Eurostat has concluded that sixteen percent of the population resides in poverty. At a first reading this appeared quite a high figure, perhaps mitigated by the enlargement process in 2004. On closer examination, this statistical sleight of hand concerned the level of social inequality in each Member State. Poverty was measured as that proportion of the population who had less than 60% of the country’s median disposable income. Hence, these startling results:
Using a set of micro-data and cross-sectional indicators from national sources, Eurostat determined the percentage of people living in households that have less than 60% of the country’s median disposable income to live on. Surprisingly, this indicator for social inclusion is best in some poorer countries, such as the Czech Republic, Hungary and Slovenia. The Czech Republic’s leadership shows that recent policy plays a greater role in combating poverty than a country’s historical background. Slovakia, which was part of the same country as the Czech part of the former Czech Republic for more than sixty years until 1993, has the worst indicators eleven years after Czechoslovakia split.
And is there a greater absurdity than this?
Being poor does not mean the same throughout the European Union. While a four-person family with an annual purchasing power of 30,000 euro in Luxembourg is already threatened by poverty, a family with 5,000 euro a year in Lithuania or Latvia is just above the poverty line.
Surely poverty is relative? If you struggle to keep a roof over your family’s heads and secure the basics of life, then you are, relatively speaking, poor. It takes more to do this in Luxembourg than in Latvia, so therefore it makes perfect sense to say that 30,000 a year is near poverty in the former whilst 5,000 a year is not in the latter. There’s nothing whatever absurd about it.
EG
It’s a stupid way to determine poverty.
Can we come up with a measure of poverty as being something more absolute? How about saying that anyone with a roof over their heads, nutrition, their children being educated and the opportunity to better themselves is not living in poverty?
Thoughts?
The best measure of poverty is to use standard of living. That is: what goods and services you can buy in your country with your income after taxes.
Based up standard of living, 40% of the population of the EU fall below America’s poverty line.
Tim
It’s a ridiculous exercise anyway. The only appropriate response to “I’m poor” is “Get a job”. This method of detecting poverty has long been used in Great Britain and is nothing more than a mechanism for continued ‘wealth distribution’ and empire building by the usual suspects. When the definition of poverty is ‘x% of the population with below average earnings/disposable income’ then pray tell, how is poverty to be eradicated? There must always be someone below the average for there to BE an average. In the land of the billionaire the millionaire would be classified as living in poverty. Why does anyone take this crap seriously?
Tim – That, obviously, won’t suit the socialist agenda, and they are in charge in the EU. Ever more taxes to raise people who have TVs, DVDs, usually a car, to some notional “equality” level as the people who pay for all these frills.
Why the Brits – I don’t really care about Europe, which has been a basket case for so long it is beyond saving – can’t see this has been a 20 year programme of communism by the back door – at first on tiptoe, as little protest and lobby groups, and then with the power of government – is absolutely baffling.
As Tim says, if you have a roof over your head, minimal heating so people don’t die of exposure in the winter, and food, however stupidly chosen, you are not bloody poor. That former presidents of student’s unions, like the current cabinet, keep pushing the envelope to further a bizarre agenda that no one voted for does not make it so. People with a roof overhead, television, running water indoors, a level of warmth in the winter, warm clothing and enough food never to feel hungry are not living in poverty except in the manipulative propaganda of the Gramscians.
Jake – “your income after taxes”? Hello?
Pete London:
Exactly, America’s poverty line keeps moving up every year so that we have these statistics on the people living below the poverty line:
60% own their homes
45% have air conditioning in their homes
75% own a car
90% have a color TV
50% of the population is below average! Something, probably involving a tax increase, must be done. It’s for the children.
Jake – Fine. People in Britain and the US have endless, endless opportunities to get themselves out of the “poverty” of only owning one TV and one fridge. We call it, “getting work”. Gosh, I wonder why so many millions decline to do it! Could it be that they are actually rather comfortable and can sleep late on chilly winter mornings when the people who are supporting them are getting up while it’s still dark and getting themselves off to their jobs – millions of them on London Transport?
How on earth did it come about that the productive have agreed to have a bull-ring drilled through their noses and be led by a pole to provide for the parasites? What an incredible piece of manipulation this has been! And how stupid are the people who have been acquiescent! I think it will take an actual revolution to change direction at this point.
Verity,
They are not,middle England is taking a hike,extracting the value in their property and leaving,those in jobs with early retirement are jacking in,others go on the sick permanently,those who can work for cash do so.
The whole edifice is quietly folding before our eyes,crime and the black market are growing at an enormous rate.Britain is turning into a third world country with the same forms of corruption.
Verity:
The left in America have more or less given up their usual call to end poverty in America now that the “poor” is not that poor. Their new mantra is that something must be done about income inequality.
They think that their class warfare propaganda will win them converts. But the truth is that no one who drives a $25,000 car is going to take to the streets in revolution because someone else is driving a $45,000 car.
Obviously the formula determines how communized the country is, and obviously the eastern parts of the EU have the advantage of long experience at it.
Euan is obviously right – wealth is entirely relative. Whilst it is a confirmation of the success of liberal democracies that its people are nearly all fed, clothed, warm and sheltered, the exponential rise in income inequality over the past 20 years is a serious failing of capitalism.
Noone denies an entrepeneur his or her fortune but salarymen at MegaCorp are getting excessivley rich whilst taking minimal risk.
George Orwell suggested 10x would be a socially acceptable target. The current ratio is over 200x in the US.
Have any of you met people who are by any standard well off who continually bleat about how they have no money? Then there are the people who simply refuse to take the massive opportunities in first world nations like the UK – and much of the EU – to WORK and produce wealth for themselves.
Poverty barely exists in Europe. Discrimination, unhappiness, unfairness does, but people are not poor. The people in outer Pakistan are poor – intellectually, spiritually, materially. People who live in first world states who can access benefits if they find themselves in trouble are not poor. To say they are is farcical and to expect the producers of wealth to continually fund these people is absurd.
Period. Agree with you Verity also – you have been clearly reading your Ayn Rand.
“Billl” says that 50% of the population are below average.
This is incorrrect if we are talking about the usual use of the word average, meaning the statistical mean. 50% are below the median (by definition) – a somewhat different thing.
The problem with poverty measures is that they tend to be either relative or measured at absolute levels cross-border – both of which are inappropriate. For example, it struck me when in Australia that, compared to Europe, you can generally live well on an income much lower in proportion to the mean (or, indeed, the median) – because so many ‘basics’ are relatively so inexpensive and taxes relatively low. It is the ‘luxuries’ that are relatively more expensive.
Possibly because not all unemployment is voluntary and nor is it necessarily easy for the involuntarily unemployed to simply toddle off and find a new job somewhere.
EG
As my wife’s relations from the Indian sub-continent once remarked to me:
“It is very strange. In England it is the poor people who are fat”.
Euan, your initial comment is weird. If I live in Monaco then I guess I am poor if I can only afford one posh flat and an Aston Martin while the neighbours have about 4 Ferraris and a yacht.
Of course what we are really talking about is the confusion between promotion of equality of outcomes and conquest of poverty. One may be the consequence of the other, but in fact the alleviation of poverty often is thwarted by redistribution of wealth.
How so?
If it takes 30,000 in one country to provide the basics (food, shelter, education, etc) but only 5,000 in another to do the same thing, then is it not valid to say that the absolute poverty income level in the first country is, in cash terms, somewhat higher than in the second? It doesn’t matter how much things cost in absolute cash terms, but how much they cost RELATIVELY in a given country. If the mean income in the first country is 150,000, there is not going to be much poverty. To achieve the same level of poverty in the second country might require a mean income of only 25,000.
Not necessarily so. Look at Norway, Sweden, any of the Scandinavian countries. They have massive redistribution of wealth and no absolute poverty (although of course there is income inequality to an extent). America and Britain have less redistribution of wealth but also have a degree of absolute poverty and a greater degree of income inequality.
EG
Euan, as I said, there comes a point where some countries – like Luxembourg or other tax haven rich places, say, have average levels of wealth at such high levels that comparing relative incomes is meaningless in talking about poverty. Of course it costs more to live in a very rich place than a poor one. But it is possible to have great differences of wealth where even the poorest person is rich by any coherent meaning of the word.
Many Scandanavian countries, especially Norway, are very highly taxed and poverty — measured properly in absolute terms — is quite low. They also have low levels of immigration, which in the U.S. and British cases can affect the figures.
And of course steeply progressive tax rates are an outrage against basic natural justice, anyway.
Of course poverty is relative between nations, just as wealth is. A rich Indian is unlikely to be considered rich in California, whereas a poor Californian may well be considered at least middle class in India.
You say income inequality like it’s a bad thing, and I’d like to know what your definition of absolute poverty is. Income inequality is not wrong, it is inevitable, and even desirable as a motivator. The chance of poverty is also a motivator as well, possibly even a greater one than keeping up with the Joneses, one that the welfare state largely blunts.
pommygranate writes:
“…the exponential rise in income inequality over the past 20 years is a serious failing of capitalism.”
I have had to read the above several times before I was able to convince myself that I read it here – and not as a quote from some half-witted Guardian columnist.
By what contortion of reasoning is ‘inequality of income’ necessarily a Bad Thing? Why, if it drags the bottom income bracket up with it, as it does in the USA, is having a few clowns like Donald Trump not a price worth paying?
Oh, and have you read a word anyone has written on this blog for the past six months?
“Relative poverty” is just a trick of the egalitarians.
Another trick is to call inequality “inequity” or “injustice” – as in the concept as “social justice” (which various Conservative party people are using – hopefully without knowing what the worlds mean).
It takes the emotion that people feel when they see someone starving to death (or in rags, sitting in the rain, waiting for death), and seeks to con people into supporting a policy to “tax the rich” simply to try and reduce their richness.
I’m not comparing relative incomes. I’m saying what matters is how much things cost relative to how much income the individual has, not how much his income is compared to everyone else. Of course things cost more in Luxembourg than in Latvia, but then incomes are also much higher in Luxembourg. This means that earning 10,000 in Latvia might mean you are rich relative to the cost of goods and services there, but earning the same money in Luxembourg would make you pretty poor because the same services cost a lot more. Therefore, there is nothing whatever absurd in saying that 30,000 equals poverty in Luxembourg but it’s 5,000 in Latvia. Wherever in the world you live, if you cannot afford food, shelter and the basics of life then you are poor.
Define natural justice and explain where it comes from, then. And define “steeply” in this sense.
But the point is that the rich Indian can afford in India to buy a nice house, educate his children well and have food on the table every day. The poor Californian is poor relative to the cost of goods and services in California, but not relative to India – unfortunately, he doesn’t live in India and so can’t get things at Indian prices & the comparison is meaningless.
