mandrocles

[mandrocles]

Dead-ends

The main characteristic of many houses in England is that most of their features are meant to be petty imitations of the features of a mansion of a lord of the manor. One of these features is that the mansion usually has a private tree-lined avenue that usually curves from the public road to the front entrance and indeed many english houses have a private drive-way that is several meters (instead of a tree lined avenue of 100m or 1km) long from the road to the entrance.

But that is not all: many english houses are in "estates" (same work used for the large park and buildings of the residence of a lord of the manor) that have private roads from the public road and these have a branching tree-like structure so they all terminate in dead-ends ("cul-de-sacs" is their posh name) giving a feeling to property owners that even if the road is shared with neighbours at the end and with every other estate resident at the entrance they are like the avenue to a mansion.

These dead-end private roads are indeed very popular and their usual excuse is that living at a dead-end is quieter and reduces maintenance road maintenance costs as there is no through-traffic, just like for the avenue leading to a mansion. Therefore english towns and cities are full of "estates" with a single or perhaps two-three entry points to a tree of dead-end roads, estates which do not allow through-traffic at all, or sometimes when they do it is very slow because of the roads are all curved instead of straight.

That means that the few public (and usually straight) roads that remain are the only ones that allow through-traffic and all the property owners of the estates must share them to get to the entrance to their estate. All these property owners therefore do most of their commute to and from work on heavily congested public roads just to have the smug satisfaction of enjoying a quick ride through their quiet and private (but shared with every other estate resident) road for the last few hundred meters of their commute, even more satisfyingly ending in their own private and unique driveway of several meters length. They are also very smug that owning a property in a dead-end enhances its valuation increasing their property profits.

While a few dead-end avenues to mansions of lords of the manor do not significantly impede traffic when every petty property owner craves their petty imitation dead-end alley allowing no through-traffic every one of them loses out as that creates large areas which are impassable. But still every petty property owner is so smugly content that they do live in a dead-end and screw-everybody-else, which from the point of every other petty property owner is them.

Who really gets ahead? Usually only older people and retirees, who like the lords of the manor live off investments, so do not need to commute and rarely need get out of their petty imitation mansions and do enjoy the peace of quiet of their own dead-end.

[mandrocles]

Why UK private sectors builders build slowly

So in the UK in areas with jobs (London and surrounding regions) the prices of residential houses keep doubling every 7-10 years (7-10% yearly growth) but house building is very slow and way below what is achievable.

This seems strange because by building more houses and selling them house builders can cash-in on this asset price boom. The common explanation is that they do not do that for because:

More housing would moderate the rate of increase of houses.

This would reduce their future profits.

But this explanation does not really work well: without building and selling they cannot realize their profits. But that is not necessary:

What actually is expensive in housing is not the house, but the land with residential housing permission.

Increases in price of the land can be effectively cashed-in by the executives of builders who own that land or by the executives of the land speculation businesses who own that land without selling it.

Instead of selling it they can mark it every year to higher market prices, and then recognizing the increase in booked price as a profit, and then pay themselves large bonuses on those book profits (this can be helped by making clever transactions).

Making book profits is pretty much effortless and cost-free, and to those executives must seem much better than selling the land or building on it and selling it.

Of course they still do some selling and building to generate cash-flow from which to pay themselves those book profits, but not that much is needed.

[mandrocles]

Clever inflation techniques

So in recent times I endured some interesting manifestations of some common clever sharp practice which is for a company to cancel your existing contract and then tell you that they assume that you agree to a new contract which is either much more expensive or has much reduced benefits.

Fortune.com terminated my "Digital" contract with a cost of $60 per year for 6 issues and archive access, and assumed I agreed to a new "Premium" contract for $227.40 per year with the same content but unrequested extra benefits I did not care about.

Since they publish 6 issues per year that means each issue went from $10 each to $37.40 each by subscription yet on their own online shop they charge $12.99 per issue and a number of online newsstands charge less. This is clearly ridiculous, so my guesses are:

Setting the price of the new contract to more than 3 times that of the old contract while promising unrequested extra features is going to crash their subscriber numbers, also because $227.40 per year or $37.40 per issue is extraordinarily expensive, way more than comparable publications.

