top talent will drain away to places where it is more adequately rewarded. Top CEOs make a huge impact on the value of their companies, and constitute a pool, like highly talented footballers, that people will pay for in order to secure the value they bring. In a global economy, talent is mobile and will move if the gap between what they can earn at home or abroad becomes too large.

How glorious it is to be regulated - people die

Well, yes, of course everything needs to be regulated, areweright? The idea that the market unadorned could just be left to its own devices is just so absurd that no one could possibly hold it. Except people like us who just will insist on pointing out that the result of regulation is that people die.

For example, we’d all rather like there to be lots of new drugs to treat the cancers that eat away at all too many of us. We’ve a wondrous pan-continental regulation system to make sure they’re safe, the result of which is that we get very few new anti-cancer drugs:

Cancer patients are missing out on innovative new drugs, with red tape covering clinical trials and licensing among the factors to blame, according to a report by the UK’s Institute of Cancer Research.

Children’s cancers have received little in the way of new treatments, a finding the authors put down to drug companies failing to invest in these rare conditions and using regulatory loopholes to avoid conducting the necessary clinical trials.

Well, one person’s loophole is another’s escape from red tape and expense:

She added that EU regulations say that if a disease does not occur in children, drug companies can opt out of testing the drug on them, even though it might help with other cancers. That, she said, needed to change.

So, if all drugs need to be tested upon children then there will be even more expense, even more red tape, even fewer new drugs:

The team also found new drugs are taking longer to make it through the clinical trial stage of development. Between 2009 and 2016, it took more than nine years for a drug to progress from the first stage of clinical trials to being authorised for a particular use by the EMA, compared with 7.8 years between 2000 and 2008.

“I don’t think this is about being over-cautious because of safety; I think this is regulatory red tape,” said Workman.

Isn’t that regulation a wonderful thing?

There is a theory that every civilisation is eventually strangled by the entrails of its own bureaucracy. We appear to be well along the road to testing that one out again. Perhaps we might want to change path before it truly mestastasizes?

Common errors of the Left

It can be depressing to have to revisit arguments won long ago, but some politicians continue to cling to errors that have been exposed, simply because they wish the world were other than it is.

1. Taxes do not change behaviour

In the real world taxes usually change behaviour. Tax increases put up prices, and people usually respond by buying less of something. Increased taxes on cigarettes might lead people to smoke less, but they also lead people to obtain cigarettes from lower tax jurisdictions, or from bootleggers. The result is that less tax is raised than was anticipated. The same is true for taxes on income. They make work and effort less attractive, and they encourage people to use legal means to shelter income from tax. People talk of increasing income tax "to raise more money," but it will hardly ever raise what they anticipate, and will sometimes even reduce the revenue.

2. Price caps make things cost less

In fact they reduce the price, not the cost, of producing things. If people cannot produce goods profitably at a price others will pay, the goods will not be produced. Price caps usually result in shortages. They might lower the price of current goods, but they will reduce the future supply. Price caps on energy will leave producers less to invest in securing and developing future supplies, and to cease producing energy from sources unprofitable at the capped price.

3. Minimum wages help the low paid

They might help those currently working at low wages, but they will reduce the number of jobs available to those looking for work now or in the future. Some firms have responded to minimum wage increases by reducing the number of hours employees work, some by installing machines such as self-checkout tills to reduce labour, and some have gone out of business because their costs became too high.

4. Corporations pay taxes

The source of taxation is somebody's wallet or purse. Corporations are not people, and they do not have wallets and purses. Their shareholders do, their employees do, and their customers do. This means that Corporation taxes fall upon some or all of those three groups. Studies show that about 60% of its incidence falls upon employees, reducing the wages they would have been paid without it. Of the remainder, some falls on customers as firms raise prices to meet the tax burden, and some falls on shareholders, making investment less rewarding, and less likely to be done, thereby cutting future jobs.