No, I merely point out the distinction between relative poverty in a society (i.e. income inequality) and absolute poverty (i.e. inability to afford the basic necessities of life).
I don’t know if there’s any correlation between the degree of relative poverty in a society and the degree of absolute poverty in the same society. Having seen at first hand redistributive societies such as Norway and societies where there is no redistribution at all such as Nigeria, and others such as Britain and America which are somewhere in between, I suspect there probably is a link. In Nigeria, both are very high, in Norway both very low. Britain is more redistributive than America, and has less of each than America.
True up to a point. However, poor people need to have a realistic chance of getting themselves out of poverty – though whether they actually exploit the possibility is another matter, of course. It is possible to have a level of poverty so deep that once in it you cannot realistically get out – much of Africa exhibits this – and provided this is avoided then poverty and the possibility of enjoying a comfortable lifestyle are indeed good motivating factors.
EG
Paul Marks – and they also use “the poor” (show me one – please) and “the disadvantaged”. Oh, and don’t forget “the poverty trap”! All this manipulative and emotive bilge employed to form little fiefdoms – and sometimes really big fiefdoms – fighting “the war on poverty”. For this, they need offices in expensive real estate, computers by the boatload, desks and swivel chairs, faxes, phones, canteens – in order to write reports on “poverty”. What a racket!
Except in the case of the disabled (I refuse to adopt the mandatory leftie lecturey “disabled people”), and not always then, unemployment payments should stop after three months. That’s enough time to find work as a stacker until you can land a “real job” again. If I were an employer, I would look more carefully at the cv of someone working an unappealing interim job just to stay independent than I would at someone who had been on the dole for nine or 10 months.
And BTW, if they’re so worried about “the poverty trap”, how about doing away with the TV licence scam?
GCooper
You miss my point entirely.
“Equality of income” is both inevitable and desirable (it’s motivating). Massive income disparities (200x now having peaked at 400x in 2002) are undesirable because they undermine popular support for the capitalist system and promote support for the alternative, socialism.
The system will only work provided people believe it’s fair. Branson deserves his billions becuase he has taken on risk but does Dick Grasso deserve $175mm?
Gerry Robinson is trying to convince Rentokil shareholders to “grant” him £70mm of Rentokil shares for free – a more powerful advert for socialism than anything Livingstone, the Unions, Brown etc etc could produce.
I think you missed the point that I was agreeing with you on the idea of relative wealth.
Enterprising third workd immigrants to the first world have repeatedly showed that “poor” people have ample opportunity to better their positions in society. Immigrants are even further disadvantaged by all the issues concerned with displacement, including language, education, social and commercial relationships.
Once upon a time there was shame in having to accept charity to feed and house yourself and your family. Almost the opposite exists today, when many entrenched welfare recipients are proud to boast of how much they are getting out of the government. This is the legacy of redistributive welfare regimes, people so perversely corrupted by the system and able to live a comfortable if unfruitful life scrounging on welfare, that they don’t aspire to provide for themself, but rather live with the delusion of entitlement.
Not all welfare recipients are like this of course, but the fact that any have slipped into this state is a price too high to pay for social equality.
“the delusion of entitlement” … Brendan Halfweeg, that is an interesting thought. Long-term, professional, if you will, welfare recipients do indeed think that the receipt of the fruits of other people’s labour is one of their “rights”.
I wonder how they justify this thought in their own minds. Do they know that they are eating up other people’s salaries? How can they delude themselves into believing they are entitled to other people’s money – not for providing a service, or goods, but just because? I think this is an interesting question.
Euan, the sort of steeply progressive tax rates I mean are ones which, for example, existed not so long ago in Britain when the “rich” were taxed at 80 percent or more (when taking inflation and capital depreciation into account, that meant outright confiscation).
By natural justice in this case, I mean that people should be treated equally in terms of how taxes hit them (assuming we have to pay the bloody things at all). By this definition, progressivity is an entirely arbitary thing. How can one decide what is the “just” top rate of tax? 50 pct, 60 pct, 70 pct – what?
You compare different countries, but that still misses an important point. A poor man in sub-Saharan Africa is dirt poor, on any coherent definition of the term. Such a person is likely to be malnourished, have no decent home to live in, have a limited lifespan, suffer regular illness, etc. A “poor” Luxembourger or resident of a rich nation like Sweden is likely to suffer none of those things. Hence my original description of your point as weird.
Paul Marks – absolutely. As soon as the term poverty loses its connection with some objective definition of human well-being, it is nothing more than a tool of political propoganda and justification for envy-driven grabs of wealth.
What Paul Marks and Jonathan said.
A man who lacks food and shelter is poor by any definition. However, such people are vanishingly rare in developed societies, meaning that there are very, very few poor in such societies on an absolute definition of poverty.
While the state may arguably be justified in confiscating one man’s goods to prevent another man from freezing or starving, I don’t believe the state can possibly be justified in confiscating one man’s goods to provide another man with non-essentials.
Certainly there are not enough poor, absolutely defined, in developed countries to justify the massive wealth distribution and associated bureaucracies such countries indulge in. The gargantuan “anti-poverty” industry can only be sustained based on a relativist, floating definition of poverty.
Those who advocate such a definition are also saying that there is nothing wrong with taking money from someone by threat of force, so that someone else can buy another color TV, or add some other modern convenience to their lifestyle. For that is what the modern redistributionist state does in the developed West.
Its moral indefensibility is obfuscated by the creative use of the term “poverty,” though, by the statists.
As a Czech citizen with some education in statistics I know that the low level of relative poverty in the Czech Republic is primarily caused by the egalitarian structure of incomes. The Eurostat poverty statistics is junk science.
We have very low variance of incomes, thus very few people fall below the level of 60% median income. That’s the trick. We are more Scandinavian than Scandinavia itself, however, without the long and uninterrupted history of capitalism, which made Sweden, Denmark and other Nordic countires wealthy.
Nobody actually starves in the Czech Republic, and the poor are usually more fat than the rich, as in most Western countries.
But we don’t have those rates now, nor anything like them. IIRC the top marginal rate was 98% at one point. Presumably, then, the current British levels of progressive taxation are not unacceptable?
Fair enough, but wouldn’t that founder on a differing interpretation of “treated equally?” It’s reasonable to say that someone earning £12,000 suffers far more from standard rate 23% income tax than someone earning £120,000 does from higher rate 40% income tax.
Even though the 120,000 man pays over more as a proportion of his total income, the tangible effect of taxation in the form of restricting his quality of life is far less significant than it is for the 12,000 man. This is the general idea behind progressive taxation – the more you earn, the less effect taxation has on your quality of life, therefore it is not unreasonable to ask the higher earners to pay at a higher rate.
So you could say “natural justice” was served by having everyone pay at the same percentage rate, others might say that it was best served by making everyone pay at a rate such that the impact on quality of life was the same – the effect is the same in each case, it is just a case of what you mean by effect.
This is the problem with concepts of “natural” law and justice – nobody can agree on what they actually are.
And the objective definition I offered was the ability to afford the basic necessities of life – food, shelter, education, etc.
If you accept that definition, then it must be obvious that the cash level of poverty in one country may be radically different than in another, simply through significant disparity in cash property prices, etc.
EG
I happened to catch a snippet of one of those perverse reality programmes the other day called “Wife Swap”, the premise of which is that the matriarchs from two families swap and TV cameras follow them around capturing the ensuing chaos, not exactly Emmy award winning stuff. I was absolutely gobsmacked though when they profiled one of the families and both parents straight faced claimed to have “chosen” to go onto benefits (another perverse, positive spin word meaning welfare, which has undoubtibly negative connotations) to enable them to better raise their five snotty nosed children. They were framing their choice as a legitimate positive option, rather than a refuge of last resort.
How has this come about? How have people been so conditioned? More importantly, how do we ween such people off the tit of welfare and avoid mass social disruption? Welfare has become less a safety net and more like scaffolding propping up a crumbling social policy.
We’d all need to have exactly the same quality of life to achieve this! I wonder how those “others” propose to impose such a regime?
Brendan
You raise a good point. I also saw this family on television. Even worse, the husband was spending his ‘entitlement’ at the bookies! Couldn’t believe it.
I think in their minds that they truly believe that forces outside their control have placed them in the position they are in. They believe that they have no power to change their situation, that they have no free will and that their situation is pre-determined.
The view that one is powerless and subject to the actions of external forces is cultural. There is a whole ‘culture’ out there of adults who believe they are entitled to state benefits as they are powerless to prevent being in the situation they are in. However the culture is funded by government. It can only exist if it is fed by the decisions of our leaders to divert taxation revenue to that area. Only by removing the funding will the culture start to die, and people realise that it through their own free will, creativity and productivity that they can become ‘wealthy’ – not just materially, but intellectually and spiritually.
The danger of this culture embedding itself in government and society is that the producers, those who take the risk to produce ideas, goods and services for exchange, are labelled as the ‘external’ forces mentioned above. Therefore, a tycoon who gained enormous wealth by inventing something new – and who has created wealth for others, by creating employment for them – is labelled as an anti-social profiteer/exploiter. When the people who keep the engine running start disappearing, being ‘regulated’ or if their creative power is diminished – say by high taxation – then there is a recipe for real trouble.
There is an interesting snippet on Stephen Pollard’s website at the moment about how the EU bureaucracy has caused, in a very short period of time, the loss of major scientific companies to the USA, as well as some 400,000 young and gifted researchers. This is a major problem for the long term prospects of this region. I dont think the UK will ever follow suit, as we are not European, however there is the danger that we will lose sight of the importance of developing and rewarding talent and innovation.
Brendan makes the point I was going to make to Euan’s rather convoluted and unconvincing defence of the progressive principle.
Euan, of course the old punitive tax rates we endured up until 1979 (Hail Maggie!) have been abolished. I was talking about the principle, not nit-picking over historical dates.
I don’t understand your logic. Proportional tax rates at least try to lay down a universal principle that everyone pays the same rate, regardless of income. It does not try to create some sort of “just” patterned distribution of wealth, which is a futile exercise and about as pointless as debating the numbers of angels able to dance on a pin.
Euan writes that in the case of progressive tax, “The more you earn, the less the tax has on your quality of life”. A comment which any entrepreneur paying taxes for much of the UK post-war period would regard as utter rubbish. How on earth can you judge that? Who are we to state to people that we can grab higher and higher lumps of their wealth and then turn round and say, “oh, don’t worry, the quality of your life is unaffected”? That is the sort of statist poppycock that drove me away from socialism in the first place.
It is true that the cash level of poverty can be radically different between countries. Even so it boggles my mind to suggest that a person only able to afford a small flat in south London on 30 grand a year is as “poor” as a peasant in Chad.