Regardless I guess that many subscribers (in particular institutional ones) will just renew blindly, and then cancel in a year's time when they realize how much they have paid.

One possibility I thought of is that perhaps Fortune is collapsing and its executives want to squeeze one last gasp of revenue out of their existing subscriber base even if it will later shrink a lot, to award themselves one last round of huge bonuses before "retiring". I hope that is not what is going to happen, because Fortune has been for decades a high quality publication.

So I complained, stopped using the site and then cancelled my subscription, but they still charged me for the already elapsed part of the subscription period.

Then recently Netflix terminated my "Basic" contract for £6.99 per month, and assumed that I had agreed to a new "Standard with adverts" contract for the lower price of £4.99 but with reduced benefits (except for features that do not matter to me); a new contract type called "Standard" is more similar to the old "Basic" (no adverts) contract and now costs £10.99, over 57% more.

Here obviously Netflix reckons that "Standard with adverts" and "Standard" will bring in the same revenue, including those for advertising, so in effect their take per contract will increase by over 50%, thanks to advertising revenue for "Standard with Adverts" and to a large increase in contract price for "Standard" over "Basic".

That will not cause a large fall in subscriptions over time, but Netflix has had many cancellations, and I guess their current executives too want to squeeze their dwindling subscriber base as much as they can in the short term, and the future consequences may well be a problem for someone else.

Something similar happened at Amazon: the terms of my "Prime" contract were changed to include advertising in "Prime Movies" for the same price of £95 per year, and the previous terms are available for an extra £2.99 per month or 37.7% more.

There are aspects that are common to most or all cases:

The previous contract was terminated and I was assumed to have agreed to a new contract which was far more expensive.

The benefits of the new contract are designed to be somewhat different from those of the old contract to prevent an exact like-for-like comparison, even if they are substantially the same or else the new contract would not be offered as a replacement for the old one.

Computing and networking costs for both online magazines and online movies are still falling every year, yet pricing goes up.

My impression is huge price increases of contracts for online subscriptions are part of a government-supported policy fundamental change in real wage levels, as so many prices are inflating yet wages in general are not catching up, making UK workers a lot more "competitive" in the race to the bottom.

[mandrocles]

The essence of left-right politics

The essence of politics is simple:

Whether it takes longer find a tenant or a buyer for a property or to find a place to rent or buy.

Whether it takes longer to find an employee for a business or to find a job for someone unemployed.

If you are better off when it takes longer to find a place and it takes longer find a job you are right-wing and you are left-wing if you are better off it it takes longer to rent or sell or to find an employee.

[mandrocles]

Purchasing power

In several discussions online and in person about money, credit, taxation, spending, and economic policy in general there is a common use of overloaded, not well defined terms like "money" in particular, but also the rest of the above.

As to topics like distribution of income and relatedly inflation, money, credit, I have found that they become a lot clearer if one talks of purchasing power instead, at least in a political economy where many or most goods and services are commodities traded in markets, instead of being self-produced.

Purchasing power is what after all most people care about: they want income, money, credit, wealth, etc. in order to buy things, that is they want purchasing power, whichever form it assumes.

When a Real American says something like "I wish to make money fast" or "I always hustle to make money" what they really mean is that they want more purchasing power, usually they don't want to just accumulate bigger numbers in a bank account or more banknotes or coin in a vault (even if some do because to them that is a way to keep score).

So a large part if not most or all of the study of the political economy is to figure purchasing power and there are two large subtopics:

How purchasing power per person increases, that is how productivity increases (the development problem).

Who gets which slice of existing purchasing power, and how they get it (the distribution question).

So when reading economic or political news or discussions, the two most prominent questions are:

In the long term how does this affect the amount of purchasing power per person?

In the short term how does affect whom gets more or less purchasing power?

Note: an often forgotten distinction is that between GDI ("Gross Domestic Income") and GDP ("Gross Domestic Product"): GDI (expressed usually in currency terms) is in effect the total purchasing power in a state, and GDP (which also for this reason should be expressed in physical terms) is what can be bought with that purchasing power (plus net imports).

[mandrocles]

Technology vs. resources

There is a long standing line of argument that higher living standards today compared to centuries past are due to technology making everything more efficient, and the usual example is Adam Smith's story of the higher productivity from division of labour and specialization in pin factories.

