Back in 1958 J. K. Galbraith’s The Affluent Society was published. The main thesis of this book was that the reason that goverment services were no good was that not enough money was spent on them, hence there was “private affluence and public squalor”.
The thesis was clearly false even when it was first published, as government spending on such things as education was at an all time record high in 1958 – both in the United States and in all other nations.
However, since 1958 the thesis has been shown to be utter nonsense. As government spending on such things as education has exploded in the United States (and in many other nations) and the standards of such things as government education have declined.
Of course one can attack the above as resting on empiricism, and I would accept that economics should not be based on empiricism (I accept the “Austrian School” view that economics is based on the logic of human action). However, J.K. Galbraith always claimed to be a supporter of empiricism – and so as the years went by (with rising government spending and falling standards in the “public services”) he should have admitted that his theory is false and he has never admitted that his theory is false.
Now J.K. Galbraith seems to have changed his name and come to live in London. In an article in thursday’s “Evening Standard” Simon Jenkins claimed that the reason that “public services” were no good in London was because not enough money was spent on them.
Simon Jenkins (previously known for his support of the London “dome” and other money wasting absurdities), thus ignored both the logical arguments against government spending and the experience of the last several decades of rising government spending and falling standards.
Instead Jenkins declared that everyone should believe him because “I am no socialist” and because he was willing to pay more money to local government himself.
Of course nothing stops this man giving government (local or national) more money now, if he wishes to do this he can – but what has that got to do with other people being forced to give government more money?
As for “I am no socialist” – well “so what?” How is this an argument? Even J.K. Galbraith came out with better stuff than this (perhaps, if they are the same man, age is taking its toll – after all I believe that Galbraith was born in 1908).
The article also made other odd claims. For example there was a claim that the government headed by Mr Blair had not increased taxes – which it has, including taxes on wealthy people (Simon Jenkins was very keen that taxes on the wealthy be increased – he seemed to be unaware that very high taxes on high earners reduce revenue over time).
The article also claimed that a “Nordic” system of collecting income taxes on a national level and then dishing it out to local governments would improve “local democracy”.
This is odd on two levels. Firstly because this is rather like what already happens in Britain – income tax is set by the national government, but much local government spending is paid for by grants from national government (there is endless argument about how fair these grants are, for example with claims that Conservative party controlled councils are discriminated against by the Labour party government, but such arguments need not concern us here).
Secondly, is it not odd to think that the above helps “local democracy”? Surely if one believed in “local democracy” the income tax should be set by local councils? Of course taxpayers (apart from Simon Jenkins) would tend to leave high government spending areas over time – and such councils would go bankrupt, but this would at least be “democratic”.
The tax eaters of London would get to democratically drive out the taxpayers (both individuals and companies) if that is what they wished to do (and the voting stats were on their side), and they would get to democratically starve.
However, central government dishing out subsidies is hardly a matter of ‘local democracy’.
The big G has always been on the looney fringe of economics. I remember being forced to read his turgid prose in freshman economics. His take on economics seemed to me even at that innocent age completely wrong. Perhaps it was the time I spent working in a steel mill before entering university but I realized government wasn’t the answer to everything nor that a stronger State would replace or even could aspiure to replace the market as an effective mechanism to allote labor and resources. Yet this is what the looney G said, in fact I understand that well into the 1990s he continued to say that the USSR would grow more quickly and had a stronger economy than the US. He didn’t change his textbook until well after the USSR’s collapse. He remains a idiot.
You hear this argument a lot from the New Zealand left, despite the fact that spending on health, welfare and education has been rising steadily for more than thirty years, the problems in the gov depts is always supposed to be a lack of money. Recently it was used by the Minister for Justice, Phil Goff, a vile anti-semitic socialist, to argue that the only problem with the United Nations was that it did not recieve enough money. A few days later the local paper ran the story about the UN oil for food scandal.
Shawn – it’s great to hear you have some doltish pollies down your way, too. Take heart; Aussie leftists share the same refrain you mentioned with their Kiwi brothers and sisters. I suppose it makes sense for those types (who usually work for the government) to gripe about public services needing more money, since such an outcome will most likely translate into more bucks in their pocket. It’s no secret that throwing cash at government services often doesn’t make them any better – but it’s very handy for funding pay increases.
You may be misunderstanding. When Jenkins says that public services are no good because not enough money is spent on them, he probably means that before they improve, there must first be sufficient ‘investment’ to appoint a couple of thousand more bureaucrats (at Grauniad-supplement level salaries) and line a few back pockets as well. Then the services will improve, because only then will they spend (some of) the money on what it was intended for.
Concerning the lower end of this wonderful post, the section on national and local taxation, I just have to note that this is why all national governments in the West and elsewhere wish to concentrate tax power and breadth into their hands as much as possible. Can’t go localizing it, no sir! Do that and competition for peoples residence would drive taxation down across the whole given country.
I haven’t read Simon Jenkins’s article, so can only comment on your account of it. On this basis, I would, in general disagree with it.
However, I do think that you slightly miss his point on the “Nordic” system of collecting taxes nationally but spent under local control. Such a system may have many flaws, but it is important to realise that it is both different and superior to the system we have in the UK. In the UK, local democracy is near dead because not only does is most funding supplied centrally, but so is the decision making about how it is spent – local authorities have very little discretion. For example, they cannot decide to spend their education budget on independent schools based on parental choice – they must run the schools themselves, which means that there is still a monopoly. “Health” (i.e. medical services) spending is completely centralised here – in Sweden, they are run locally including competing independent suppliers, which gives far superior results.
