Sunday, May 18, 2014

The Clue Is In The Name

So there seems at present to be a lively debate about whether capitalism is hugely weighted in favour of those who already possess capital.  I'm not sure why this is controversial, since the clue is surely in the name, but it appears that there is one.

And those who know me, will know that I'm forever kicking off about something or other, and last night it was rent.  It occurs to me that these two topics are probably related.

A bit of context: while Mrs R and I are both from working class backgrounds, our combined paycheques place us firmly in the middle class bracket.  We live in a nice, posh part of Edinburgh, itself one of most well-to-do parts of the country.

Thinking about this, it occurred to me that I've rented seven flats over the years - six of them were bought by the landlord's parents for their children to live in while at university, while the other was inherited.

I guesstimated that I'd probably paid these people somewhere in the order of twenty thousand pounds over the years - I pay round about 20.8% of my pay packet* to my landlord every month, and that sounded about right.  Having just run this through the calculator, I realise that the figure is actually around about £43,000 in twelve years, and that's just the cash I forked over when I was working, not including my student years.

And this further led me to wonder why rents are set at a particular level.  It seems to me that the main effect on Mrs R and I is to extract just enough cash to prevent us from saving enough to buy our own place - that is, to effectively block us from potentially joining the landlord class ourselves**.  And I started to wonder whether this was a coincidence, or an intentionally desired outcome.

Then it struck me that nationally, this situation appears to have arisen from the home-ownership obsession of the eighties, which was itself in large part the consequence of the political thinking of, amongst others, fans of Friedrich Von Hayek.

Which struck me as particularly ironic - that a book called The Road to Serfdom, which panicked about the threat of the too-powerful state, had produced a situation in which I have no choice* but to pay what could quite easily be seen as an Existence Tax to a class of people who have done absolutely nothing, not a jot of work, to deserve a penny.

Basically, that the necessity of merely getting a living in the modern era involves paying vast tribute to people whose sole entitlement to a huge chunk of my income is having squirted out of the right vagina.

And it seems to me that, not only isn't this considered to be an odd state of affairs, but it's widely regarded as right and just.  There must be millions of people in the same boat as I am, and yet I rarely see a headline decrying this situation.  But you know, there are lots about how e.g. immigrants are stealing our stuff.

I mean, I hate to judge before all the facts are in, but this does look a lot like our society is founded upon the extraction of cash from one class of people by those fortunate enough to be born to wealthy parents.

You'd think that'd be more of a political issue, wouldn't you?  I don't want to sound cynical, but the fact that it isn't much of one does sort of suggest that, far from worrying about serfdom, the nation actively encourages and exploits it.

*I'm aware that many people pay considerably more than this, and I think that reinforces my point.

**The only alternative is Mrs R and I moving in with my parents for circa two years and exploiting their niceness in order to save lots of cash, which is basically of a piece with your mum and dad giving you lots of money.  Mrs R and I are in our thirties.

13 comments:

Phil Beesley said...

"And this further led me to wonder why rents are set at a particular level. It seems to me that the main effect on Mrs R and I is to extract just enough cash to prevent us from saving enough to buy our own place - that is, to effectively block us from potentially joining the landlord class ourselves."

It is an effect rather than an intent -- the landlord wishes (or needs) to extract enough rent from you to make a big contribution to the mortgage on a property which s/he can afford only if somebody else pays. Consequently, your rent is roughly the same as for a commercial mortgage and maintenance on that property. If you aspire to buy something like the place you currently rent, you have to earn more or to save money by living somewhere cheaper. Which you knew already.

When economists use the term "rent seeker", they describe people who use wealth, knowledge and power to abuse their positions. My guess is that many people who are landlords -- buy to let providers -- end up as victims of rent seekers.

For you to join the landlord class, you'd need to have paid off most of your residential mortgage (or earned loads of money) before anyone would loan you money for a second property.

***
Grammar query: "It seems to me that the main effect on Mrs R and I..." Myself (sic) thinks that the last word should be me.