An extension of that argument is that it is capital intensity and machinery that increases efficiency of production.

My impression is that there has been some element of that, but actually production processes have become far less efficient, even if at the same time cheaper.

Consider road haulage: a modern truck can carry larger loads more quickly than a cart driven by oxen, and is much cheaper too per unit of weight, but only by being enormously less efficient: the amount of energy per unit of weight carried needed for each truck trip is much greater (because of the higher weight of the vehicle and the higher speed it can run at) than for a cart driven by oxen, and similarly for the capital cost of the truck.

The reason that overall the diesel powered truck is much preferable economically to the hay fed oxen driving a cart is that the cost of diesel is much, much lower than that of hay for the same distance and weight carried, and that makes a much less efficient technology actually rather cheaper than a more efficient one.

The same applies to air haulage. However flight is one example of actual technology improvement, as today it is possible to build an air-frame efficient enough that human-powered flight that was not possible with older technology is currently just about possible.

For a final check consider sea haulage: diesel powered shipping is still cheaper than wind powered shipping even if wind is free of charge and diesel is not, and ships with engines are more expensive than ships with sails, and that's because diesel is so very cheap and allows greater speed and loads.

[mandrocles]

Inflation and bus services in England

The english government (like most of those of "the west") has adopted a policy of rapid inflation for a few years to make real wages more competitive, and has different types of consequences.

For example restaurant prices have increased a lot, and this has led to a number of restaurant closures, as the number of people who can afford eating at a restaurant has dropped.

This has had a different effect on bus services, because while restaurants are attended by people of several different income levels, so that higher prices can just select people with higher incomes, leading to a moderate fall in custom, bus services are almost only used by low income people, who cannot very much pay higher prices, so an increase in bus prices would result in a much bigger fall in custom than for restaurants.

Note: the situation is so dire that even the current far-right Conservative government has decided to subsidise bus services with a cap to £2 of single tickets.

Since this means that the bus services businesses cannot raise price a lot, they have instead been dropping the service level a lot, by making services less frequent and less reliable, with probably negative slack, that is capacity that is always short of demand.

This is also happening in many other price-sensitive areas, from the NHS to local councils in low income areas.

[mandrocles]

Preference for liquidity is important

J.M. Keynes wrote many interesting things in his book "The general theory" which were ignored or distorted by many other economists, and perhaps the most interesting is the concept of liquidity preference, which properly understood has quite important aspects.

The reason to me seems that the role of many economist is to praise those owning much capital, and one way is to claim that those owners are virtuous: by not spending their income or wealth, by abstaining from consumption, they provide savings to finance investment, and interest and profit are their reward, so the more reward they get the more they will provide savings to finance more investments.

But J.M. Keynes pointed out that unless it is physically hoarded somehow the money that people claim to "save" is always actually spent to buy some sort of investment: even just leaving them in the bank means investing those funds in a loan to the bank.

Therefore investors always spend their non-consumed money to purchase some kind of investment, and what matters a lot to them is its effect on the liquidity of their portfolio: they will prefer more liquid investments if their portfolio is already more illiquid than they wish, that is if they reckon that future investment purchases will yield more than present or past (already invested) opportunities.

So owners of much money don't virtuously sacrifice their consumption to save to finance enterprise, but rather switch from less liquid (and usually longer term) investment purchases for more liquid (and usually shorter term) ones.

Then there are two types of investment activities:

To buy assets low to sell them high, that is to speculate.

To buy inputs to production to produce and sell the outputs, that is to finance enterprise.

In general to finance production is less liquid than flipping assets, as production takes time and also often requires scale.

Therefore when the preference for liquidity increases far from financing enterprise "savers" switch massively to financing speculation. Such as the enormous government-supported speculation on housing rents and prices in the UK and the USA (and several other countries) where the vast majority (90-95%) of financing goes to mortgages (and trading stocks on margin).

[mandrocles]

The missing detail

I was belately reading Cory Doctorow's The End of the Road to Serfdom article about the fight by the ruling oligarchy of "the west" against too many resources being consumed by their working classes, and much of the content is a clear depiction of how successful that fight has been:

“Once that inequality tipping-point is reached, society grows inexorably more unequal and more unfair, as our rules change not merely to favor the rich, but to disfavor the poor”

“The thirty glorious years came to a halt at the end of the 1970s, when the wealth of the few had recovered to the point where the richest 10 percent could begin to nudge policy to their favor and everyone else’s detriment.”