This is the point that many people miss. Sweden may have very high taxes but these high taxes do less damage there than they do here because the resultant spending is less centrally determined and has a greater free market element. Here we have the worst of all worlds – taxation heading towards Swedish levels, but more central Gosplan-like spending.
Shawn, I’ve always thought New Zealand had the one of the world’s freest economies, judging from ratings given by think tanks.
TWG
How should economics not be based on empiricism? It’s fine and dandy to come up with models and theories of human behavior, but given the frequent lack of logic in human behavior, the models and theories must predict actual results.
Of course, it’s difficult to get good empirical data in economics because your samples (individual economies) are few and varied. But that shouldn’t stop one from trying one’s best.
Bolie IV
“It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.”
-Ibn Khaldun, a 14th century Muslim philosopher
So KG was proven wrong 600+years before he was born. Is that a record? Who is a bigger fool, Galbraith, or those who still expouse his disproven theories? Doesn’t the Devils dictionary define idiot as someone who perform the same actions in the same situation and expects different results?
What scares me is that things could be worse;
“The truth, which is what elections are all about, is that the tax burden of the middle class has gone up while the tax burden of the middle class has gone down.”–John Kerry, quoted by the Associated Press, Aug. 25
No, that’s not a typo or a mis-print. Idiot came Waaay to close to being the most powerful man in the world. If that don’t lift the hair on your neck, nothing will.
Old fools eventually die. Unfortunatly their ideas don’t die with them.
“those in the United States who think the Soviet Union is on the verge of economic and social collapse, ready with one small push to go over the brink are wishful thinkers who are only kidding themselves.”
-Arthur Schlesinger Jr. 1986
Nowdays Europe is busy trying to recreate the Old Soviet Empire on the grave of those that helped defeat it. Why do humans alwys listen to the ‘Baghdad Bobs’ and ignore the voices of reason?
Is this the same Simon Jenkins who is about to give up his weekly column in The Times and swap to The um, er , what is it again, some dreadful rag that advocates lots of govt spending on adverts in its pages and on employing the sort of dolts who form its readership…the , um, er, oh do help me out here.
You know, wise emperors in China in the past often abided by one useful principle if they wanted the country to prosper(and stay in power): Yong Bu Jia Fu-“Do not raise taxes.”
That’s like, 1000 years before Adam Smith.
Sheesh.
TWG
TWG,
I guess it depends on how you define “free”. It is true that in the 1980’s and early 90’s that New Zealand underwent a liberalisation of economic policy, and that as a result, New Zealand does rate well on the economic freedom scale. However, the current government is busy turning the clock back. Also, despite the reforms, New Zealand still has a large and very authoritarian welfare nanny state. I dont think, as far as I can tell, that the economic freedom ratings take government size and spending into account.
Name one industrialised western European country (or) where the quality of public (government provided) services has declined since the 1950’s?????
Why does this long article talk about empirical evidence so much but present none?
“Name one industrialised western European country (or) where the quality of public (government provided) services has declined since the 1950’s?????”
Britain, Germany and France.
Wobbly – Wot you said, plus,
Gong Xi Fa Chai!
Gong Xi! Gong Xi!
Simon – that’s an impressive number of question marks…
“Name one industrialised western European country (or) where the quality of public (government provided) services has declined since the 1950’s?????”
Britain, Germany and France?
I’ll make it easy for you: produce even one well sourced metric (e.g. educational provision, health care, infrastructure, access for women and minorities, etc) that shows that British, German, and French public services have decreased in quality since the 1950s. Should be very easy to produce all the obvious ones if the quality has been declining all across the board since then.
There ought to be an equivalent of PayPal where guilt-ridden fat cats such as Jenkins who want to pay more tax could contribute voluntarily to the Treasury at the click of a mouse. He could check off whatever good statist cause he wants to help.
Collect taxes nationally, then let spending be established locally? Wouldn’t that provoke a contest among localities to see who can spend the most?
The authors of “The Sorrows of Carmencita”, which is about the economic decline of Argentina, include this fiscal system among the causes. They wrote that when the central government collected most of the taxes but local governments decided how to spend them, the greater part of the resources went to the localities with the greatest political influence over the central government. Within each locality, the man who stayed in power was the one who could attract the most spending from the central government and distribute it to his constituents. This produced absurdities like schools with more teachers than pupils and throngs of local government employees who did nothing because they had nothing to do. It was a “tragedy of the common”, in a fiscal sense, if not a run on the bank.
Yes indeed Simon “I am no socialist” Jenkins is now working for the Guardian.
On logic: Yes indeed people do odd things – for example “Ken” Livingstone (“Mayor” of the London Authority – an organization that spends ever more money for no known result) worked as a food critic for the London Evening Standard – but he called a Jewish journalist a “Nazi war crimminal” and a “concentration camp guard” for working for the same newspaper.
However, “the logic of human action” is quite capable of accepting that people do odd things.
Von Mises may have been mistaken – but his “Human Action” (1949) and other works can not be dismissed, just because people do odd things.