I was just watching a report on early morning TV which was in itself a rather mundane piece about how the authorities in Britain are clamping (immobilising) cars which are stopped on the road and found to have unpaid vehicle tax. Yeah yeah, whatever.
But then came a remark which astonished me…
“Unpaid annual Vehicle Excise Duty costs the British economy millions of pounds per year”
Now without getting into the rights and wrongs of vehicle ownership taxes (as opposed to road use taxes), the implication is clear: money not paid to the state for the privilege of owning your own several property does not create wealth… only when that money is safely in the hands of the state does the British economy benefit. Note, the words use are not “costs the British state millions…” but rather “costs the British economy millions…”
And with that tax money taken out of private hands, the state creates a net gain in wealth how exactly? Hiring more wealth destroying bureaucrats? And of course that money you selfish tax dodgers have not paid to the state is going to be flushed down the toilet rather than being used for some alternative economic activity, right? Likewise immobilising people’s transport because they have not paid an annual ownership tax, and thereby preventing those people making deliveries or getting to work, that does not British economy a penny, right?
Arrogance and ignorance in equal measure. The state is not your friend.
This misuse of language in economics reporting is routine, I am afraid. Another one I hate is when Finance Minister Fred Bloggs “gives away” x billion pounds in a tax cut, as if he was dispensing sweets to good little children. Such language presupposes that the State owns all wealth in the first place.
I think this again reflects decades of statist thinking which is rife in our schools and culture. There is no easy way to break the habit though, as a journalist myself, I always try to avoid such use of words.
Johnathan
Perry’s quotes on the economy are always worth consideration and I agree with many (but not all) of them.
In the example given, Perry proposes that the general economy will not suffer if people do not pay their annual road use tax. His argument to support the “alternative use of money” in the general economy is reasonable. But in the wider consideration it might be inaccurate.
If a person has the money for the road tax in their wallet yet chooses not to buy the tax disk – then one might argue that the money would be eventually put into the economic system anyway. So taxing that money would only serve to hand money to the state that would otherwise freely circulate in the markets.
However if the person did not have the money in their wallet – then they might have to go out into the market place and earn it. Such an activity obviously adds to the general economic activity of society and, one would hope, generate some wealth. The person would receive money for their efforts and then would be able to pay the tax.
In such way one could reasonably argue that, in some cases at least, a car tax does add to the general economy – because a some point wealth musty be created to pay it. The only real argument in this case is whether that wealth would have been created anyway or if it was created additionally to cover taxes. In some cases the latter is true.
Generation of wealth is a cornerstone of our algosphere’s economic policy. So taxation, if it stimulates the generation of such wealth, is a good thing.
Of course having said that, I agree that if taxation does not eventually aid in wealth creation then it can only be judged detrimental to society.
That makes no sense at all, mad dog. Money that you spend on housing, food, petrol etc. all generate economic activity and actually increase the net amount of wealth because the people you buy the good and services from in turn generate more economic activity… money generated to pay the state actually generates a net loss of economic activity because the state spends that money on non-wealth producing activity and thereby diverts your wealth away from actual economic rather than political uses. Although you do indeed generate wealth in order to pay the state, you are prevented from using THAT money for other more productive things. Tax is a net drain.
As is fairly well known the word “economy” comes from the Greek word for “household” and certainly the B.B.C. (and many other establishment types) do treat the economy as if it was a single household.
Hence the idea that government exists to “run the country”, rather than (say) defend private people and associations that run their own affairs.
Or perhaps more of that sloppy thinking where car accidents are supposed to increase GDP because all spending appears equally on the figures as activity without distinguishing between taxation and consumption, parasitic and productive, bad and good.
…vehicle ownership taxes (as opposed to road use taxes)…
I was under the impression that if you did not take your car onto the public roads, you were not liable for Vehicle Excise Duty. So it is a road use tax rather than an ownership tax.
Am I mistaken in this belief?
To own as car as something other than a modern sculpture in your garden, you have to pay VED… as you pay VED regardless of whether you only use your car to drive 100 yards to take your Granny to the nearby shops or if go from Lands End to John O’Groats each day, it is clearly an ownership tax and not a road use tax.
This reminds me of another Samizdata article:
http://www.samizdata.net/blog/archives/002711.html#002711
Mad Dog, you make a great argument in the hypothetical but as Mary Rose points out, in the real world government tax dollars are largely a net loss on wealth creation. Furthermore, I know of nobody who works for the purpose of paying the tax man. In fact there was a great little song from some Liverpool band about just that point if I’m not mistaken.
Perry, perhaps Andy Wood was referring to vehicles such as tractors and what not which will likely be used on private property only. It’s a minor issue, but maybe that’s where he was going with that. I don’t know.
Maybe they were referring to the Keynesian “multiplier effect”. Keynesian economics is full of these examples of why public savings/investment is “better” than private savings and consumption.
Perry, perhaps Andy Wood was referring to vehicles such as tractors and what not which will likely be used on private property only. It’s a minor issue, but maybe that’s where he was going with that.
That’s correct.