“Margaret Thatcher, Ronald Reagan, Brian Mulroney and other neoliberal politicians swept into office on the back of a campaign to blame social mobility for oil shocks. Once these plutocrat-friendly politicians captured politics, they set about refashioning it, striking hard against labor rights and public institutions.”

“We’d go back belowstairs, we’d learn to tug our forelocks again. We’d stop competing with their inbred darlings for spots at top universities”

There is however a major issue with that story: it is missing an explanation of how it is possible that in developed countries where 80-90% of families derive their income from wages and pensions and social insurance, so many voted for cutting workers wages and pensions and social insurance. That is not consistent with only a small minority of “the rich” benefiting from big upward redistribution.

That missing explanation is both absolutely crucial to understanding the politics since Reagan and Thatcher and quite simple:

A large minority and perhaps even a plurality of workers have made a lot of money from rentierism, 20% to 40% of voters, so vote for more plutocracy, because they regard themselves as rentiers more than workers.

A lot more workers survive into old age and enjoy good pensions thanks to social-democratic policies, but have therefore turned from workers to full time rentiers. making rentiers a much larger percentage of voters. In the past many retirees lived thanks to the support of their working children, so had a direct stake in better wages and working conditions, now that they derive most of their income from their pension and real estate assets to them better wages have become an increased cost.

Those voters profited from enormous upward redistribution from those poorer than them thanks to being also owners of real estate assets (and stock shares in the USA), which have been doubling in price every 10 years for a long time.

The ruling class have not fooled many middle class voters into voting for lower wages and pensions and social insurance against the self-interests of those many voters; they have ensured alignment of interests by ensuring that decades of rising asset prices and rising rents redistributed to both the many middle class voters and the ruling class enormous amounts from the lower classes.

It is astonishing that the author of that article does not wonder why the governments of the past several decades in most of "the west" have been voting to lower wages, pensions, social insurance, and does not come to the obvious conclusion that for many middle class voters the colossal profits they make on their real estate (and stock shares) drive their voting (“From the minute the average couple buys a home they're constantly calculating how much they'll make when they sell it””). The past several decades have been the era of mass rentierism.

It is largely futile to complain about the increase in inequality without taking into account mass rentierism, and in particular that many if not most of the potential political leaders of the workers are real estate (and stock shares) speculators and are making enormous profits from them and badly want to continue to make them at the expense of everybody else.

It is not at all surprising to me that those potential leaders and so many middle class voters are keen on the politics of identity conflicts rather than on the politics of conflicts of interests, because their interests are not aligned with those of most workers.

It will be possible to change policies only when a large part of the middle class reckon that good wages and pensions and social insurance are more valuable and more secure than the enormous profits they have been making on asset speculation.

[mandrocles]

Poll taxes and tax morale

Summary: proportional tax rates pay not only for state services, but also for lifelong insurance against the risk of becoming too poor to be able to buy them.

Having mentioned this before in the context of state health insurance, it is a topic that comes up often and very few people on the economic left or the libertarian right seem to understand it or to want to understand it.

Tax morale is the willingness to pay taxes, and economic left people seem astonished that in effect many on the economic right object not just to progressive rate taxes, but they also object to flat tax rates, and in effect they want flat tax amounts, or poll taxes.

The reason is however obvious: many on the economic right look at state services in terms of purchasing a product, and they resent that flat (or even more so progressive) tax rates mean that the same package state services are "sold" below cost to poor people and way above cost to rich people, or even worse, that the package of state service "sold" to poor people for less is bigger than that "sold" to rich people for more.

The point here is that with flat tax rates of 30% the same package of state services is "sold" at a price of $3,000 to those earning $10,000 or $15,000 to those earning $50,000 or $300,000 to those earning $1,000,0000, when the cost of the package is probably around £15,000.

Because richer people often are tough negotiators always seeking to buy low and sell high, sometimes as a matter of personal principle and pride, they are outraged that the "jackbooted thugs of the government" are "forcing" them to pay a price many times more than the cost of the package of state services. That seems to them price gouging.