5. Improvements for the poor must be paid for by the rich

This is a version of the Zero Sum Game fallacy, of supposing wealth is fixed, and that gains to one group must come at the expense of another. In fact, wealth is created by trade and specialization and groups can become wealthier through growth, rather than by redistribution. Historically it has been the former, rather than the latter, that has improved the lot of the poor. This is also true internationally. Poor countries have become richer through trade, not through redistribution from richer countries. The UK created its wealth in the Industrial Revolution, and the world's wealth then was a tiny fraction of what it is today.

Mike Ashley and Chesterton's Fence

Chesterton’s Fence is a favourite of ours. The lesson being that you cannot decide that something’s no longer necessary unless you understand why it was instituted in the first place. This being a hurdle that Mike Ashley seems not to have cleared:

Retail tycoon Mike Ashley wants to see a 20pc tax levied on online sales and prison sentences for executives who consistently "fiddle" their way out of paying the levy, as part of his plan to save the country's "dying" high streets.

He said any companies with more than 20pc of their sales generated online should have to pay the tax, which would "level the playing field" in the retail sector and give local councils more money to help encourage people to shop close to home, such as offering free parking.

Yes of course this is drivel. No one should be paying extra taxes because they economise on expensive inputs like High Street retail space.

However, the bit that really interests, because we do so love Chesterton’s Fence, is that idea about free parking.

For why was the parking meter first invented? In order to increase retail footfall.

Yes, really. It was noted that the provision of free parking spaces meant that people would turn up, bag a space and then go to work or the like. Do something all day at least. By limiting the time a space could be used - the right way, by price - that meant that more people would use it over the day. Increasing the number of people in the area thereby and so that retail footfall.

Yes, certainly, charging “too high” a price can mean a diminution again. But it seems to be as with booze consumption. None, or no price, is as harmful as a lot, the it inbetween being beneficial compared to either. So with car parking pricing. Free doesn’t work.

Sure, new policy ideas are welcome but it does help if people understand why we’ve got the ones we do first.

I, Sandwich

We’d recommend checking out this great animated video in which Daniel Hannan MEP describes the wonders of the free market and the pricing mechanism using a story about…a chicken sandwich.

The newly anti-Brexit Mail amuses on Netflix

One of the great reverse ferrets in the newspaper industry is how the change from Dacre to Grieg has led to the Daily Mail becoming anti-Brexit rather than the previous rather vociferous pro-. Which does seem to be causing a little misunderstanding on certain of the reporting desks.

Here we’ve a complaint that Netflix is selling some vast amount in the UK, reporting little revenue, less profit and near no profits tax. Well, yes, it is, but why?

Netflix Services UK Limited – the company’s British subsidiary - employed only 14 people at its London office by the end of December, according to its most recent accounts.

Its British arm declared revenues of £23.9m (26.9 million euros) and pre-tax profits of £1.12million (1.27 million euros).

Netflix’s standard package for British users offers unlimited streaming for £7.99 a month. If the company’s 9 million subscribers pay around this much per month, Netflix makes £71.9million from its British subscribers each month. This works out to be around £863m each year.

HMRC could be looking into the transfer pricing deal between the British arm and its Dutch parent, which determines the amount of revenues that Netflix reports in the UK. Netflix did not explain why HMRC was examining its tax arrangements.

It’s not actually necessary for there to be any transfers, let alone abuse of transfer pricing rules, for this situation to happen or to be legal. All we need is the European Union’s own Single Market.

Any EU company, registered, domiciled and sitting in any EU country, may sell in any other EU country. And be taxed where it is registered, domiciled, sitting. Which is what is being done. Not allowing this would mean leaving the Single Market.

So, how’s the Mail’s opposition to Leave working now?

Madsen Moment — 10 years since the financial crisis

Ten years on from the Great Financial Crisis, Dr Pirie looks at the causes and asks if we’ve learned any lessons.

If taxes are killing a market, why not lift the taxes for all?

This sounds like a sensible enough proposal at first glance but then we find that it perhaps doesn’t go far enough. For we’ve an analysis that a transactions tax is killing market liquidity. This is something we would expect of course. So, therefore, lift that tax for some - but why not lift the tax for all?

Pensioners in large homes should be let off stamp duty fees to encourage them to move to smaller properties, a leading thinktank will recommend on Monday.

