Why social housing hurts the badly off

Imagine we paid benefits entirely in food stamps. If we gave recipients cash—we worry—they'd spend it on stuff we don't like, such as booze and fags. To head this off, we give them £15,000 a year each in non-transferable food vouchers. Really, they only need about £5,000 in supermarket shops a year, but since they can't do anything else with them, they eat excellent food and shop only in Waitrose, while they scrimp and save when it comes to clothes, heating, transport, and housing. You'd much rather they gave you less, but they allowed you to spend it yourself.

This is crazy policy, right? But this is exactly what we do with social housing (and, indeed, housing benefit). When you secure a council flat, you are effectively being given the difference between its market rent and what you pay as an in-kind handout. Apart from the poorer council architecture, upkeep, and administration, it's almost identical to if they were paying your rent for you. The "economic cost" of the activity includes the difference between its most valuable use and its current use. If a tenant has an income of £10,000 but gets an additional £10,000 worth of housing each year from the council, it is a bit like forcing them to spend half of their total income on housing.*

Imagine council tenants were given the money in cash, instead of this implicit in-kind benefit, and councils sold their properties off to fund the payment, to be rented at market rates. One possible outcome is that they would re-rent the properties they are currently in, at the market rate. Indeed, I suspect that if this policy were really implemented, many would do just this to begin with. But over time, it's extremely unlikely that tenants would want to spend so much of their money on renting premium land in the centre of town—they would decide to move.

It might be countered: these people probably have jobs, families, friends or other connections in the area. This is true, and the appropriate way to weigh up these claims is letting them decide for themselves. 99.9% of Londoners make the same decision themselves, with cash instead of vouchers, if you include the benefit: we trade off cost of commute, range of amenities, and distance from friends. If we were forced to spend more, in order to live in a more desirable area than we'd pick on our own, we'd be worse off than if we could just choose how to spend that money ourselves. Council tenants are no different.

In fact, my initial analogy was far from the most general I could have made. The situation is much simpler: it's the basic parable of exchange under restrictions. The council tenant has something others want—a right to live somewhere—and that others would be willing to pay the tenant for. Indeed, most tenants would almost certainly accept this payment in exchange for moving out; they'd prefer the money. Both the prospective buyer and the prospective seller could be made better off if this capitalist act between consenting adults weren't banned. But it is.

*Actually, it may be interpreted a lower fraction: applying this method to housing implies we should apply it to healthcare, education, and pretty much everything else the state pays in kind. Housing is somewhat different because it's mostly a market, with few getting most of their housing from state bodies—replacing healthcare with a cash payment would require massive change in the market, replacing council housing would not.

Don't give money to them, give the cash to us, to us!

We're in the run up to the Autumn Statement so everyone and their grandmother is urging that our cash be spent on their pet projects. This always brings out the worst in people, of course:

Ahead of the autumn statement next week (Report, 18 November), we urge the chancellor not to answer calls from oil producers in the North Sea for another round of government subsidies. Instead, Philip Hammond should put an end to the taxpayer-funded bonus for oil and gas companies and set the UK on a pathway to a more prosperous, clean energy future. If the world is to deliver on the Paris agreement on climate change, most of the known oil, gas and coal reserves must remain untapped. Yet in spite of warnings about risks of stranded assets from the governor of the Bank of England, the UK continues to promote the production of yet more oil and gas.

Those people over there are blue meanies who shouldn't get any sweeties.

 the government must acknowledge that the transition to a low-carbon future offers a much larger benefit to the UK

But our ideas are perfectly formed and we should have all the sweeties there are.

There's an intellectual consistency to our position, which is that no taxpayer pockets should get picked for any of these varied desires and proposals. There's also such consistency is stating that government should just do everything - we obviously don't agree with that position but it is at least consistent.

But these cries that those pockets must be picked to spend upon the desires and incomes of those crying for pockets to be picked we find, well, repellent actually.

Shelagh Whitley Head of climate and energy, Overseas Development Institute,Stephen Kretzmann Executive director, Oil Change International, Mika Minio-Paluello Programme coordinator, Platform UK, Marc Stears Chief executive, New Economics Foundation, Dylan Tanner Executive director, InfluenceMap, Peter Wooders Group director, energy, International Institute for Sustainable Development, Mike Barrett Acting executive director, global programmes, World Wildlife Fund UK, Simon Bullock Senior campaigner, climate change and energy, Friends of the Earth England, Wales and Northern Ireland, Richard Dixon Director, Friends of the Earth Scotland

Something of a list of shame there really, don't you think? A list of people who insist that you must pay for their desires.