What economic leftist usually fail to explain, because they believe that rich people must pay more merely because they can afford to, is that there is actually no difference in the price of the package of state services between rich and poor people, but the proportionality buys lifelong insurance against the risk of becoming too poor to pay for the standard package of state services.

The correct perspective is that the standard package of state services is not purchased every tax-year and by individuals, but in advance for a lifetime as a group buy by all residents, and it is paid in instalments, and that includes very valuable and expensive insurance against being unable to pay the full instalment every year.

What if one does not want to buy the standard package of state services because they think it is poor value for them? It is possible to take personal responsibility and shop for membership in another state, there is a wide market in state memberships, with many different prices and schemes.

[mandrocles]

Absolute debt levels have a macroeconomic impact

It is common if weird fantasy of neoclassical Economists that absolute debt levels don't matter because debt is always owed by someone to someone else, and therefore the net effect is zero, and even if a borrower defaults, this merely means that the debt has turned into an unexpected donation from creditor to debtor.

It is a weird fantasy because:

Balance sheets matter: the balance sheets of creditor and debtor may look very different, and default can impact them very differently, with chain reactions. But in neoclassical economics balance sheets simply don't matter.

The debtor and creditor may have very different preferences for liquidity, and that is indeed the basis for lending: creditors want to be less liquid, and debtors want to be more liquid. Differences in preference for liquidity influence macroeconomic behaviour.

In the common but special case of banks lending there is no transfer of liquidity from creditor to debtor, but the creation of new liquidity as both an asset and a liability on the bank's balance sheet. After "depositors" lend money to a bank ("deposit" that money into "their account"), the bank does not take that money it has on loan from the account of its lenders ("depositors") and transfers it to the account of its own borrowers. Note: if a bank has $1m because a single "depositor" has lent to it $1m in their "account", and then makes a loan to someone else by crediting the borrower's account with $1m, that does not mean that the "depositor" accounts now has a balance of 0 because the $1m "deposit" has been lent out; both accounts have a balance of $1m. If a third party then is paid $500k from the "depositor" and $500k from the borrower, the accounts will have $500k, $500k, and $1m. Such is the miraculous world of bank double entry accounting.

Therefore bank lending and defaults change both the composition of balance sheets and the total amount of liquidity and its distribution and both can have large macroeconomic effects.

[mandrocles]

Neoliberalism in brief

Of the endless debate about what "neoliberalism" is, the important thing is in which essential way it differs ("neo") from classic ("whig", "libertarian") liberalism, and I think that can be answered briefly, as libertarianism mixed with rentierism:

Tight fiscal policy, loose credit policy.

Globalist "whig" on labour, goods and services markets but nationalist "tory" on asset markets.

Small government spending as to supporting people and industry, big government spending (including massive central bank intervention) as to supporting finance, real estate, military contractors.

The political background is that while classical liberals were in large part "new money" whig industrialists fighting "old wealth" tory rentiers, in the neoliberal era many industrialists are allied with rentiers because they have become in large rentiers themselves, having over time used "new money" to acquire "old wealth", so their interests are in part "whig" and in large part "tory", and this has allowed a resurgence of "tory" politics along the dominant "whig" ones.

«the Amstrad founder had given him tips on creating long-term wealth. “Lord Sugar said you make money from property and do business for fun. Many of our customers make money from property and I’d love to go into property development one day,” said Mr Wright.»

[mandrocles]

Consumer surplus, opportunity costs

There is a concept in political economy that even neoliberal Economists acknowledge which is that of "consumer surplus", which is the difference between the highest price that a consumer would pay for a commodity, and the prices actually paid. The highest price that a consumer would pay for a commodity is in effect its value to the consumer, expressed in money.

Neoliberal Economists are very fond of using consumer surplus arguments when claiming that technology is substantially improving the living standards of consumers, for example that "free" internet services are worth £19,560 per year to consumers.

But it is not a popular topic otherwise because the claim by Karl Marx that employees are exploited is that employers enjoy consumer surplus from their work. Consumer surplus is a good topic when the consumers are the employees, but not a good topic when the consumers are the employers.

However consumer surplus is very important to understand how the modern political economies have evolved and what drives the living standards in them:

Currently in modern economies agriculture accounts for a couple percent of GDP and manufacturing a couple dozen percent of GDP, yet they comprise the largest part of the living standards of the people.