BTW, to have another bite at this proportional tax issue, if a state takes 25 pct of GDP, then the tax rate rate should ideally be 25 pct, since this transparently makes it clear what the actual cost of government is, to everyone. A guy earning 30 grand a year pays 25 pct of that, as does a man earning 100,000 grand. Yes, obviously the richer man gets to keep more income afterwards. What is the point of being rich or earning a higher salary if you don’t get to keep most of it? I am not interested in creating a more “equal” pattern of wealth, but about levying tax in a fair way.
One rider: people earning less than a certain level should not pay income tax at all.
It’s certainly true that by pure exchange rate comparison, such as preferred by journalists trying to be sensational or trying to point out how far aid or charity would go, quite different amounts of money are needed to avoid being poor in different countries.
However, surely using Purchasing Power Parity comparisons removes a lot of that complaint? And by that there are still dramatic differences in poverty here and there. Being poor in a wealthy nation is still much, much better than being poor in a poor country.
Pavel, do you have the same problems with Euro-harmonized food prices in the Czech Republic as they do in Hungary? I know in Budapest from my father-in-law, who runs a restaurant there (and is, typically, being squeezed out of business by taxes) that meat prices have become nearly outrageous, and better-quality meat (I’m not talking luxury food) has started to price itself out from lower-middle class budgets.
No. They don’t. In fact, they never even think as to where the money they exist on comes from. Trust me, I know.
Russ,
No, I don’t think so. Prices of food mildly increased as a result of VAT changes, but the overall price level has barely moved with the EU entry. Especially meat is pretty much cheap in terms of price/purchasing power measures.
The other thing is that numerous EU regulations are being enforced to the point unheard of in most EU-15 countries. The costs associated with that is nigtmare for many SMEs indeed.
I think the entitlees just think the money comes from “the government – the mean bastards”. Where the government gets it from just isn’t in their thought range.
Jonathan – I agree that people earning below a certain level should not be required to pay tax. It’s absurd that they have to pay tax and then go on “income support” (administered by an army of public sector employees) to bring their income up to where it was before tax. They’re out working, supporting themselves, being independent (oops! it’s being independent of the state that the state finds so worrying), so leave them off the tax rolls.
Ted – Yes, the wealth producers are now viewed as the (inherently hostile) “external forces”. The socialists have worked very fast these past 10 years.
Well the good news for everyone is that with the cost of medical care skyrocketing and the governments’ promises to pay for it in the future, all unfunded (in Europe and the US), we all will be poor very soon enough. The confiscation and “equalization” that will be necessary boggles the mind. I don’t happen to believe that gains in production efficiency will be anywhere near enough to pay for medical “gains”.
As it stands, offsetting our pro-rated share of the accrual basis national debt ($45 trillion), my wife and I are severely in the hole and we are in the top ten of household incomes.
Houses and TV’s and beer nuts are a shell game viz a definition of poverty compared to the ‘poverty’ that looms for us all (except the few uber-rich). Health has been basically socialized and the bill will come due. Again, I have little doubt that future production will be anywhere near enough to pay the way.
Of course we would not. Naturally, one cannot calculate precisely such that the effect of taxation would be identical on each person, but the general principle of progressive taxation is, stated fairly simply, that a man earning 10,000 a year is rather more dramatically affected by taxation at say 20% than is a man earning 100,000 taxed at 40%. A few simple calculations show that the wealthier man is still very much wealthier after taxation than the poorer man and still has a considerable incentive to earn more money. To put it crudely, the effect of this taxation on the wealthier man is akin to saying he cannot afford a Mercedes-Benz but only a BMW, whereas the effect on the poorer man is that he cannot afford a car at all. To level the taxation at 20% for all would leave the wealthier man free to buy his Mercedes, but the poorer man still can’t buy a car. Even with a progressive regime at these sorts of levels, the effect of taxation on the wealthier man is rather less than on the poorer, even though he pays a greater proportion of his gross income in tax.
When the marginal tax rates go even higher, then the incentive falls and you eventually reach the stage where it is not worth making the extra effort – this is exactly what happened in Britian in the 1970s. The fact that 98% peak marginal tax rates screw the economy up does not mean that 40% peak rates will do the same, and the reality is that they do not.
It seems to be generally accepted as reasonable that wealthier people should pay a greater proportion in tax. There doesn’t seem to be all that much opposition to the principle, even amongst people who do pay at the higher rate. The quibbles are generally more about what the rates should be, not whether there should be progression.
Rather than pushing for flat-rate taxes, which may prove somewhat less popular than predicted, the first effort in tax reform should be simplification and reducing the burden on those affected most – the less well off. Radical simplification can be achieved by abolishing all tax breaks and allowances, not to mention the insane tax credit system and the NICS, leaving a very simple calculation to perform even with a two or three tier progression on rates and eliminating the need for much of the inland revenue bureaucracy. To make up for the loss of allowances, simply raise the tax thresholds – this restores the overall effect of the allowances but without complexity, and it takes more lower earners out of the tax system. Much of the lost state revenue is made up by reduced administrative costs and almost certainly quicker and more honest payment. Other than some unemployed civil servants, no-one actually loses from such a scheme and no social consciences are bruised.
THEN you can think about going on to flat-rate taxation, although I suggest the better system is simply to keep raising thresholds and perhaps widen the gap between them. This is almost certain to be rather more politically possible in the UK than a simple push for flat-rate tax, which would be seen as simply benefitting people who are already better off than most.
EG
This latest post of Euan’s makes a lot of sense.
I favor a flat tax for principled reasons – but EG is right that in practical terms it makes no sense to talk about shifting to one just yet. This is because the state DOES account for something absurd like 20% of GDP, and to a person earning $30,000 or whatever 20% can be a devastating take. I consider this one bit of (perhaps prima facie) evidence, by the way, that misguided government interference causes poverty and not “economic cycles” or whatever else.
Up to a certain point, EG is right that the burden imposed on a wealthier person by a higher marginal rate is actually lower than the burden imposed on a less-affluent person by a lower marginal rate.
That said, I tend to agree with Jonathan that there is no objective way to measure “financial burden,” and that attempts to do so are likely to get us into trouble.
However, until we have made some real progress getting the state’s take in the economy lowered (not that we’re likely to in my lifetime…), the burden imposed by a flat tax on the lower-earners will be prohibitively high. Allowing exceptions for them, of course, is precisely what a flat tax system is not. So it seems we do have to deal with the one problem before reasonable talk can be had of the other. All we can talk about now with regard to taxes is making the system less progressive.
This is certainly right on point. Eliminating the distortions in the system is the first step. Let’s be honest about what we’re charging people to be citizens – and while we’re at it why not offset some of the hidden economic costs (as a result of red tape and the accounting industry we pay to deal with it).
However – as to the original point Mr. Gray raised:
OOPS! Seem to have forgotten to close the quote tag on that post.
Many apologies. Would one of the editors please do it? Thanks.
Social welfare has been totally successful at creating a complete disconnect between cause and effect. These ‘entitled’, if you debate them, believe wealth just exists. They think it is pumped out of the ground like oil, and they’re not getting their ‘fair share’.
For them, the hard work of others is merely an incomprehensible life style choice.
The depressing thing is we can’t really blame them. Intelligence is understanding your surroundings and responding appropriately. That is exactly what the ‘entitled’ are doing.
These people’s choices are the inevitable and entirely predictable consequence of a social care safety net that punishes effort and denies cause and effect.
I’m sure the following proposal will draw opposition from the ‘perfection first or nothing at all’ types, but reconnecting cause and effect without catastrophic social consequences will take some time to achieve.
We MUST eliminate minimum wage and income disqualifications for welfare. Even if somebody is not worth a poverty level income, they must still have access to the job market. Contrary to the liberals apparent expectations, you cannot get promoted from couch potato to employee-of-the-month without any intermediate steps. Good work habits are learned in jobs, not class rooms.
A proposal that has much merit is relevant to Johnathon Pearce’s comment that
“people earning less than a certain level should not pay income tax at all.”
Below the minimum threshold income, the otherwise flat tax rate would be progressively less and become negative (get money back) down to zero income with this negative tax taking the place of welfare.
Never said it was.
Ah, but it is. It is relative to the cost of the basic necessities of life. To repeat – it does not matter how much these things actually cost, but if you cannot afford them then you are poor.
The EU survey defines poverty as earning less than 60% of the median income of the country. Apparently in 2000-01 the median income in England & Wales was 15,150 pounds. 60% of that is 9,090. This is not a lot of money, even 5 years ago. The EU definition is of *households* with an income less than 60% of median, so we’re not talking about a single individual. Doubtless a search consisting of more than 30 seconds on Google could produce more recent numbers, but it’s late & anyway I think you get the point.
You have to define poverty somehow. It seems that less than 60% of median income is a generally accepted measure in many countries, not just an EU invention.
But that IS a progressive taxation system.
EG
Midwesterner –“Below the minimum threshold income, the otherwise flat tax rate would be progressively less…”
Euan –“But that IS a progressive taxation system.”
Midwesterner –“I’m sure the following proposal will draw opposition from the ‘perfection first or nothing at all’ types, but reconnecting cause and effect without catastrophic social consequences will take some time to achieve.”
All very well, but you aren’t actually proposing anything other than the progressive system already in use. You could call the current British system a flat 40% system which tapers off below the threshold down to negative rates (welfare payments).
There’s no difference other than the administrative structure, so I don’t see what different effect you’re expecting.
EG
EG-
So is poverty defined in terms of ability to purchase basic needs, or is it defined in terms of arbitrary position on the wealth distribution scale?
What you’re saying doesn’t make any sense. Virtually everyone in North Korea is poor despite the fact that there is effectively no income differential (at least amongst the general population). There are, in fact, plenty of countries in the world in which one can earn considerably more than 60% of the median income and still be unable to purchase all basic necessities.
Likewise, 60% of the median income in the US is enough to meet the basic needs of you and three others.
“60% of the median income” is completely meaningless in defining poverty. To mean anything it has to make reference to what “the median income” of a nation is!!! Surely you can see that?
What gets me is that you seem to want to have it both ways. One moment poverty for you is ability to purchase basic needs, another moment you talk as though it is sensible to define poverty as “60% of the median income” regardless of whether that enables someone to purchase basic needs?
Which is it? I’d really like to know.
Preview is your friend…
That last comment might not have been completely clear in light of your stat on England and Wales.
My point, of course, is that while, as you say, in England and Wales 60% of median income does seem to make some kind of sense as a definition of poverty, you can’t simply lift a UK-specific situation and apply it to Estonia without looking a bit at what the average income in Estonia is, how much goods cost there, etc. etc. There is no a priori reason to believe that 60% will be a reasonable number for any given country. And the reason there isn’t is because poverty is NOT a relative thing in the sense you mean, etc. etc.
Euan Grey – whose initials are EG: “You have to define poverty somehow.”
