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Polly Toynbee confuses accounting and economics

Summary:
That councils are facing budget pressures is entirely true. Polly Toynbee doesn't quite tell us why though:The shires do claim, with some justification, that their finances are more inflexible, paying for care for children and the elderly, with no housing income to balance their budgets.We should not let people forget that the widely cheered announcement of a national minimum wage - largely binding upon those who provide such care - was not matched by an increase in grants to pay for that pay rise. However, Polly's error, rather than omission, is here:Let councils borrow unlimited capital to invest in housing, which yields profits. That is to confuse accounting and economics, a terrible sin. Council housing makes an economic loss, not profit. For unless we consider opportunity costs we are

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That councils are facing budget pressures is entirely true. Polly Toynbee doesn't quite tell us why though:

The shires do claim, with some justification, that their finances are more inflexible, paying for care for children and the elderly, with no housing income to balance their budgets.

We should not let people forget that the widely cheered announcement of a national minimum wage - largely binding upon those who provide such care - was not matched by an increase in grants to pay for that pay rise. However, Polly's error, rather than omission, is here:

Let councils borrow unlimited capital to invest in housing, which yields profits. 

That is to confuse accounting and economics, a terrible sin. Council housing makes an economic loss, not profit. For unless we consider opportunity costs we are not doing economics at all. 

Council rents are lower than market rents, that's rather the point. Said council housing could be let at market rent - we know this very well from the existence of subletting. That difference between what is charged and what could be is the loss.

Thus Polly's call is that we should be making ourselves poorer, increasing the societal loss, by having more council housing. Really, not a good economic idea at all. 

Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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