Agriculture developed in such a way to generate a massive consumer surplus, as intensive cultivation developed thanks to better practices, use of fertilizers, and use of machinery, as prices of food fell way below the maximum prices consumers would have paid and did pay in earlier times.

Industry (including manufacturing and transportation) developed in such a way to generate a massive consumer surplus, as standardized production with machines became common, and actual prices of products fell way below the maximum prices consumers would have paid and did pay in earlier times.

In both the cases of agriculture and industry the enormous consumer surplus was the result of much cheaper fuels, coal and oil/gas: the prices paid by consumers for both are way, way lower than the maximum price consumers would pay for the amount and density of the energy they contain.

Note: The huge consumer surplus of agriculture allows a large number of workers to do manufacturing, and the even bigger consumer surplus of manufacturing allows most workers to do services, which don't have a huge consumer surplus, as they mostly performed by humans powered by farmed food and not by machines powered by mineral fuels.

The replacement of food-powered humans and animals with fuels-powered machines was the essence of the industrial revolution.

The enormous consumer surplus of mineral fuels is easy to miss because not only consumer surplus is somewhat politically dangerous as a concept because it is part of the theory of exploitation of Karl Marx, but also because unlike observed prices and quantities, it is a notional quantity, being the difference between notional maximum price and the observed price.

There is something similar in political economy studies, and it is "opportunity cost", that is the difference between the actual advantage of doing something and the potential advantage of doing something more valuable.

Opportunity costs can be temporal, if the potentially more advantageous action is for the same thing but at a different time, or spatial, if it is for a different thing at the same time.

Usually the notion of opportunity cost is applied to investment rather than consumption: for example a temporal case is investing some funds now in an activity rather than later at a potentially more profitable time. Opportunity costs are as a rule notional too, because it if the difference between an actual advantage and a notional one.

In a sense it is as to revenues the complement to consumer surplus as to costs. There is a considerable amount of opportunity costs, both temporal and spatial as to mineral fuels, which as a rule are limited in quantity: how fast to deplete them (temporal) and whether to use them for generating motive power, generating heat, or as chemical feedstock. These opportunity costs can also be very large, even if perhaps not as large as the consumer surplus of mineral fuels, and perhaps in the future there will be a lot of regreat that the rate of consumption of mineral fuels has been too high so far, or that too much of them have been burned up just to generate heat, or for transportation.

Opportunity costs and consumer surplus are very important for understanding the actual evolution of political economies and for policy making.

Note: both are notional quantities and similar in that the physics concept of "potential energy", that however is a simplifying and somewhat misleading concept.

[mandrocles]

The difference between victorian liberalism and neoliberalism

The term "neoliberalism" is a bit ambiguous, but whatever it means is rooted in the ideology of classic (victorian) liberalism, that is the primacy of markets, investors, individualism and globalization over institutions, workers, reciprocity and internationalism.

Neoliberalism for me largely coincides with the Washington Consensus and reaganism/thatcherism, and a classic liberal like Peter Mandelson summarized well in 2002:

“in the urgent need to remove rigidities and incorporate flexibility in capital, product and labour markets, we are all Thatcherites now”

And Tony Benn had already pointed out in 1993 the roots of that ideology in classic liberalism:

“These so called modernisers are really Victorian Liberals, who believe in market forces, don't like the trade unions and are anti-socialist.”

But "neoliberalism" is not quite the same "classic liberalism" and the major difference is that while classic liberalism applied to all areas of economic activity, and classic liberals opposed both conservatives/rentiers and progressives/socialdemocrats, and state intervention in any economic areas, neoliberals only oppose progressive/socialdemocrats, and strongly support land and finance based conservativism and rentierism, and support strong government intervention to support rentier interests in land and finance: in neoliberal states there are huge state (treasury and central bank) programmes to provide cheap massive credits and subsidies and low taxation to land (agricultural, commercial and residential land interests) and finance interests, and to backstop their losses, for enormous (trillions of dollars) amounts.