Excuse me? Why?
Please explain why you think we “have to define poverty”. Why would we “define poverty” other than furthering a desire to take money away from people who create wealth to alleviate the “poverty” you have defined?
You want official guidelines for poverty? If people are sheltered, able to eat nutritious food, even if they do not bother to do so, are warm, have running water and free medical attention and free prescriptions – all of which applies in Britain and Europe, what are you doing poncing around with “definitions of poverty”?
“It seems that less than 60% of median income is a generally accepted measure in many countries, not just an EU invention.” Like we are supposed to care for this definition by people we have never heard of? And who have agendas?
So anyone who is 60% less well off than me or my neighbour or my brother or sister is “poor” and by extension needs extra “benefits”? Hello?
What is the point of this exercise, other than to take more money away from wealth producers and give it away to parasites?
Poverty is not defined by what other people have got. It is defined by clothing to be warm, enough food in the belly, ability to be clean, assurance that sickness will be treated and … oh, I forget the rest. Not by washing machines and plasma TVs paid for by the labour of others.
All of which beggars the question, why do you want to define “poverty”? Even if the entire world accepted your definition, so what?
You are demanding the wealth creating sector can be forced to top up the difference? That’s what it boils down to. You want to define “poverty” and then callibrate how much wealth creators “owe” to “poor” people who only have one plasma TV. Or have no plasma TV. Or any TV.
So WHAT?
Midwesterner wrote:
Below the minimum threshold income, the otherwise flat tax rate would be progressively less and become negative (get money back) down to zero income with this negative tax taking the place of welfare.
I agree with this general principle. Most interestingly this is similar to the UK Green Party position of a “Citizens’ Income.” Simple left / right definitions are not as useful as they once were. There are plenty of Greens who have a sincere belief in the power of economic and personal freedom.
As for the broader issue of poverty I tend to Verity’s position of not worrying too much about what exactly constitutes poverty. If you create an official poverty line then you also create an implied obligation on the government to “do something” about those who are below the poverty line. At the same time you create an incentive for bureaucrats to keep moving the poverty line upwards so that they can stay in their jobs. This is one of the very many things that government should stop trying to measure and control.
That being said there is no harm in others talking about “poverty” and how to reduce it. Measuring “absolute” and “relative” (i.e. income inequality) can both be used to tell us things about a society. Most importantly it is the poorest countries (e.g. Angola) which usually have the most unequal income distribution.
The fashionable buzz words over here, and I’m suprised no-one has mentioned, are-
Child Poverty.
Emotive weasel words that mean nothing.
If a child is poor, how does this happen?
A lack of a sufficiently large paper round perhaps?
Children are , by and large, economically inactive.
So it’s the parents who are poor, and Ipso Facto making their children poor.
But if you listen to Margaret Hodge…
There are no poor people in my country… except the poor in spirit.
RAB, a light bulb in my brain. “Child Poverty.” Of course!
How better to create yet another interest group to play off against the rest? It’s part of the multi-culti concept of society. Not poor families, ‘poor children’. Divide and conquer. Blame the parents, confiscate the children.
It’s part of the insatiable appetite for power and subjects to wield it over.
Midwesterner – You are correct. The appetite for power and not only subjects to wield it over, but (taypaying “customers” – “Do you approve/disapprove of child poverty?”) to wield it over, too.
I think you’re wasting your time asking Euan to choose which one of these he’ll go with. You hit the nail on the head when you remarked that he ‘seems to want to have it both ways’. All you can expect from him, if you keep insisting on an explanation for the contradiction, is a protracted argument about how if you’d read it properly, you’d see that there was no contradiction! Or words to that effect.
Hmmm. The state “accounts for 20% of GDP”. If only. Last time I checked, it siezed 42% of GDP in taxes. That doesn’t count the cost of its borrowing, its off-balance sheet deficits and its unfunded liabilities. Nor does it count the compliance burden imposed on the rest of us.
I also seem to recall “poverty” was, a couple of years ago, defined as 50% of the median manual worker’s income. How did this become 60% of all incomes? Poor people are clearly getting richer all the time.
Absolute poverty can only be defined in terms of ability to afford the basic needs.
However, the question then becomes how much do the basic needs cost and what is a handy measure of this. 60% of median income seems to be a recognised general measure of that in many places, and is used as the standard EU measure, but of course that may well vary in usefulness from country to country. It seems that it might be a good enough number for England and Wales, though.
The US uses a more complex formula, which is explained by the Census Bureau here. This is probably a more accurate way of doing it, but it nevertheless results in a figure of some 35 million Americans living in poverty in 2004.
Because, fairly obviously, it’s hard to discuss something if you don’t know what it is you’re discussing.
What I’m talking about is absolute poverty, which is the inability to afford basic necessities. Absolute poverty is of course relative, but relative only to the cost of these basic necessities, which varies from country to country and indeed within a country. It’s therefore perfectly valid to say that the cash amount defining absolute poverty varies from nation to nation, which is my point.
Relative poverty, which is a measure of income distribution, is a useful tool but it is measuring a different thing. It’s still useful, because up to a point income inequality is a good motivating factor in the economy, but beyond that point it tends to be destructive since it results in a growing feeling of envy and discontent amongst the poorer people, and this can have implications for state economic policy, especially in a democracy.
I think it’s also fair to say that pretty much anyone discussing poverty has an agenda. The socialist will want to exaggerate poverty because this helps his case for redistribution. The capitalist will want to underestimate it, because this helps his case for not paying more tax.
EG
OK, this is clear, and I agree with it. Thank you. I trust it should also be clear that “ability to afford the basic needs” cannot be defined in terms of position on the income distribution table. In a wealthy country, a fairly low position on this scale still enables one to meet the basic needs with ease. IN a poorer country, one might need to be significantly higher on the scale to do so.
Right – absolutely right. And it is these figures that the EU survey crucially did NOT take into account, prefering instead to use an overly simplistic and mostly irrelevant statistic.
If that is your point then you really shoudln’t be defending the income distribution statistic – which has nothing whatever to do with cash value. If 3000Euros buys a comfortable living in Estonia, it does so regardless of how much the median income is.
Depends on what you mean by “agenda.” What most of us mean by it is using poverty as a trojan horse issue to push in a set of policies based on a political philosophy that is not primarily motivated by the desire to eliminate poverty. When most libertarians discuss poverty, they are not doing so as a means to trick people into supporting libertarian policies. That is surely obvious from the earlier posts in this thread – where people have been forthright in saying things like “the only appropriate response to ‘I’m poor’ is ‘get a job!'” When we say the EU bureaucrats have an “agenda” behind using bogus statistics to make Europe look poorer than it is, we mean that they are using the perception of poverty (absolute poverty in the EU is no doubt much lower than they say) to drum up support for a range of social welfare policies that increase their own importance while not necessarily (and indeed likely negatively) affecting the “poverty problem.”
Absolutely, Joshua. And while some of the posters above are determining how many angels can dance on the head of a pin, the EU is quietly shovelling new “child poverty”, “economically disadvantaged” (unemployed and aggrieved that the dole isn’t more lavish) income redistribution programmes through by the truckload. In fact, they don’t shovel them in any more; they truck them in on tipsters. Equally disconcerting is, people do not see what is happening to their confiscated income right before their eyes.
Joshua, absolutely first-class comment!
It is true that some of us have an agenda: expanding wealth, reducing poverty, increasing liberty, promoting tolerance, expanding Man’s understanding of his surroundings, etc. Subversive stuff.
Of course it is, and I’ve said so several times. I’m not saying that it should be so defined, merely that this does seem to be a fairly common means of defining it.
As I have also said several times, this may or may not be a useful yardstick for assessing absolute poverty. It does seem to work closely enough for England and Wales, though. It’s also useful for considering to what extent there is a correlation in a given society between absolute poverty and income inequality, because that also varies between societies.
EG
Poor people, by which I mean people who cannot afford nutritious food, cannot afford bus fares to get around and people who cannot afford to heat their homes adequately in cold weather, should be helped – although I am not sure the government should be performing this function.
“Income inequality”, on the other hand, is no one’s business and I don’t believe anyone in government gives a stuff about it per se. The interest in it is fuelled by spite and malice.
A point worth making is that a rich person in a Western industrialised society has a vast array of potential opportunities, avenues for business and personal development to follow. There is a vast amount of choice in terms of career, business ideas to pursue, and so forth. Now, relatively speaking, a rich head of a tribal community in the middle of Africa may top man in his community, but the array of opportunities is clearly vastly less. (The quality of life of the latter may be just as good, in some sense, of course).
When we try to compare the positions of people in societies on some sort of ranking order, you cannot get away from the fact that in the modern West, there is just so much more than people, apart from the poorest, or physically and mentally handicapped, can actually and potentially do.
I have mentioned this book several times over in the blog, but I make no apologies again for referring readers to Richard North’s “Rich is Beautiful,”. (Link)It nails many of the fallacies that tend to surround discussions of wealth and poverty. North is no blind defender of laissez faire but he cuts through a lot of the rubbish written about these sorts of issues.
Ok I have just had a great evening at the Bristol Hippodrome watching The League of Gentlemen in Panto and may have to have the trousers dry cleaned.
So let’s tie down this “poverty” thing.
The late great Lenny Bruce said that the human species had three primary thoughts going through it’s head at any one time. If you possess these three, then you are a happy human.
EAT, SLEEP, & FUCK.
Those are the thoughts.
By eat, he meant earning a living. By sleep, he meant, by that living providing a roof over your head. By fuck, well don’t you want somebody to love ? dont you NEED somebody to love (how did Grace Slick get in here ) the point being that the last one makes the labour of the first two worthwhile.
That’s the same in anybody’s culture, rich or poor.
The rest is just spiteful socialist accountancy.
I apologise to all. I didn’t read the original article closely. It says…
Eurostat has concluded that…
Why on Earth are we paying any attention to these lying scum?
Let us say that a government actually wanted to reduce poverty and produce a more independent population (people with more of a chance not only to improve their long term economic prospects, but to grow as moral human beings – to be better people with stronger families).
Such a government would seek to reduce the size of the state (both by reducing taxes and government spending and by reducing regulations), and it would also seek to get rid of fiat money credit bubbles (which not only produce the boom-bust cycle, but also distort the capital structure thus increasing inequality as well as poverty).
I do not see many governments following such a line of policy. Instead I see a lot of talk about “relative poverty” and “social justice”.
Often such talk comes from very wealthy people indeed, who (if they wished) could give away their money.
Things like high income tax rates and capital gains taxes and inheritance taxes do not tend to undermine the elite (people like the Kerry family in the United States do not tend to pay such taxes), they undermine new people trying to get rich (people who are not wired in to the political system).