Other than that, I agree with the point that I think Perry was probably alluding to – that a tax proportionate to road use, or, better still, tolls, would be an improvent on the present system.
“…in the real world government tax dollars are largely a net loss on wealth creation.”
That may well be true and in some cases it demonstrably is. However it is not ALWAYS the case as alluded to by your diplomatic use of teh word “largely”.
It is possible for a government body to operate more efficiently that a private company. Especially the shower that seem to be running some of British PFI service contracts.
However the main thrust of my argument, whilst being hypothetical, was that however wealth is created and for what ever eventual purpose – the fact it is created obviously adds to the economy of the society it is created in.
In America where everyone has a chance – the general mood prevailing is that one lives one the profits of what one does. Work hard and get ahead. Society is geared to this lifestyle. Mostly…
In Iraq society is not geared to that lifestyle. There there is a huge need to do something quickly, an administration imposed “rebuilding tax” will provide the organisation and direct the labour to help rebuild the social system. Once this is in place and functioning then perhaps things will become easier for the indevidual to create wealth and further his own cause.
Generally speaking I am very wary of governments demanding taxes. But because there are bad examples of such practice does not mean that the method is intrinsically bad in all cases or that it never generates wealth.
mad dog – if anything the government wishes to use your money for was an economically viable use of money, the private sector would already have taken care of it. The capital markets are like a shark, relentlessly seeking any productive use of capital. In an even semi-functional capitalist society, anything that can’t get funding in the private markets is an economic dead end.
Now, this is not to say there is no place for government spending. You can argue that we have a moral obligation to spend on things that are not economically viable, and of course there are “infrastructure” expenditures on things like national defense and the courts that are properly the government’s business.
But the notion that taking money away from the private capital markets and giving to government to “invest” in anything other than infrastructure will result in net economic gains is risible, to say the least.
Good catch, Perry. I don’t think there’s any question that those on the left have a very difficult time (if they even try) separating “state” from “economy” as witnessed here in America in the debate over tax cuts, etc. I’ll be the first one to admit that some state participation is necessary for an economy to hum (e.g. rule of law, efficient court systems, enforcement of clear property rights, etc.), but the idea that failing to pay car taxes or parking fines or what-have-you is hurting the economy is an exercise in “Magical Thinking”.
mad dog barker,
Taxes never, ever generate wealth. They are a confiscation of wealth.
May I humbly submit that a more plausible argument is to whether or not that confisaction can ever be justified.
Perry’s contention is with the assumption behind the TV news report that non-payment of tax constitutes a ‘loss to the economy’ i.e. it has stayed in the pocket of the taxpayer. That is not a loss to the ‘economy’. It is a gain to the economy. It is, however, a loss to the government (which is not the economy).
I see the same thing here in the States with reporting on the Evil War on Drugs. Several reports state the economic impact as $50 – $75 billion per annum. WRONG That’s just what it costs the government. The total economic impact is several hundred billion dollars.
First off, I think the main thrust of Perry’s point had little to do with what Mad Dog is arguing. I really don’t think the reporter Perry is referring to has near as nuanced an opinion as Mad dog. I think Perry’s right. The reporter probably really does equate the government to the economy. Period. And this cuts to genuine economic ignorance of most news reporters, which are already at a disadvantage because they generally lean left.
On Mad Dogs points, I think he’s trying to make a genuine point and doesn’t really deserve some of the borderline flaming that’s come his way. However, I do think Mad dog is overstating his case. I think some government services provide benefits, particularly intagible ones.
Mad dogs says it’s possible for government entities to operate more efficiently than private companies. This is certainly possible and certainly the case on occasion in the real world. The difference is that a private company that operates as efficiently as some government bodies will likely be doomed to failure and will suffer a market correction. Government ineffeciency tends to be built in (it’s not a bug, it’s a feature!) and does not have as big an outside pressure put on it as a private company does.
Sure you can say it has democratic pressure, but that pressure has to contend with equally powerful lobbyists who have interests that have little concern with government’s efficiency, and bureaucrats who are nearly impossible to fire and thus have little pressure put upon them. But, this is a libertarian site, and I’m sure I don’t need to lists all the problems inherent in government.
I work for one of the largest corporations in the world. It has a bureaucratic layer that can be mind-boggling. But, it still has good margins, a good competitive posture and I would bet is far more efficient than any government entity of similar size.
Mad dog, we are speaking in generalities and I think most people here would believe that their are some exceptions. I try to use hedge words like “largely” and “generally” because I understand this. But, the real point to this particular posts is that some people in this world actually believe the government is the equivalent of the economy. Moreover, a lot of people believe there is a 1 to 1 ratio of economic benefit between a dollar (or pound) spent in the private sector to one spent by the public sector. On rare occasions, that may be true (I for one, don’t like toll roads and believe the U.S. interstate system is a great use of tax dollars). But it is a rare occasion indeed. And, most importantly, as freedom loving people, just because the government can spend our money efficiently, that is a long way off from answering the question of SHOULD they be spending our money in the first place. The whole point is that the public sector is not the same as the private sector.