While classic liberals were in part allied with socialdemocrats against land and finance rentiers, as classic liberals and socialdemocrats both derived their incomes from industry, neoliberals are allied with land and finance rentiers against socialdemocrats, to the point of prioritizing land and finance interests over industry. Some of the reasons why:

Traditional industry has been deemed to be a breeding ground for labor unionism.

Much of traditional industry has been offshored to countries where independent labor unions are illegal or very weak and wages are low.

The ruling industrial elites have moved much of their capital into land and finance.

The political power of right-wing neoliberal parties (Republicans and Democrats in the USA, Conservatives and New Labour in the UK, ...) depends on the votes of mass land and finance rentiers, in particular the upper-middle classes voters who own share-based pension accounts and residential real estate.

Neoliberalism is the result of a union of convenience between the ideas and interests of classic liberals and conservative rentiers: hard global market competition for workers, generous national state welfare for real estate and finance.

[mandrocles]

Family, society, state

Margaret Thatcher famously said "there is no such thing as society", which is a somewhat unfairly selective quote from a more interesting argument

they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first. [...] There is no such thing as society. There is a living tapestry of men and women and people and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us prepared to turn round and help by our own efforts those who are unfortunate.

That "There is no such thing as society" is obviously true in the sense that it is a concept, and concepts are metaphysical, they cannot do anything. But it is also obviously false in that the concept describes however fuzzily a physical reality, that "tapestry".

But the wider quote contrasts "society" with "individual men and women" and "families" and it mentions "government" as if it were much the same thing as "society", and that is more interesting and objectionable:

That notion of "individual men and women" is based on the equally metaphysical concept of individuality, and "families" are also a quite metaphysical concept. No man is an island, and conversely the boundary of families is not well defined.

However, there is a large difference that Margaret Thatcher was not making, and which is very relevant: family and state are institutions, even if society remains a concept, not an institution, even if society creates and defines the state. In modern states some sort of individuality is an institution.

Compare states with other metaphysical concepts that someone like Margaret Thatcher would likely approve, such as markets and corporations: not all markets are institutions, and not all corporations, but most are.

Individuality, family and state are institutions and therefore they are recognized by laws in formal ways. That makes them more definite than "society" and Margaret Thatcher could have argued that in this sense "There is no such thing as society", but she did not argue on that line, rather contrasting "individual men and women and there are families" with "society" as embodied in the "government".

Therefore the message is not about the contrast between mere concepts and institutions, but the old trite one on telling the "people who were unfortunate" to deal with it through their own efforts and the support of their relatives, and of those strangers who may volunteer to “turn round and help" them with their "own efforts", rather than on institutional and reciprocal insurance schemes.

That is based on the usual propaganda that such schemes, just like fire insurance, are redistributive, as in "people have got the entitlements too much in mind without the obligations".

As to those "of us prepared to turn round and help by our own efforts those who are unfortunate" Margaret Thatcher later had regrets about her illusions:

Her speech in 1988 to the General Assembly of the Church of Scotland was her most considered answer to her critics. It is a deeply serious speech about how a free market economy could not just be a world of the devil takes the hindmost because of the Christian duty to one’s fellow citizens. And often when presented with criticisms of her record or of the supposed vicious effects of capitalism she would draw on biblical parables such as the story of the good samaritan or the parable of the talents. She understood that people who enjoyed success had a wider responsibility to the community. She once confessed to Frank Field that her great regret was that there was not much more charitable giving by the rich whose taxes she had cut.

  "She actually believed that she was creating a nation of good Samaritans,” Filby asserts. “She believed if she lowered taxation she would give people more money in their pocket, they would give to charity and it would inspire a philanthropic ethos. She believed if people stopped relying on the state for jobs, benefit payments and even healthcare it would generate a sense of personal responsibility.”

So much for "individuality". One issue with that "sense of personal responsibility" about giving is that charity is not reciprocal: when donating to others when they are in need, there is no guarantee that others will also feel the "sense of personal responsibility" to give back when the donor is in need; while insurance enacted by "society" via the institution of the state is reciprocal: it must be paid by all those who are not in need, and is guaranteed to all those who are in need.

[mandrocles]

The mixed effect of high housing costs on wages

What is called "von Thünen's law" states that housing costs are proportional to (median) wages: in areas where jobs are abundant, and therefore wages are good, housing costs will be high, as housing in that area gives access to the good wages and many workers will compete to get it.