Sometimes there will be a very specific reason why a member of the elite will support collectivist policies. For example in this country various very rich people support New Labour in the hopes of government contracts or other favours (the people behind “Capita Raz”, are only one example – whether it civil service application forms, computers systems, or other contracts they tend to go to useless but highty politically connected folk).
And in the United States there is the same pressure at work, and other factors.
For example Warren Buffet loves inheritance taxes because he can then go to family owned business enterprises and say “sell out to my organization and you will have the money to put in a trust fund for your children – try and keep the capital and your children will be taxes to bits”.
Capital gains tax and inheritance tax do not effect corporations (no matter how hopeless such corps are) and they tend to force capital away from individual human ownership into the hands of (normally politically connected) corps.
Regulations (such as the “antitrust laws” and S.E.C. regulations) also tend to favour the politically connected corporations against any who might seek to challenge them. Yes the effect of such laws is the exact opposite of what it is supposed to be.
Want to find an honest Republican? Ask him what he thinks of the antitrust laws. If he likes them then most likely he is a pawn of the corps.
Verity mentioned the T.V. tax (used to fund the B.B.C.s agit prop). Certainly this hits the poor – but the Conservative party is not doing much to fight it.
“Public service broadcasting” is part of the statist religion and “rightwing” people (such as Peter Hitchins of the “Mail on Sunday”) love it as much as “leftwing” people do.
But it is the same in the United States. P.B.S. (and the other government subsidies) produce show like “Market Place” where (amongst other things) poverty is claimed to be the creation of wicked bussessmen (to create a “reserve army of the unemployed” no doubt).
And the Republicans who make up the majority of the Senate and House of Representatives (as well as President and Vice President) are not doing very much to end government subsidy of T.V. and radio – in fact they do not seem to be doing anything at all. Which fits in with the fact that under the Republicans there has been a vast INCREASE in government domestic spending (quite seperate from the war spending).
But the privatly owned A.B.C., C.B.S., N.B.C., and C.N.N., also have (to a greater or lesser extent) a pro big government slant – now why is that? I do not think it just an effect of the regulations of the F.C.C. (as evil as these regulations are).
As exposed again and again, the last thing many big corps want is a free market – they want a big government (with all its “Private Finance Initiatives”, sweet heart contracts, “cheap money” fiat credit booms, and endless regulations to keep people out and keep them down).
In my youth I was scathing about what I viewed as the weakness and half heartedness of Mrs Thatcher and Ronald Reagan in trying to roll back government. Now I have a some understanding of the vast forces against them I understand that they were heroic ever to talk about it.
As a last point, if people think that poverty is bad now (and there is poverty, I am not talking about “relative poverty” or nonsense of that sort), wait and see – it will get a lot worse.
“Oh that is just him being depressing, reform is perfectly possible and reform would reduce poverty” – yes, but I see no sign of reform.
All the great forces in society push towards an ever greater state, one must have a thousand oxon straining at the yoke to move the state back an inch – wheras all someone has to do is to move their finger or raise an eyebrow and the state advances a mile.
All the basic laws of politics are on the side of destruction (the destruction of civil society), only clear understanding and constant effort can save it (in politics the unthought about traditions that man like Hayek loved are no longer of any help – if people do not know the harm that trying to use the state to solve “social problems” will tend to do then that is exactly how they will act, tradition is no longer any check on politics).
As there is no clear knowledge (either among most politicians or most voters) of the basis of civil society or the effects of state action, and as tradition is no longer respected – well then the future is likely to be bad.
It may be that terrible experience will teach people the folly of their ways (although they might simply blame poverty on their not being enough statism – and follow the statist path right to the collapse of civilization), but there will still have to be time of troubles.
If one Western nation would turn away from the false promises of the “Welfare State” then there might be hope of avoiding this time of troubles (as other nations might copy it), but I see no sign of that.
I apologize for my errors, such as ” heroic ever to talk about it” (Mrs Thatcher and Ronaold Reagan on rolling back the state) instead of (as I should have typed) heroic even to talk about it”.
When Brian stresses the information comes from Eurostat he is reminding us that this organization was recently found to be deeply corrupt (even by government standards – after all it is part of the E.U. an organization that seeks to punish anybody who exposes its corruption [not only are they dismissed and lied about, the E.U. has also used police to steal private property belonging to the whistle blowers and to journalists they have talked to and to threaten them with other punishment] and has not published even vaguely honest accounts for many years).
However, the stats could still be totally correct. For example, if a proven liar (and thief) tells me “water is wet” I am not going to doubt him. Liars do not lie all the time.
Of course, this does not alter the fact that such concepts as “relative poverty” are not only nonsense but also lead to policies that increase long term poverty over what it otherwise would have been.
Paul Marks: “Verity mentioned the T.V. tax (used to fund the B.B.C.s agit prop). Certainly this hits the poor -but the Conservative party is not doing much to fight it.
Paul, I think the BBC is an immense, dangerous and dark Ministry of Propaganda but I think we have to admit that people feel about it they way they continued to stupidly feel about the NHS until a couple of years ago. They really believed that the Sovietesque NHS was “the envy of the world” – although “the world” – as in, the entire planet – mysteriously failed to copy it. But they believed it.
It was only after they started going abroad for their holidays and falling sick in a foreign city and, having been sensible enough to fill in the right form before they left Britain, be eligible for treatment in other EU countries. And my, oh, my – what an eye opener!
The BBC, Paul, I think will take equally long to find its own level of discredit. In this instance, through the World Service, they managed to keep up the international facade longer – although Biased-BBC and Jonathan Miller’s site are chipping away. Nevertheless, the mentality that is vulnerable to statist propaganda and believed the NHS was the envy of the world for 30 years believes the BBC is also the envy of the world for unbiased, knowledgable reporting. Yes, Matt Frei, I’m looking at you.
Do stop wearing fatigues when reporting from big cities in the US, even if it’s the aftermath of a hurricane. You really did look like an ignorant prat. Even the useless governor of Lousiana continued to wear business suits as her reputation plunged below the plimsoll line faster than the levies.
To put it crudely, what if the poorer man works in a Mercedes factory rather than a BMW factory? Then he’s out of a job completely.
Ok, that’s a bit facetious, but the point remains. All expenditure has a multiplier effect, even government spending. Private expenditure has the added advantage of (potentially) creating wealth, whereas government expenditure redistributes existing wealth.
The majority are always going to think it’s ok to redistribute the wealth of the minority, it is in their interest. If above median earners are so willing to pay tax, then why is avoidance and minimisation viewed as such a problem?
Your ideas on tax reform are about the most sensible ideas I’ve read from you. Tax reform is needed, but I would argue it also needs to be done in conjuction with a decrease in government expenditure. Much of the welfare expenditure could be eliminated by raising the tax free threshold and reducing the high marginal rate of tax the unemployed face when re-entering the work force through the combination of tax burden and loss of welfare.
I could not care less about civil servants or social consciences. Let the civil servants use their skills in the private sector and the social consciences donate more to charity.
I think “would” here is a bit optimistic. Reducing the size of the state and the burden of regulation is NOT guaranteed to end poverty. There is no reason why a government intending to reduce poverty and let the people grow MUST reduce the size of the state. The Scandinavian countries, for example, collect lots of tax and have pretty substantial states, yet they have no poverty. America has a much smaller state and much less taxation (the US is the least taxed industrialised economy in the world), but it has a hell of a lot more poverty. Care to explain this?
The boom-bust cycle is a natural self-correcting feature of the capitalist market and will happen whatever type of money society uses. The use of fiat money actually makes its effects less severe, not more – the state can expand the money supply to mitigate recession, for example, which is impossible with commodity money. That this is so is most easily seen by the historical evidence of repeated recession turning into depression during the period of commodity-based money, contrasted with the fact that no Keynesian or neo-Keynesian economy has yet suffered depression since it has been able to prevent recession getting that far. Unchecked by the manipulation of fiat money, recession will turn into depression – it always has done and there are perfectly good reasons for this.
Money is an abstraction. As long as the system of money is managed prudently, it really doesn’t matter what you base it on, and it may as well be state fiat as lumps of yellow metal. If you think a gold standard would be better, you need to explain why fiat economies work without depression and why depressions are good for people.
Probably because they know that it doesn’t work as well as a combination of moderate regulation and a fiat money system – after all, we have tried the unregulated market and commodity money system, and we know what the results are.
Of course in most western societies there is too much regulation, and this is likely to be the result of the natural human tendency to think that if some of something is good, then lots of something is better. However, it cuts both ways – if some deregulation is beneficial, that does not mean that more deregulation is automatically more beneficial.
But it’s not quite what they did, though, is it? Reagan presided over one of the largest peacetime expansions of the American state. Thatcher greatly centralised the exercise of power in the UK and so increased the role of the state. Rhetoric and reality aren’t the same things.
Interestingly enough, Hayek was a bit of a fan of using the state to fix social problems, approved of state welfare and saw no harm in expanding the state quite a bit even to help provide things such as healthcare.
I don’t think it’s at all reasonable to suggest that the “old ways” are the only possible method of avoiding catastrophe. Apart from anything else, the supposed catastrophe is a product of the fevered imaginings of ideologues, whose dogma insists it will happen because if it doesn’t the dogma is falsified, and we can’t have that. Be that as it may, this ultra-conservative reactionary approach to solving problems – i.e. ignore progress & development and stick to stuff that worked 150 years ago – is not necessarily the most satisfactory or effective.
Outside of blind dogma, there is no reason whatsoever why this is inevitably so.
EG
I see. So if a private company owns a railway, for example, it creates wealth. But if the state owns a railway, it cannot create wealth and simply moves it from one ledger to another, despite doing the same things in the same ways? Your analysis is a tad simplistic, I fear.
It’s only a problem when the cost of avoidance is less than the cost of the tax. This is why tax revenues are maximised when you have a peak marginal rate of about 35-40%. Above that, it’s cost effective to pay accountants to avoid tax, below that it’s cheaper just to pay the tax. And that’s what people do.
Mostly true. This is already being done, albeit in an extremely complex and unnecessarily difficult way with the graduated start of taxation, the system of tax credits, and so on. Simplification of the rules – Britain has one of the most complex taxation structures in the known universe – coupled with a progression from say 5% rates upwards would make a big difference.
However, it’s not that certain that simply lifting the thresholds is enough to radically cut welfare expenditure. It does have a tendency to do this, but only up to a point.
Then you know why libertarianism is unpopular.
And the charitable donations would be enough, would they? What if they aren’t?
EG
And we all know that when government take that role, there is no poverty, right? What a never ending stream of nonsense.
But seeing as you have demonstrated time and again that you do not have a clue what libertarianism is, regardless of how often your errors in understanding are corrected by real in-the-flesh libertarians, you really should avoid the subject.