***
With regard to Hayek's The Road to Serfdom, I believe that you are reacting in response to conservative adopters and adapters of his philosophy rather than to his own words. I agree that, in later life, Hayek's classical liberalism became something that appealed to conservatives and estranged him from liberals who wished to work with social democrats. All the same, Hayek provides arguments about managerialism and central control for use by lefty liberals.

flyingrodent said...

It is an effect rather than an intent.

Maybe so, but I'd say that since the real-world effect is identical regardless, it's all much the same. I'm aware that lots of people think this is entire natural and organic, just mother nature working it all out, and am pointing out that even if it is, well, it's all mighty convenient for some people.

If you aspire to buy something like the place you currently rent, you have to earn more or to save money by living somewhere cheaper. Which you knew already.

Yes indeed, although in order to make large enough savings, I'd likely have to move into somewhere that's both tiny, in a shocking area, isolated and poorly served by transport. Alternatively, I suppose I could always just buy a car and live in that.

For you to join the landlord class, you'd need to have paid off most of your residential mortgage (or earned loads of money) before anyone would loan you money for a second property.

It may surprise you, but I don't have any particular desire to be somebody's landlord. It's more that I think it's pretty shit that my choices are basically a) Live somewhere godawful for years; b) live with my folks for years (Assuming they'd go for it, and factoring in that living with your mum at the age of 36 isn't that desirable or c) pay off a massive chunk of somebody else's mortgage instead.

Like I say, six of the flats I've rented were bought by parents for their kids, and the other was inherited. The cash goes to the kids, not to the parents, so what you basically have here is me paying 20% of my income to people who have literally done nothing at all to earn it. Which looks a lot like people who have access to capital hoovering up cash from people who don't in a self-perpetuating cycle - which is pretty relevant to the debate on wealth that I was referring to.

With regard to Hayek's The Road to Serfdom, I believe that you are reacting in response to conservative adopters and adapters of his philosophy rather than to his own words.

Indoodle. I just thought it was somewhat ironic that people who claimed to be terrified of a phantom serfdom appear to have inflicted an actual, modern-day equivalent of it on millions of their countrymen.

ejh said...

Of course the Hayekins would always argue that you hav a choice: you hav a choice whether or not to rent, whether or not to go to college, whether or not to emigrate. And you can take those choices or not.

Similarly, Hayekians have a choice whether or not to be an absolute bunch of cocks....

flyingrodent said...

Yup - as the saying goes, under capitalism, lords and beggars are both equally entitled to sleep under bridges.

NielsR said...

I'm not entirely sure what you expect to happen. Sensible parents will always try to buy their children advantages in one way or another.
if it's not houses its education, or paying their bills while they intern somewhere, bypass the interview stage.

And if they did, rental agencies would probably step in to squeeze you dry in the same way.

Are you arguing for a general wealth cap?

The problem is high rents, no matter who owns the properties. Which is an effect of the poor choices you describe. Build more houses, smarten up the crappy areas, and encourage anything that diffuses the drive to lice in big exciting cities.

flyingrodent said...

I'm not entirely sure what you expect to happen.

Well, some kind of general recognition that wealthy people extract cash from non-wealthy people who have no choice in the matter, would be a good start.

As I say, there seems to be some controversy at the moment over the idea that capitalism vastly rewards people who already possess capital to the detriment of those who don't - here, I think, is a simple and straightforward example that everyone can grasp of exactly this happening. A situation that millions of us would immediately recognise as both true and unjust. Now, let the piefight begin!

Are you arguing for a general wealth cap?

Would that work? I have no idea.

The problem is high rents, no matter who owns the properties. Which is an effect of the poor choices you describe. Build more houses, smarten up the crappy areas, and encourage anything that diffuses the drive to lice in big exciting cities.

And yet, this has been known for decades, and yet the situation persists. Why?

Well, call me a nutter if you will, but I suspect that nothing gets done because the right people are benefitting and the right people are getting shafted.

Or, to use the modern parlance, it's the markets at work, by which I mean wealthy people ensuring that their own class is enriched and everyone else can lump it, because it's probably their own fault that e.g. they don't have parents who can afford to advance them whacking great deposits on houses, and thus have to pay people richer than them a huge chunk of their income in perpetuity.