This is not a good idea, no, just not a good idea

We're pretty sure that someone around here is losing their minds:

The grass is always greener than the gas on the other side, according to a British businessman who claims grasslands could provide enough gas to heat all of the UK’s homes.

Dale Vince, the chairman of renewable energy company Ecotricity, is investing £10m in the first of a generation of what he calls ‘green gas mills’ that he says could compete against gas from fracking.

The company said its Hampshire plant at Sparsholt College, which has planning permission and is slated to be operational in 2018, will take grass harvested from nearby fields and break it down in an anaerobic digester.

Grass at the plant would be turned into biomethane within 45 days and then injected into the national network, providing the heating needs of more than 4,000 homes.

This might be sensible, might not be. Without seeing the numbers it's difficult to tell of course. However:

A report by Ecotricity on Thursday said there are around 6m hectares of suitable grassland in the UK, not including arable land for crops. It argued this would be enough to match the amount of gas the National Grid forecasts homes will consume by 2035, but doing so would require the building of around 5,000 mills akin to the Hampshire one.

Vince admitted that getting to that point would be a huge challenge, given no other country had done it before and it was a new approach in the UK.

“It would be a massive undertaking but it would be permanent. Grass keeps growing, it doesn’t run out, unlike gas from fracking. Most of the value would be in the hands of farmers who, post-Brexit, may be in need of it,” he told the Guardian.

Each of these green gas mills requires about 4 acres of land. So, we're to put 20,000 acres of land underneath factories. Entirely gut the total livestock industry by diverting its major feedstock, God's green grass. As opposed to drilling a few holes in Lancashire.

And we're going to do this in the name of preserving the environment? 

Someone around here has lost their minds and we're really pretty sure that it's not us.

We have to admit that we didn't know this

It is thought that Donald Trump might decide that the US won't in fact even try to ratify the Paris climate accord. About which Bill McKibben says:

So Trump faces a dilemma. Does he please his most extreme friends? If so, he will own every climate disaster in the next four years: every hurricane that smashes into the Gulf of Mexico will be Hurricane Donald, every drought that bakes the heartland will be a moment to mock his foolishness. That’s how that works.

We do have to admit that we didn't know that. 

We're aware that some of the climate models do predict more hurricanes as a result of warming, that's true. The possibility of drought is said to go up, that's also something often said.

But we really are pretty sure that both hurricanes and droughts have happened before climate change, just as they'll happen during and after it. 

Further, even the theory itself does not predict that emissions in 2030, just to pick a date, will cause hurricanes or droughts in 2019. Which is rather the point that McKibben is claiming, isn't it? For the accord talks about limiting future emissions, not about those already emitted. And current weather, even current climate, is all about the emissions that have already been so emitted.

It is of course possible to clear up our confusion. By assuming that McKibben is just churning out the propaganda to fill the column inches - but no one would do that over something as important as the global climate, would they?

If Stamp Duty is too high then it will raise the unemployment rate

Lord Lawson has called for a substantial cut in stamp duty - we agree:

Stamp Duty levels are “crazy” and must be reversed to stop a “tax on mobility”, former Conservative Chancellor Lord Lawson has said.

Lord Lawson said Philip Hammond, the current Chancellor, should cut stamp duty in March’s Budget and increase other taxes to pay down the deficit.

The comments came after research found Stamp Duty reforms have slowed the housing market and raised half as much money as the Treasury predicted.

It's not just that Osborne was politically too clever by half as a Chancellor, it's that such transactions taxes clog up the market. And with housing that's really not something we want to be doing. For if we've a housing market too constipated by the transactions costs then the unemployment rate is going to be higher.

It's well known that if the portion of housing which is owner occupied becomes "too high" then we end up with a higher unemployment rate. Labour mobility is a necessary part of the allocation of labour across work to be done. It  costs a substantial amount of money to buy and sell a house. The more it does, the less geographical labour mobility and thus the higher the unemployment rate. 