Such as your dogmatic belief in the efficacy of government action
Then explain why America takes less of a role than Norway in this regard, but has more poverty? Why is this? Why is there no poverty in Norway but there is poverty in the less regulated, less statist, less taxed America? Surely it should be the other way around?
I don’t think many libertarians have, either – probably another reason for its unpopularity. Paul Marks suggested in another thread recently that perhaps there should be some sort of definition of libertarianism somewhere, and I can’t help but think this would be useful. True, it would be useful more to non-libertarians than to libertarians who naturally won’t agree anyway, but there it is.
I think that unless you can do what has been asked several times before – define what libertarianism actually IS – then you’ll just need to accept that people can only respond to specific ideas and philosophies as they are expressed. If common threads start to emerge, then people will naturally start to tie them together and say “that is libertarianism.” If that is NOT libertarianism, then the onus is upon the libertarian to define what IS, not anyone else. It’s your philosophy, but I don’t think it’s reasonable that you get the luxury of selectively defining away criticism.
I have no such dogmatic belief. Sometimes the state is better than the market at doing things, at other times (and most times, to be fair) the market is best. Pragmatism, not dogma.
EG
Good one, you got me. If you consider the government as a corporation, then it is making a net operating loss, the shortfall of which is made through taxes. It doesn’t matter if one arm of the state is profitable if the net is in arrears.
Even if a government expenditure generates income, this is no justification for confiscating anyone’s money to provide services that are inherently profitable, the market would be much more efficient and morally superior. In fact, it is almost immoral for a government to fund any service which is profitable, since the taxpayer is entitled to ask why they are paying for a service twice, once with taxes, twice with service charges. Such a position highlights the theft nature of taxes.
And government expenditure is enough? What if it isn’t? Such questions are glib and fail to understand that it is up to the individual to better themselves, no one elses.
In a typical utterly pointless non sequitur, Euan asks:
“Then explain why America takes less of a role than Norway in this regard, but has more poverty?”
Hmmm, tough one, Euan. I dunno. Let me think. Norway has a population of 4.5m. The US has almost 300m. My guess – mind you, it’s only a guess – it is very easy to control 4.5m people on a mind-bogglingly individual basis. Norway is mono-ethnic and most of the population is related or connected in some way, and they have a 2,000 year tradition of government by concensus.
But the government is not a corporation and it is pointless to analyse its operations as if it were.
Not necessarily. The market is only more efficient where there is adequate competition and the consumption of the good or service is not strictly essential. Although the market often is more efficient, such efficiency gains are not automatic or guaranteed, nor are they certain to persist indefinitely.
That’s a subjective opinion, and thus not open to rational debate.
Taxation is only theft to the same extent that property is theft. Consider:
All property ultimately derives from land and the use made of it. Before men came along to claim it, land was unowned. All land ownership leads back ultimately to some man for the first time putting fence around it and saying “this is mine, anyone says otherwise will get thumped.” This is coercion, so thus all land and hence all property is ultimately the result of coercive taking. But we don’t do that, do we? We accept current land ownership as it is with no greater moral justification than that this is the way it is, even though in many cases others have a prior claim which they were forcibly denied.
Taxation is the fee for society. If you don’t want to pay the fee, feel free to decamp to any one of the 190-odd other independent nations around the world. However, don’t expect that you can claim the benefits of a society without paying the fee. You are not compelled to pay a specific fee, because you can leave. In a similar way, you are compelled to pay for food I can sell you, but you are pretty much compelled to pay for some food from someone, at least if you wish to keep living. So with taxation – you’ll have to pay someone, but you have plenty of choice who that is.
Taxes can change, spending priorities can change, economic policy can be modified, social obligations on others can be modified, et cetera et ad nauseam. There are many different things that can be done. In the charitable scenario, you can’t force people to give more to charity. The unfortunate and impoverished are thus left at the mercy of the good nature of everyone else, and if that’s not enough it’s just tough.
Strangely enough, this is an unpopular idea in almost the whole western world. Put yourself in the other man’s boots for a moment and you’ll soon see why.
And they do this how? Reindeer steaks laced with sedatives? Mind control rays in every fjord?
And however they do it, what does that have to do with the fact that there is no poverty there? How do you control people not to be poor?
EG
Obviously,
should read NOT compelled.
EG
I don’t expect any nation to adopt entirely libertarian policies overnight, but I do welcome a shift to greater freedom and personal responsibility and a decrease in the size of the state and the burden of taxation. I believe there is a case to be made for reducing the fee you call taxation, increasing its fairness, while increasing the robustness of society.
Exactly my point.
Sounds fair to me. I think you under-estimate the benevolence of people and over-estimate the generosity of taxpayers.
I’m interested in how you would propose to solve the problem of entrenched welfare and the delusion of entitlement that corrupts the albeit good intentions of the welfare state?
Brendan Halfweeg – the delusion of entitlement that corrupts the albeit good intentions of the welfare state? Do you really believe the state is benign?
For the purpose of argument, I’ll indulge the fantasy. A statist has to believe the state is benign, and I’d really like to hear whether EG recognises that welfare has problems and if so, how the state can rectify them.
To be honest, I don’t think the state is benign or malevolent, but I do believe in unintended consequences. The state is self-perpetuating, the only motivation behind its actions is self-preservation and aggrandisement of itself. The consequences of those actions may be good or bad depending on your relationship with the state.
If you compare the state to cancer, then that definition is probably most apt. The state is malevolent if it kills the host and thus itself, benign if it does not. However, as any cancer sufferer may attest, a benign cancer may not always remain so, and may adversely affect certain parts of the host without actually killing them. A bit trite perhaps, but similies have their purpose.
But increasing the fairness is such a subjective phrase, isn’t it? It usually means “increase the fairness for ME,” or in other words, let ME pay less tax.
I think you seriously underestimate the cost of providing the sorts of things people, rightly or wrongly, expect from society and which are presently granted without undue economic hardship to most. As noted before, the British on the average gave about 10% of income to charity before the existence of the modern welfare state. That just about covers healthcare in the UK today (state, not including private), but it wouldn’t cover it in the US. Then you have to add on dole for the indigent, because it’s worth paying a little not to have one’s street blighted by inconvenient poor people. You still have to pay for education for your own children and chip in some for those who cannot afford school – and remember education also costs a lot more now than it did then. Then you still need to pay for the routine stuff I assume you’d expect, like defence, police, courts and so on.
There’s a reason why the state takes about 43% of GDP – these things are bloody expensive. You could reduce it (see also below), but probably you could not go much below about 35% before people would start to protest. To expect it all to come from a mixture of private insurance contributions and charitable donations is somewhat naive. After all, one of the first things people will do in a materialistic society when relieved of the obligation to pay tax is to start spending more on themselves. Also recall that in our terribly enlightened post-religious west European society, people are not as charitably inclined as previously, when the Christian duty of charity was drummed into most. Not that I’m suggesting this should be done, but you need to take it into account.
By a less radical means than just scrapping the lot and hoping charity picks up the tab:
Firstly, the taxation system should be radically simplified, including the abolition of NICS and all personal allowances save that for marriage. It should remain progressive, with a gradual introduction from 5% up to a peak marginal rate set for maximum return, which is about 40% as at present.
Secondly, an index-linked set of tax thresholds. The first should be set at a bare subsistence level, such that subsistence income is effectively untaxed. The standard rate should come in at national average income, and the peak rate at say twice that. There would be additional thresholds and rates between the subsistence and standard levels, and between standard and peak levels. All people would be required to complete their own tax returns and would have to pay in full by a reasonable date (say 60 days after the end of the fiscal year) or face penalty. People should be allowed (and encouraged) to open income tax accounts, possibly with a small discount for paying this way every month (reduces state financial costs compared to a splurge of income in one month). This would decrease the individual burden of taxation for most people, make the transition from welfare to work less punitive, significantly reduce state administrative costs and only marginally reduce net state income from personal income tax.
Thirdly, it is plain from history in all human societies that a strong family background is a key factor in preventing social decay and encouraging personal responsibility. To this end, a reasonably generous transferable married persons allowance should be added to the subsistence threshold.
Fourthly, all existing welfare benefits should be abolished and replaced with a single payment scheme. Contributions would not be necessary, since the NICS is merely an accounting fiction and it simply incurs avoidable administrative costs for no benefit. There should be payments in respect of unemployment and uninsurable disability/illness only. Unemployment payouts should be limited to six months in any 12. A qualifying period (30 days? 60?) to be introduced, for which no benefit is awarded – this cannot be introduced immediately and must be phased in. Disability payments should require a medical examination at the claimant’s cost, which would be refunded if the claim is allowed. Periodicity of examination is dependent on the condition, but let’s say not less than once per 12 months. A signed certificate would be required from the claimant’s doctor, who would bear personal (NOT corporate) liability for repayment of benefit in the event of fraud.
Fifthly, state retirement pensions to be phased out. Any person born on or after a date to by specified would not receive one. Retirement pensions are the largest single item in the welfare bill, unemployment payouts don’t actually cost that much in cash but are more pernicious in effect.
Sixthly, mandatory health insurance. A legal minimum degree of cover that must be provided by insurers, all of whom are to be mutual organisations. Insurers prohibited from operating hospitals (conflict of interest). Assistance available to ensure the unemployed are not deprived of insurance, and the disabled not deprived of insurance for conditions unrelated to their disability. Hospitals transferred to mutual organisations under local control save for general (state) health regulations. Hospitals required to honour insurance from any certified insurer. Accident and emergency treatment funded by the state, since this is for practical purposes uninsurable at reasonable cost. The use of competing mutual organisations reduces the cost of insurance and treatment, and hence the burden on the client/patient, but without the diversion of part of the premium to shareholders. Mutual organisations to be prohibited from demutualising – experience shows demutualising costs money in the long run and provides only a short term bonus.
Seventhly, something done about education. Probably some sort of voucher scheme is the best idea, but it does have flaws. Alternatively, some schools to be funded in part by the state – some system of state scholarships, perhaps, for the poor – but not necessarily owned by the state. At any rate, the imposition of discipline in the schools, ending the absurd practice of tying school holidays to the harvest/planting cycle (i.e. longer school years), much more rigorous examinations and selection.
Finally (at last!), a reasonable minimum wage. Contrary to arch-capitalist predictions of the End of Civilisation, a reasonable minimum wage does not actually increase unemployment or significantly affect business. It does, however, help to ensure that people can actually afford the insurances they will need to take out. There is no economic advantage is encouraging business which pay sweat-shop wages – better to import from China and devote our efforts not to competing with the Third World but towards the things they cannot do.
Taken together, that lot strengthens the family, reduces social engineering, cuts administration significantly, encourages self-reliance but not at the price of leaving people with nothing if things don’t work out, reduces the burden of taxation on the people, requires a decent level of education and generally provides a radically improved welfare system more along the lines of what was originally proposed in the 1940s. It recognises that the cost of some things, notably education and health care, are vastly higher than when they were fully private and/or charitable.