(And to be fair, as best as I can tell, serfs paid their lords something like three days out of seven of their labour, which is more than 20% of their income, amongst other things. Nonetheless, it does seem appropriate that we use the term "landlord").

gregorach said...

It's terribly, terribly unfair of you to notice the importance of inter-generational wealth transfers. You're supposed to ignore that so that we can pretend to live in a meritocracy.

"Sensible parents will always try to buy their children advantages in one way or another."

Assuming they're rich enough to, of course...

ejh said...

Build more houses

Other possibilities are rent controls, direct and indirect restrictions on second home ownership and so on, which strike me as in all probability highly effective but which also strike me as sinning against various contemporary gods.

NielsR said...

""Well, call me a nutter if you will, but I suspect that nothing gets done because the right people are benefitting and the right people are getting shafted. "

Sorry, but isn't this always the way? wherever some people have the advantage (and someone always will), whether it's in capital, land, political connections, or just a big damn soapbox like a newspaper to shout from. If someone offered you a hideously overpaid job, would you turn it down? Would you not want to give your children all the advantages you can?

Why is it more of a problem that capitalists are buying all the nice houses, than that the planning committees and infrastructure planners aren't creating a steady supply of additional desirable houses? Your problem only exists because both of these effects are in place.

What's the point of expecting the state to improve wealth equality, when it can't organise health and educational equality, and/or sort out the sink estates?

"Or, to use the modern parlance, it's the markets at work, by which I mean wealthy people ensuring that their own class is enriched"

Do you really think this only happens under free markets? At least with markets, a capitalist needs to keep inventing tat to sell the populace to stay wealthy.

flyingrodent said...

isn't this always the way?

Yes.

Why is it more of a problem that capitalists are buying all the nice houses, than that the planning committees and infrastructure planners aren't creating a steady supply of additional desirable houses?

Did I imply it was more of a problem? It's certainly more emotive to note that quite a lot of people extract large sums of money from others who have no choice but to accept the situation, without having to do any work to merit it, so it's worth pointing out in these terms to highlight how odd it is that it doesn't seem to be a major issue. That's the kind of thing that tends to rile folk up, after all.

Nonetheless, you're correct that the two phemomena create the combined effect. I think they're supposed to, in fact.

Do you really think this only happens under free markets?

Surely not. Nonetheless, this is the system we live with, so it makes sense to point out how it operates, rather than say "but at least it's fairer than e.g. feudalism"*.

At least with markets, a capitalist needs to keep inventing tat to sell the populace to stay wealthy.

Or, be the offspring of a tat-inventor and rent out the house he or she helped you to buy, which is surely the point, if the topic is "Does capitalism privilege people with access to lots of capital".

*Although it does share superficial similarities.

flyingrodent said...

And while I'm at it, I imagine that in most eras of human history, people will have routinely said things like:

"Well, this is just the way it is, the rich/the Party/the Khans doing what they do" etc.

...As well, like they were describing a force of nature like tides or hurricanes or something, rather than an intentionally desired state of affairs brought about by those who benefit from it, at the expense of those who don't.

And when we hear about this now, we look at it and think wow, people really had to put up with some bullshit just to get by, didn't they?

ejh said...

What's the point of expecting the state to improve wealth equality, when it can't organise health and educational equality, and/or sort out the sink estates?

Actually the state did pretty well in these areas - enormously, infinitely better than the free market - until the rise of mass unemployment in the Seventies and the subsequent rollback of the state in the decades subsequently.

gregorach said...

Reports of the end of history have been greatly exaggerated.

There's always somebody to tell you that whatever situation you're bemoaning is just the way of the world, and that there's nothing you can do about it, yet somehow, the way of the world keeps changing anyway.

"At least with markets, a capitalist needs to keep inventing tat to sell the populace to stay wealthy."

Congratulations on completely missing the point - namely, that a lot of the people who are currently extremely wealthy (and getting inexorably wealthier) have never invented a single damn thing in their entire lives.