We thus desire to have a substantial private rental market which provides that lower cost mobility. And no, council housing doesn't cut it - that market, at least to move across local authority boundaries, takes even longer than the selling and buying of houses.

Of course, it's terribly tempting for a Chancellor, when he sees someone cashing a cheque for hundreds of thousands, to insist that he has a piece of it. But any substantial stamp duty upon housing is going to turn up as a cost elsewhere in the economy, in the costs of the dole.

The Neoliberal answer to the BBC

Would you pay for a complete stranger to go to the cinema? Probably not I suspect. So why then, should you pay for the television of a complete stranger, most of which you will likely have no interest in seeing, let alone have heard of? This is precisely what us Britons do, but not gladly. An ICM poll in 2013 revealed that 70% believe that the licence fee should be abolished or cut. 

Undeniably, the BBC is an incredibly important institution to many Britons. Its programmes are the first thing thousands watch when arising for work in the morning, and often the last thing before bed. Whether it’s the iconic “Planet Earth” series, or Andrew Neil’s late night yawn-athons, people love the inspiring and original content that the BBC often comes out with. But this love often clouds judgement and prevents sensible debate about the BBCs future, and how it could make a greater contribution to the UK creative economy. 

It could begin its path to greater contribution by first abolishing the licence fee, which has long been the main source of income for the BBC. Broadband countrywide renders such a licence obsolete for many. At the click of a button you can watch any BBC show for free. Indeed, economist Tim Congdon has argued that technology has nullified the justification behind public service broadcasting in the first place. 

Shifting to a voluntary subscription model would encourage the BBC to compete globally with the big US studios, export more high quality content overseas and spark significant growth in the UK broadcasting industry. This is as well as giving a significant contribution to the wider economy in the UK. 

Subscription TV is the medium’s fastest growing revenue stream. So it is perhaps telling that soon the world’s most popular motoring show Top Gear, will be aired on Amazon Prime. This medium, more than any, has the ability to not only meet, but also monetise the diverse tastes and preferences held by us eccentric English people. Subscription services have in the past been responsible for some of the most remarkable television ever made. These include Breaking bad, House of Cards and Orange is the new Black, and that’s just counting a few from Netflix. 

Unfortunately, the BBC’s ability to produce shows for all to enjoy has recently come into question. Head of television Danny Cohen has admitted that the BBC “couldn’t compete with the amount of money that Netflix were prepared to pay” for programmes that are considered “a classic BBC subject” like Netflix’s £5 million an hour The Crown. Maybe he should ask why, if independent producers like Netflix are willing to pay for high-quality series like these, the BBC should be competing at all. A subscription service would give us a British Broadcasting Corporation that can compete, that can afford to keep the Great British Bake off and can continue producing Planet Earth. An institution that were not forced to own, and that we’re proud of.

Since most people watch the BBC, why shouldn’t most people be given the option to pay a subscription for it? Why should you be forced to pay for channels that you don’t want, simply because you own a television? Voluntary subscription (with some subsidy for core public service content), would enhance ownership, involvement and participation. The best outcome could truly be had for all, and people wouldn’t be criminalised for not paying for a service that they never use. Perhaps then you would agree, that the BBC would be better off as the BB fee.

Harry Reid’s Ring of Power

“To keep it hid and not to use it. You are a new people and a new world to me. Are all your kin of like sort? Your land must be a realm of peace and content, and there must gardeners be in high honour.” – Faramir, The Two Towers, J.R.R. Tolkein

The expansion of government is both accelerative and fracturing. As the power of Washington grows, the incentive to possess and wield it increases. Unlimited capacity in the hands of the wrong people spells catastrophe, and even when the right people come to power, they are driven to use, rather than constrain, authority accumulated by the previous administration. This creates a volatile political see-saw, and makes an unstable foundation for enduring institutions. Many people consider Donald Trump to be the wrong people par none, but it is important to note that any fear of him stems not from his personal characteristics, but because he will be vested with all the powers of the presidency. These powers did not spring from thin air, but were gradually erected as institutional checks on the presidency were torn down. If a victorious opposition to Trump is to create a realm of peace, and avoid setting the stage for subsequent authoritarians, it must comprehend how he has been empowered.