It would take some time to introduce, but it is, I submit, somewhat more practical than leaving it to charity and the Devil take the hindmost, which will NOT be introduced voluntarily in any western nation this side of the successful Congolese mission to Jupiter.
Long post, but you did ask. Unfortunately I’m not an ideologue and therefore don’t propose simplistic solutions grounded in esoteric fantasy about what I think the world should be like.
EG
I should add in addition (!) to the above, that in order to minimise the burden of looking after the poor, the burden of taxation on the poor should be reduced as much as possible.
I don’t suppose many would object to that idea, but it has some interesting implications. It is, for one, the flip side of the argument that “flat rate” income tax is somehow more fair than progressive rates. It also entails an emphasis on reducing indirect taxation on e.g. fuel, food, clothes, etc. Overall, by reducing the burden on the poor you are of necessity increasing the relative (although not necessarily the absolute) burden on the wealthier. To level it hurts the poor more, which in the end just costs more for everyone else anyway.
EG
General responses to EG’s points:
I’m not sure anyone is proposing to fund things that people “wrongly” expect from the state. None of the posters above who advocated charity-based social services intend the social service sector to be anywhere near the size it is now. The point is that a lot of people who could provide basic necessities for themselves are not doing so, and we would like to see a world where there were forced to – because it is immoral to ask productive people to provide for the merely-unwilling-to-work. I expect you will want those who posted such opinions to spell out what they think should and shouldn’t be funded. I guess each of them could do so – but that would take up a lot of space here. The point, I think, is that determining who really is and isn’t “in need” is a bit messier than any system handed down by the legislature could hope to deal with. Sometimes it just takes a gut call on the part of the person doling out the charity to decide who needs to be cut loose and asked to find work. This is not the least of the reasons, by the way, that we advocate charity-based social services. Social services should be minimal – enough to cover, say, three months of job search (as Verity suggests), but not much more, in the usual unemployment cases. For all special circumstances involving medical conditions and the like, we strongly believe that the people paying the bills should have final say in how their money is spent – not a disinterested and remote government social service agency operating according to obtuse guidelines and with no real incentive to turn people away.
I know nothing about education in the UK, but there are all kinds of institutional reasons why public education here in the States costs as much as it does ($20-25k per student per year on average). There is every reason to believe that fully privatized education would be considerably cheaper per student than the current system.
Virtually every libertarian believes in paying for these things through taxes, so there is no issue here.
I completely agree with this. One of the more unfortunate casualties of 70 years of welfare state has been the destruction of the charitable instinct. It is indeed something Libertarians should take into account – and is one of the most persuasive reasons for the position that an overnight transition to a libertarian state would be a disaster. First we have to reclaim the culture before we can really start making any effective political changes.
I won’t go line-by-line through the specific proposals for fixing the welfare state – but for general comments:
(1) I think the points under “fourthly” make a lot of sense – especially the bits about the qualifying period and the single payment. However – I happent to know from personal experience that the “6 months in any 12” limit will be heavily abused, as I had a friend when I was an undergraduate who did just that: worked at a photo corp. a couple of months a year and drew unemployment for the rest of the year. It is precisely this kind of person that needs to be kicked out on the street.
(2) The stuff about pensions is right on point in the US – where pensions are currently the largest entitlement (but may be overtaken by medicare payouts) by far – are, in fact, the largest government expense – even higher than the military. Time to phase them out. As Euan says, unemployment benefits are not really that much of a burden, comparatively speaking.
(3) Response to the points about health insurance will take too long and be too detailed for this venue – but I really don’t think this is on the right track. The US has something like the system EG describes now (although insurance is not, strictly speaking, mandatory — yet), and it’s a disaster.
(4) Mostly agree about education (esp. the bits about discipline and changing the school year calendar) – but I would advocate slow transition to a completely private system – vouchers perhaps only as a step on that way. I agree that scholarships for the poor would have to remain a feature of the system for many years to come and would probably be among the last govt.-funded things to go.
(5) The talk about the minimum wage makes no sense. IN addition to causing unemployment (sorry, Euan, but it does), a high minimum wage also tends to push up prices, thus rendering it ineffective for the people it’s intended to help while simultaneously increasing the cose of doing business for just about everyone. Minimum wage regulations are a bad idea and should have been scrapped in the 30s.
On the whole, though, these proposals are sensible. I would support most of them as an extended transition stage to a fully libertarian society. They seem like the sorts of things that political parties could reasonably expect to get passed in the current political climate.
Euan writes that Hayek was quite a fan of expanding the size of the state. He believed the state should be confined to very basic services, and even then, that those services should complement, and not crush, voluntary activity. Hence his opposition to centralised state schools, his support of things like vouchers, his opposition to inheritance taxes, progressive income tax, etc. It is all there in the Constitution of Liberty, Euan.
I also strongly recommend the great man for spotting, in the late 1950s, the future problems of state pension systems as birthrates decline. Well ahead of the game on that, was our Freddy.
I’m not going to repeat many of Joshua’s good points, except to say that expenditure on defence should be radically scaled back. A modest combined arms military with purely border protection responsibilities and a nuclear deterrent should be more than enough to defend any nation. Although I am not strictly opposed to military intervention, there is an argument against it on the basis of moral and utilitarian grounds.
It is not our moral imperitive to assist anyone, it is neither immoral or moral to do so. The costs of intervention are often measured over decades, if not centuries. The only intervention I would advocate is in accepting refugees from conflict, their labour and enterprise make us stronger. Better to do nothing and wait until the barbarians are at the gate.
But this is another argument.
But this is better than the current system in the UK where you can almost get away with being unemployed indefinitely. Although you won’t get nominal unemployment benefit indefinitely, you will get shunted onto disability – this is why the rate of disability claims in the UK has shot up dramatically in recent years, since all it is doing is disguising the true rate of unemployment. It also tends to remove the incentive to work since there is often no real pressure to stop claiming and hence it artificially raises unemployment – however, this may be changing given Blunkett’s recent diatribes against disability claims.
I understand that the average genuinely unemployed person is claiming for something like 90 days. This period would be longer in an economic downturn, and the system needs to have the flexibility to adapt to that.
Indeed, but amongst the unemployed in general there are really not many people like this unless the system encourages it. The current system in the UK does encourage it, hence the problem.
In general, we should not be aiming to kick people out onto the street unless they simply refuse to help themselves. It should be noted that in normal circumstances most unemployment is involuntary but relatively short lived. In times of recession, the average duration of unemployment claim increases because it is harder and therefore takes longer to find work. This needs to be allowed for principally by the individual, but also with a state backup because things don’t always work out well even with the best intentions.
AIUI the US has a system of voluntary co-payments. This, coupled with the rise in litigation, bloats the cost of healthcare unnecessarily. Unfortunately, modern healthcare is MUCH more expensive than it used to be for perfectly good reasons – better technology and increased life expectancy are the main legitimate factors. Making insurance mandatory would spread the cost a little more, but restricting litigation (by, for example, forbidding lawyers advertising and prohibiting no win no fee arrangements, both of which encourage speculative claims and thus increase costs by increasing insurance premia and discouraging innovative treatment) and taking other steps to keep costs reasonable would be even more useful. I don’t have a complete and fully costed solution, but I suspect this is probably the way to go.
I doubt very much that you could ever completely abolish state support for education. Education is too expensive and people too short sighted to rely on a purely private and charitable system. You also need to recall that in the days when education WAS purely private and charitable, basic education consisted of little more than teaching people to read, write and count well enough to work in factories. Unfortunately for the libertarian case in this and many other matters, it is no longer as simple as that and a higher level of general education – inevitably more expensive – will be necessary and it is IMO highly unlikely that a purely private and charitable system could ever provide enough funding for it.
Firstly, I’m not arguing for a HIGH minimum wage, I’m arguing for a REASONABLE one – enough to ensure people can afford the insurances they will need to buy.
I also used to think that a minimum wage would raise both unemployment and prices. However, there is a distinct lack of credible statistical data which shows that this really happens, so one is forced to the conclusion that a reasonable minimum wage simply does not cause the economic harm predicted.
Perhaps fortunately, a fully libertarian society is never going to happen, at least not in the west and not with the consent of the people – most people show no sign whatever of wanting such a thing, in fact quite the opposite. The world has moved on from that, even if libertarians have not.
By the standards of British politics, these proposals are pretty radical, although not extreme.
Unfortunately, not every country thinks like that, and if you happen to be bordered by a nasty dictatorship that wants something you’ve got, you need to do more than this. Furthemore, you have restricted yourself to two defence options – border security or nuclear assault, with nothing in between. Militarily, this is insane.
Alternatively, you could become Norway with nukes, but you’d essentially be living off the benefit of someone else who is on your side but doesn’t take such a naive view of the world (in the case of Norway, America and Britain).
By which time, of course, it is far too late. Credible military forces take years to build and require intensive and expensive maintenance. You CANNOT just wave some cash around and have them spring to your defence immediately. Defence costs – a lot – and if you want yourself AND your legitimate interests elsewhere to be defended adequately, you need to pay for it. There is no cut-price free market alternative.
EG
I’m not sure I understand your objection. If you adequately fund the ability to defend your borders with short range conventional weapons and both tactical and strategic nuclear deterrents, any assault on your territory would be catastrophic for your attacker.
I’m not against a strong defence force, just against one that has the ability to project its conventional power on a global scale (I don’t have a problem with ICBM nuclear deterrents). Intervention is provocative and expensive, requiring massive amounts of manpower. Better to concentrate on short range technical solutions to protect your borders.
And I thought Norway was your ideal of government spending. A better example might be Switzerland, which spends money on a purely defensive force.
There are very few nations that are adjacent to nasty dictatorships hell bent on world or even regional military domination. Most nations just want to be left alone, even dictators.
I don’t have a rose tinted view of the world, there are many nasty ugly regimes around, but very few of them would get anywhere if it weren’t for intervention by foreign powers.
There is an interesting debate at ALS (www.libertarian.org.au) on the justness of WWII if you’re interested.
I hope I did not give the impression that greater respect for the nonaggression principle (for example, by less taxation, government spending and fiat money credit bubbles) would “end poverty” – but it would mean that poverty would be, in the long term, less than it otherwise would have been.
Of course “pragmatic” people (such as the German “Historical School” of the late 19th and early 20th century) who reject the existance of economic law will not accept this – but it is not sensible to argue with people who reject reason.
I agree that traditionial restraints might not be needed in a society where most people understood the harm done by government intervention (and the harm done by nongovernment violation of the nonagression principle), but I see no sign that most people do understand this.
On the contrary, the reaction of most people to a “social problem” is either to say “there should be a law against it” or to say “the government should spend more money” (or both).