The study to be published by the Policy Exchange also suggests purpose built homes for “ageing baby boomers” would encourage more people to move and “free up more family homes for younger generations“.

That a transactions tax reduces liquidity is rather the purpose of them at times. That’s the point of the ludicrous financial transactions tax for example. Thus the idea that a transactions tax like stamp duty reduces liquidity in the housing market isn’t a tough one to follow. Reducing the tax in order to promote liquidity, that process of people buying and selling houses, seems logical enough. Reduce that slice spirited off into the bureaucracy from each sale and purchase and there will be more such sales and purchases, people will indeed be able to move to the “correct” size of dwelling for their life circumstances. Correct here meaning the outcome of their individual decisions unadulterated by that tax wedge.

However, there’s nothing in this at all which suggests that only pensioners should be so favoured. The tax wedge, if it reduces transactions in one part of the market, will similarly be doing to in other parts of the same market. So, we face the same problem. A reduction in market liquidity through over-taxation of transactions.

At which point the solution becomes obvious enough. We’ve a problem from over-taxation, the solution is to reduce that taxation. And to reduce it for all so as to free up that market from the tax-induced constipation.

Lower stamp duty won’t build more houses, but it will enable people to move to larger or smaller as desires indicate, meaning that it will increase the supply of housing.

Venezuela Campaign: The taps run dry for the Chavista revolution

Venezuelan President Maduro and his predecessor Chavez have an extraordinary ability to create scarcity from abundance. Venezuela has the world’s largest proven oil reserves, but now suffers from petrol shortages. There was once a flourishing agricultural sector, now children die of malnutrition and people have lost an average of 11kg in the past year.

Venezuela has the twelfth largest fresh water reserves in the world, but fully 82% of Venezuelans now lack access to running water. That’s worse than 20 years ago—in 1998 nearly 87% had running water. Three quarters of public health centres do not receive regular running water, and the breakdown of the sewage system in hospitals has led to a surge in patient deaths.

In a recent interview with The Venezuela Campaign, SOS Telemedicina Cursos’s Federica Davila exposed the shocking conditions inside the University of Central Venezuela’s hospital, where patients must flush toilets with buckets and human waste is stored next to beds.

Water distribution and sanitation networks cannot be maintained due to a lack of spare parts, and most pumps, valves, and pipes are significantly beyond their expected lifetime. Treatment plants lie abandoned and reservoirs are contaminated with sewage. Caracas’ water utility company Hidrocapital has only 20 of its 400 maintenance teams operational, leaving it struggling to maintain the city’s collapsing infrastructure.

Corruption has destroyed the functionality of the water and sewage treatment systems. Politicians have invested only token amounts after the shortages began in 2005. Keeping water prices artificially low eroded utilities’ ability to maintain their systems, and political loyalty has become the main criterion for appointments. According to Jose de Viana, a former President of water utility Hidrocapital, the sector has been fundamentally de-professionalised.

Maduro’s meddling has just worsened matters. Since 2014 the body responsible for the water sector has been constantly reorganised. The ‘Ministry of the People’s Power for the Environment’ was abolished in favour of the ‘Vice-Ministry of Ecosocialism, Housing and Habitat’, which was then subsumed into the ‘Ministry of the People’s Power for Ecosocialism and Water’, which was split into two, the ‘Ministry of Ecosocialism’ and the ‘Ministry of Water Care’. Since 2014 there have also been five different Presidents of Hidroven (the agency responsible for drinking water).

Access to water is something the UN demands as a basic human right, and which people in prosperous countries think very little about. But without running water people must spend hours a day searching for water that is often unsafe to drink, leaving themselves vulnerable to horrible water-borne diseases—illnesses that Venezuelan healthcare cannot treat due to a lack of water. Bacteria and mosquitoes flourish in the buckets of stagnant water people must store, driving up the prevalence of Zika, Dengue, and Chikungunya. The water crisis in Venezuela is just yet another aspect of the humanitarian crisis that corruption and mismanagement have brought upon the country.

More information on the Venezuela Campaign can be found on their website.