After President Obama’s re-election in 2012, Republicans, then the minority in the Senate, refused to vote for several of his executive-office appointments and judicial nominees. The senate has historically required a supermajority of 60 senators to approve executive appointments, though changes to traditional senate rules can be made with a simple majority of senators. The ability to alter appointment approval thresholds with a simple majority vote, known as the nuclear option, had been threatened in the face of past minority obstruction, but never used. Democratic Majority Leader Harry Reid argued that in the face of unprecedented Republican opposition, a rule change was the only way to advance Obama’s progressive agenda. Instead of accepting that they could not accomplish all they wished to, Senate Democrats altered the threshold for executive appointments, ending a two hundred year tradition of resistance of majoritarianism.

NASA’s director is appointed by the president, and approved by congress. Under Obama’s presidency, NASA increased spending on earth sciences, attempting further our understanding of climate change. Trump has promised to slash its earth science budget and hand responsibility for climate oriented missions to the National Oceanic and Atmospheric Administration. If you are a voter concerned about climate change, you may not like this shift, however, because of Harry Reid’s rule change, Democrats cannot force Trump to appoint a NASA director with even marginal interest in earth sciences. If you are concerned about something else, remember that the Secretaries of Defense, State, Environmental Protection, and many more are appointed in the same way.

Supreme Court nominees can still be filibustered, requiring a 60 vote threshold for approval, however, this too can be changed by simple majority vote. Reid’s elimination of the appointment filibuster has been cited as precedent for its elimination with regard to Supreme Court nominees by both the left and right. Expecting a Clinton win, Tim Kaine threatened use of the nuclear option in the face of expected republican opposition to her SCOTUS nominees, while Johnathan Adler, a law professor at Case Western University, writes “Given Reid’s decision to go nuclear in 2013 — and threat to go further, if need be — there is no reason for Senate Republicans not to eliminate the filibuster for nominations once and for all”. Expansions of majority power both transfer losslessly to new majorities, and pave the way for the further expansion of their authority.

Donald Trump the man might be a short-fused reactionary, but he is not a naturally licensed tyrant. He inspires fear because he is the president, supported by a slight senate majority, a position empowered tremendously by those who last held it. While they may wish this power away, they cannot rebuild the norms they have toppled. Mitch McConnell is now the only senate check on Trump’s appointment ability, Harry Reid may have crafted the ring of unlimited appointment power, but it is no longer in his hands. When one side’s winning grants it carte blanche authority the loser, all factions will be less concerned with accepting stable transitions of power than stopping their opponents at all costs. As minority rights are weakened, democratic solidarity and the rule of law weaken as well. In response to potential Republican use of the nuclear option, Albany Law School professor Peter Clark has suggested refusing to accept the decisions of Trump’s Supreme Court pick as precedent, a move which would drastically destabilize the American legal order. Regardless of your political stance, if you are to secure your rights in the long term, you must resist the urge to exploit inherited power. Remember that at some point that power will be wielded by your enemies, and toss it into the volcano.   

The Milton Friedman agenda

When I was younger, I used to think of Milton Friedman, who died on this day ten years ago, as a great man who’d changed the world but gotten a few things wrong. His books, Youtube clips and Free to Choose series made me a liberal. But my liking for Austrian economics persuaded me that he had been wrong about monetary policy and economic methodology; my belief in private charity made me think his negative income tax was unnecessary.

The arrogance of youth! The older I get, the more I realise that Friedman was right about pretty much everything, and I wrong. And, as my friend Dan Klein points out, he gets the credit he deserves – in all the classical liberal pantheon only Adam Smith is more widely respected by liberals and non-liberals alike. Eamonn’s discussion of Friedman’s life is a must-read, and Madsen's new video about him is brilliant.

He deserves to be recognised as one of the leading lights of modern capitalism. But there’s a lot left in the Friedman agenda that still needs to be done. Here at the Adam Smith Institute what we do in policy terms is a continuation of Friedman's priorities.