Indeed property speculators often use a simple metric, the ratio between job growth and housing capacity growth in an area, to spot areas where to invest because housing costs are likely to rise rapidly there.

That implies that in the long term rising housing costs would increase wages, as workers would need the higher wages to pay those costs, and the housing market would become a way to redistribute business profits to property owners.

That was quite applicable when ownership of property was highly concentrated in a few landlords, and most workers did not own their own housing.

In many developed countries there is now a significant percentage of workers who own property, at least the house where they live in, and this has the effect of keeping wages lower: because workers who own the property they live in can afford to live in an area with abundant jobs at levels of wages lower than those who must pay housing costs in the same area.

Note: to be explicit: they can afford to do so because they inherited their house or bought it for a much lower price in the past than what non-incumbents would have to pay to buy something similar now.

So people who own even just a "cheap" £600,000 two bedroom flat in London (which they bought for £200,0000 10-20 years ago) can afford to work in London for a lower wage than those who have to buy or rent their housing, and are also far more likely to have stable employment. This is part of the economic rent of housing property in an area with abundance of jobs.

[mandrocles]

Doctorow on “slack”

I have just read a blog post by Cory Doctorow where he points out that his children and students school careers are very unforgiving and extremely competitive while instead he could slack off and still get second, third, fourth chances. That article confirms a note by a professor in computer engineering:

There are a couple of things I learned along the way. One is that once you get a bad break in your education or career, for that matter you will have a tough time getting back on track. Harvard, I'm sure, originally felt they were giving an underdog a chance or maybe even filling a quota of disadvantaged students. When that break was taken away and I was looking for a graduate school years later, I faced difficult odds: I had gone to a lousy high school, had gotten only OK grades (B+) there, had gone to a lousy university, and had gotten only OK grades (B+) there. Furthermore, the people writing my recommendations were generally unknown to the people making the admissions decisions. So the best I could hope for was a medium boost up in school quality at each step. [...] Now at Stanford I sit almost every year on the PS.D. admissions committee, and I see that unless you went to perfect schools the whole time, got perfect grades, got walk-on-water letters of recommendation from people whom the committee members know personally, you don't get in.

The article by Cory Doctorow seems to me amazingly naive to the point of great stupidity because:

Very unforgiving, extremely competitive school careers have always been the norm for lower class people, who could as a rule attend higher levels of schooling only thanks to studentships conditional on top school performance.

Young upper class people with trust funds or equivalently rich parents get as many second, third, fourth chances and as much slack as they wish.

The issue therefore is confined largely to the children of middle class people: there was a period where they were afforded some level of "slack" as if their parents were upper class.

Why were some generations of middle class children afforded "slack" and that no longer happens? That was the fruit of the "big society" and now is the fruit of "labor market reform":

For some decades after WW2 a booming USA economy, a tight labour market and a low level of higher schooling (college, university) in the workforce meant that even middle class children could get "slack", and still find "good jobs".

But funding "slack" means higher taxes, and "good jobs" mean higher labor costs for businesses, so employer interests developed a strong response including immigration, offshoring, anti-union strategies, a massive increase in the percentage of young people entering college and university; "labor market reform" achieved both a massive reduction in the relative availability of "good jobs", and a massive increase in the supply of people competing for them.

Also the middle classes paying property taxes and federal taxes were persuaded by an excellent public relations campaign, similar to that used for "welfare reform", that they should not vote to fund any "slack" for other people's children, and thus school, college and university budgets were slashed, and funding was replaces by higher fees and borrowing to pay the higher fees. In particular middle class mothers were persuaded that any funding for "slack" would go mostly to lower class children, who would then use it to compete with middle class children for the scarcer "good jobs".

With their usual amazing narrow mindedness the middle classes did not figure out that if many/most middle class people voted to cut off the funding for "slack" to each other's children, they would all lose it.

Doctorow seems to me to be naively or stupidly disregarding that someone has to pay for "slack" for his children; the great USA middle classes decided to stop funding it as a group for all their children, largely because they do not understand the difference between insurance and redistribution, and relatedly composition effects.

So the summary is that in the current neoliberal USA Cory Doctorow is a "loser" who cannot fund by himself "slack" for his own children with a trust fund or by other means, and he has only himself to blame.