The quote from the blog was;
‘Note, the words use are not “costs the British state millions…” but rather “costs the British economy millions…”‘
Personally I agree with Perry on some points. I do not believe that the state is the economy. In my view it is only one of the agents acting within the economy as a whole. The economy is measured on purely quantitive terms. More money circulating and more economic transactions usually denote a bigger economy in action. And so on.
However the economy as a whole is the sum of all its parts. Now consider the geezer up on the social welfare housing estate. Our “bette noir” with the car. He has a choice to ignore paying the tax and perhaps to sleep instead. Or he could do some work to earn the money to pay the tax. If he works he makes a contribution to the economy. And therefore the economy increases as a result.
When on the other hand the person, in our hypothetical example, does not work to pay the tax, then the economy is denied of that particular contibution. I am not sure if this literally “costs” the British economy anything but if “bigger is better” then not working must be deterimental to the economy as a whole.
Yes it is a highly theoretical argument. It applies to mainly to people who would rather not work at all. The argument is NOT libertarian merely rational. But whatever, paying taxes can increase the economic activity of a country. Not paying them can decrease the economy of a country.
If this observation is still doubted, I shall quote the example of the minarchists. (Hi guys). Without a common tax to provide the minimum provision of security by armed force it might be impossible to predictably generate any wealth. Take away the tax and the ensuing security and one might loose lots of wealth and the economy would suffer. Introduce the tax and the armed forcesd that it enables and stability returns (eventually) and wealth creation can begin again.
Or is that a different argument?
“When on the other hand the person, in our hypothetical example, does not work to pay the tax, then the economy is denied of that particular contibution”
Mad dog, let’s look at your last example a different way.
The man is working in order to own a car to get him from point A to point B. He is also working to support whatever standard of living he desires. If he was not charged the tax, he quite likely would still be working. The tax (at least in this case) is probably “relatively” small. It’s probably part of his discretionary spending. In other words, his last bit of work to earn his last bit of money is not for the purpose of paying that tax. He would not work less if he did not have to pay the tax. He would simply pay that money towards something else. And that something else would be something HE desires, which would have to be supplied and it would be at an equilibrium price and so on. He’d be making a RATIONAL economic decision and that would interact with parts of the economy run by other rational people. Bottom line, him not paying the tax is not subtracting from the economy and I would argue because private sector expenditures are usually (another hedge word) more efficient and productive than ones paid with tax revenue for government expenses.
If the government simply did not raise the tax (i.e. it worked like a tax cut) it could even have an economic benefit, but that’s a supply-side argument which is probably way beyond where this post was supposed to go.
I suppose you could argue that the enforcement of his breaking a tax law is a “cost” to the government and thus the economy (using your reasoning of the government being just a piece of the economy) but that would only be true if those doing the enforcing are under a contract that dictates the more tickets they write the more money they get and what not. But, that’s probably not the case. The people and resources of the government are still spent regardless of whether our hypothetical person pays the tax or not. Also, the payment to those resources gets recycled back into the econmy anyway, so him not paying in that sense isn’t really a subtraction either (that’s true whether or not you believe in the 1 to 1 relationship I mention in my previous comment).
On the theory that the average criminal isn’t independently wealthy, armed robbery creates wealth by putting cash into circulation (criminals spend their loot). It also creates jobs for private security firms, insurance companies, etc.
Or so the socialists seem to believe….
Sloppy uninformed thinking by the bulk of the population, especially on economic matters, is a necessity for the advancement of certain agendas.
This is precisely the thinking required by the class warlords in the US as they scream about “the attack on the poor” as a result of a failure to give a “tax cut” to those who do not pay taxes.
To accept that widespread claim requires at least the level of ignorance as necessary to directly equate the state to the economy.
To Mad Dog, if it is true that to reduce taxes eliminates from society the economic effort necessary to generate the money to pay the taxes, then it would also be true that if you just tax the dog squeeze out of everything, the economy will thrive. I said that as an obvious farce but it occurs to me that this is the operative principle of the Democratic Party.
Well, I stand by my statement in paragraph one.
I will remphasize that I do not believe taxation in itself is always beneficial to the economy. But only the brave hero would think that a society could exist with absolutely no taxation.
In my discourse, I merely point out that if one is not working then one is not making any contribution to the economy. If one is forced into work, by whatever method then the economy grows as a result of that work. Economy is a measure of output not of morality or even legality.
I agree that if one is working already and that there are no spare time or resources available for extra work then taxation does not add to the economy. Similar if one is working and does not care to work more, then taxation will also not increase the economy. It will merely reduce the indevidual’s reward for their effort.
Many commentators above are stressing the latter point and they are correct in that analysis. My argument concerned the former point. It is also a correct analysis and shows how a simple system behaves differently in two extreme situations.
Something to do with Mathemagic and that sort of thing.
Perry,
You silly man… of course all capital belongs to the State — they simply let you use some now and then.
Basic Socialism.
Like inheritance taxes, which assume that the wealth accumulated by the individual does not belong to his estate or to his heirs, but to the State who can then redistribute it on his behalf.
Very nice website