  1. Drug legalisation. Friedman, a long-time advocate of the legalisation of drugs, argued that “the harm that comes from drugs is because they are illegal”, as rising costs led to drug users switching to things that give a stronger hit for a given amount of money. He would have been heartened today to see the rapid move towards legalisation and regulation of cannabis in the United States, a move that seems to be gaining momentum in lots of developed countries. We have a paper on what this means for Britain out next Monday.
  2. Monetary reform. Friedman’s greatest achievement, and the one that won him his Nobel Prize, was to recognise and demonstrate that “Inflation is always and everywhere a monetary phenomenon” and that the Great Depression was, above all, caused by bad monetary policy – in that case, excessively tight money. Friedman also realised that the stagflation of the 1970s was caused by excessively loose money. Some mistakenly characterise him as a hardcore anti-inflation advocate for this reason, forgetting about his other work. He was neither a consistent dove nor a hawk – he wanted monetary stability and realised that the discretionary approach to central banking, where a panel of wise men made all the decisions, could not produce that. Instead he wanted rules that were predictable for markets and designed to keep the macroeconomy on an even keel. As Scott Sumner argues, he probably would have supported nominal GDP targeting if that had been a live issue while he was alive. And he supported quantitative easing for Japan in the 2000s. Our Sound Money paper is in this tradition, though we would ultimately like to see central banks scrapped altogether.
  3. Negative income taxes. Friedman worried about welfare creating a poverty trap. Since minimum wages can cause unemployment, Friedman favoured replacing most of the US welfare apparatus with a Negative Income Tax that topped up low-paid workers’ wages in a way that made work always pay more than welfare. That nearly made it into law under Nixon, eventually through a second-best compromise of an “earning income tax credit”, a cash transfer to poor workers. Our Free Market Welfare paper made the case for this, and we've done a huge amount of media and events work promoting this solution to the problems with welfare.
  4. School choice. Why should only rich parents be able to choose the school their children go to? Friedman pushed for school choice throughout the later years of his life so that competition between schools and independence from a central authority would drive up standards for poor children. We’re halfway there – free schools in Britain emulate this, imperfectly, and where charter schools in the US have been allowed they’ve been amazingly good for kids from poor backgrounds, in terms of lifetime earnings, pregnancy rates, incarceration rates and math skills – especially for non-white kids
  5. Economic methodology. This might not sound sexy, but it’s a very interesting one. Some economists do it with models, but Friedman was a hardcore empiricistpioneering a “natural experiment” method that has now become one of the most effective tools in economics. This approach looks for special events in history that allow us to filter out complicating factors, so that we can identify effects of a single cause we’re trying to understand – like a boatlift of Cuban refugees, which allows us to isolate the effects of a large influx of immigrants into a city’s economy. This lets us dispense both with deductive theorising and abstract modelling in favour of testing our hypotheses against reality.

And of course Friedman made the case for lower, simpler taxes; for free trade between nations; for a liberal, but controlled, immigration policy; for giving people control over their own lives. And he did it with a smile.

I’ll leave you with the words of Milton Friedman himself: “A major source of objection to a free economy is precisely that it gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.”

It's in that spirit that that we here at the ASI try to continue his great work.

Of all the strange things to complain about

Mars and others have decided to aid poor African farmers by doing the sort of research into plant genetics that hasn't been done as yet, given that these are generally peasant, not commercially farmed, crops. We'll all end up knowing more about these crops, be better able to selectively breed them and just in general this is a good thing.

Therefore people are complaining

Critics of the project say efforts to map the genetic data of crops are more likely to help private companies moving into new African seed markets rather than smallholder farmers.

Mariam Mayet, director of the African Centre for Biodiversity, said: “What are farmers going to do with gene sequences? … These top-down, techno-fix solutions sound good, and sound like we’re entering the 21st century, but they’re not what small farmers need.”

Patrick Mulvaney, at the UK Food Group, said that even if genetic data is freely available online, “the only ones that can really make use of it are the big companies”. He suggested corporations “want orphan crops too, to consolidate their control” of global food systems.

Sigh. There is no way that the poor can be made worse off as a result of this new knowledge.

Imagine that the knowledge does lead commercial breeders to design better crops and then sell them. The old varieties will still be available, it will still be possible for those peasant farmers to save some of last year's crop to plant this. They might, possibly, want to pay for the commercially bred seeds but this will be true only if that is of net benefit to them.

Thus the only possible end results of this is that they will be better off or that they will be just where they are today. Matters getting worse is not one of the available options the universe is offering us here.

Quite why people are complaining about a zero risk opportunity to make things better we're just not sure. But there it is, they really are complaining about this.