It is claimed that a society will not have a time of troubles even when its population (or at least the elite in power) both reject traditional limits on government and do not understand the harm that government efforts to solve “social problems” do.
Well that is a rather bold claim. I suppose such a time of troubles is not strictly inevitable – after all we could be saved by aliens from the planet Zog, but I regard this as rather unlikely.
The only real chance for avoiding a time of troubles is for people to change their ways. If people would either accept traditionial limits on government action or understand the harm that government “pragmatic” or “case by case” intervention does then such a time of troubles can be avoided.
However, if the people in power continue to believe in such doctrines as “the government should intervene, whenever the benefits of such an intervention outweigh the costs of not intervening”, the chances of avoiding a time of troubles are very slim indeed.
How so? Can you explain why you think the exacerbation of the natural business cycle caused by commodity money erodes poverty faster than money supply manipulation in a Keynesian economy? Can you explain why the historical record shows exactly the opposite happening? Can you explain why high-tax highly regulated Norway doesn’t have poverty but low-tax lightly regulated America does?
I think it should be clear that these “traditional limits” are not traditional per se but are rather the bounds of the limited government found in the UK and US in the early to mid 19th century. They aren’t really “traditional” anywhere else, nor even in those countries at other times. Models of government have varied enormously over the centuries and it is hard to say what, if anything, can be called THE “traditional” way of doing things. Britain alone has experienced tribal government, multiple foreign occupations, a system of petty kingdoms, a unitary loose state, church government, royal dictatorship, military dictatorship, a constitutional monarchy and a democratic system, all with vastly different limits on what the government should and should not be doing. Which one is “traditional?”
The sad and non-ideological reality is that governments tend on the whole (unless constrained by dogma) to do what is appropriate and necessary at the time. Since society, technology, knowledge, population and just about everything else changes over time, so then what is necessary and appropriate at any given time will also change. The idea of sticking to so-called “traditional” limits of government would only have any credibility if things like population and technology also stuck to their “traditional” limits. Of course, they don’t.
The call for tradition is simply ultra-reactionary conservatism. It’s confusing for things to change, because I don’t understand why they do or why they have to, so let’s just not change anything.
Sorry, doesn’t work.
Pragmatic intervention on a case-by-case basis is what governments have pretty much always done. It’s difficult to argue against a mindset that is basically in denial of all of history, but this REALLY IS what has always been happening. Of course it has problems, but NOTHING is free from problems. What to do? You do the least destructive thing appropriate to the circumstances. But circumstances change, so what is appropriate today may not be appropriate tomorrow.
It’s not hard to grasp, and governments have managed to do it for centuries. Of course it has problems, but so does every other way of doing things, and 6000 years of real world experience tends to suggest pretty strongly that a pragmatic approach is the most successful BY FAR.
EG
There are very few nations that are adjacent to nasty dictatorships hell bent on world or even regional military domination. Most nations just want to be left alone, even dictators.
Am I the only one who thinks this might have something to do with what recently happened to one of those nasty dictatorships hellbent on regional domination?
My impression is that nasty dictatorships tend to be inclined to do whatever they think they can get away with. World military domination is obviously not a viable goal, and regional domination via military means is extremely risky these days.
What a lot of people don’t seem to realize is that the current situation is an anomaly, not the norm, and that pretty much everyone is very fortunate that the party that is capable of worldwide military domination seems to consider the rest of the planet an annoyance that should be ignored as much as possible.
Pretty much. In a libertarian world where states have limited defences, what the nasty dictatorship can get away with is just that much greater.
Or do people assume we’ll have a libertarian world but Uncle Sam will still be there to bail us out when it all goes wrong?
EG
Sorry I should have typed (when explaining the “pragmatic” position) that “government should intervene when the benefits of intervening outweigh the costs of intervening” a deeply wrong position.
As economists will note this ignores the fact that government interventions have indirect costs (i.e. it ignores a whole area of economic law – old Bastiat’s “the seen and the unseen”).
As those interested in politics will note this leaves government to decided (with aid of the pressure groups and the media and academia) when it will intervene – which means (in practical political terms) that it will just intervene, intervene and intervene until there is nothing left to intervene in.
It is like the one of the doctrines of the French revolution – people are to be allowed private property as long it is used for the benefit of the community, of course “the community” [i.e. the envy ridden] will never be convinced they could not use the property better. Once property becomes a matter of utility calculations it is unsafe, which is why even some utilitartians (“rule utilitarians”) reject making judgements on a “case by case” basis and insist on general rules.
But leaving aside the French Revolution (which would be a separate debate), the idea of government being the judge in its’ own case – deciding on a pragmatic basis that it will intervene whenever it thinks that the benefits of such an intervention outweigh the costs, is terrible politics. It is a nightmare, and must lead to an out of control control state. Especially as each intervention will not only not solve the “social problem” the government thought it would – but will also lead to new problems which the government will then try and solve………
And for those who are in interested in morality it ignores the wickedness of the use of violence (i.e. the intervention). There may well be times when violence has to be threatened (we can all think of examples, for example in time of war), but a crude “the government thinks that general unility will be improved by this or that regulation” certainly does not justify intervention on “lesser evil” grounds.
If morality is to matter at all then the burden of proof must be on the violator – the need must be overwhelming and the balance of evidence must be beyond all reasonable doubt.
The fire is comming and I must build a fire break now (or the whole city will burn), the owner of this house is not to be found (or is mad with fear). Certainly to pull down the house (without permission) is wrong, but to not pull it down (to build the fire break) may be even more wrong.
Of course if there is any other way (say pulling down my own house) then I must take this other way, and the burden of proof is on me (the violator) to show (and quickly show) that there is no other way to stop the spread of the fire.
Whether I should still be punished after the event is a moot point.
Certainly in some circumstances I should be punished. Say (to give a science fiction example) I see a man about to push a button on what he thinks is a drinks machine – but, in fact, pushing this button will destroy a city.
I am too far away to shout and warn him – all I can do is either do nothing or shoot him.
Is it less wrong to shoot him than do nothing? To shoot him is a violation of the nonaggression principle (he intends no wrong and is not mad), but to not shoot him will lead to the deaths of millions.
Are there cases where the principle of benevolence (what used to be called charity) trumps justice?
Perhaps yes, IF there is no other way – and if I submit myself to be hanged afterwards.
Afterall I have murdered an innocent man. It may have been even more wrong not to shoot him, but I should still be punished.
Certainly one can debate whether I should be hanged (or otherwise punished), but to just assume that violating the nonaggression principle (via some intervention) should warrent no punishment is not taking morality seriously.
After all if I am so concerned about these millions of people in the city about to be destoyed, surely I should consent to being hanged as the price I pay for saving them. And if NOT – then how can I justify taking the life of the man who was (as far as he was aware) just going to press a button on a drinks machine? Why is my life so much more important than his?
Of course (thankfully) life is not normally made up of such serious choices. Normally an intervention is not about saving the lives of millions – it is about some claim that the price of X product will be a bit lower if I pass Y regulation (in which case, of course, the intervention should be rejected – even if the the price really would be lower in the long term, which it will not be).
On the matter of tradition:
As I have said several times, if most people understood the harm government action did traditional restraints on government (custom, tradition, constitutional documents and so on) might not be needed.
People would know why they should not do these things and therefore (hopefully) would not do them.
However, as writers from David Hume to F.A. Hayek were fond of pointing out, most people have little knowledge of the laws of civil interaction. Society is the result of human action but NOT of human design – what Adam Smith called the “great society” is an unintended consequence of human actions, a matter of social evolution.
When people think that they can improve society via violent “interventions” they violate the basic nature of civil society (i.e. they are acting in an uncivil way).
Normally (in so far as things are prevented in societies – and when they are not generally prevented a civilization goes into decline) such things are resisted by tradition – by custom and practice.
When respect for such things breaks down (as it has done in nations like Britain) it is hard to see what can save society from a time of troubles.
Of course, (yet again) if people knew the results of their actions they would not do the things they do (without any need of tradition to stop them) – but they do not understand (that is the point).
And just as the unintended consequences of human action tend to be good when the nonaggression principle is obeyed (the first statement that took my eye on this was from Descartes, of all people, in a letter to the Princess Elizabeth of Bohemia – the great Descartes hater, Hayek, seems to have missed this letter) so the unintended consequences of human action, when the nonaggression principle are violated, tend to be bad.
Oddly enough, it sometimes the most intelligent men who understand the least. Perhaps they are most subject to hubris about what they think they could achieve if only they could force people to do what they should do.
The interventionist tends to think that his intervention will do good. Some people violate justice (the non aggression principle) out of hatred of mankind, but the interventionist thinks he will do good.
As so often, sorry for my errors – such as “decided” rather than “decide” in the third paragraph.
One day I must sit down and train myself to write drafts – rather than this “type – send” habit that I have.
As does everything, Paul. Not intervening also has hidden costs. For that matter, changing the current situation has hidden costs, so maybe we shouldn’t do that? We don’t have perfect knowledge either way and we never can have.
We just have to do what we think is best insofar as we reasonably can in the circumstances prevailing at the time. It’s not a snappy formula, but it’s a lot more realistic than observing some ideal principle.
There is also the small matter of elections, manifesto committments, constituency surgeries, etc. It’s not as if state, academe and the media conspire together to destroy the people and there’s nothing that can be done about it. If the state makes a regulation and people are opposed to it, then there is a clearly a market for a rival party to exploit this opposition. However, if not enough people oppose, things won’t change. Democracy and all that.
Since this doesn’t actually happen in normal states, I think it can be ignored.
Really? So why does this normally NOT happen then? Why does the real world fail to conform to your predictions?
Why don’t we abolish private property then? That’s based on an ultimate act of coercive violence.
The point I venture to suggest you have not grasped is that in real life people need to make decisions and they need to have some basis upon which to make them. This basis must be grounded in the brute reality of the world, not in theory. Evidence supporting a decision either way is often incomplete and sometimes conflicting. And quite often the decision needs to be made in a hurry.
It is IMPOSSIBLE to have a foolproof system of making the correct or wisest decision each time, so people are forced to make a judgement. Some people do this on ideological grounds, and then you get the USSR. Others do it on pragmatic grounds, and then you get most normal states.
The people who can do this, who can make a decision without agonising over it forever, without abdicating responsiblity because they are not perfectly informed, without just looking it up in a book of ideological answers, and in the knowledge that they may have to explain themselves afterwards, are called in politics leaders or in business managers. Decisions to regulate or not regulate, and many other things, are in the real world taken every day in states and in corporations by these leaders and managers. Some decisions are right, some decisions are wrong, but nevertheless decisions are made.
I have taken decisions in my life in business that have put people’s lives and physical safety in potential danger. Really, guns and stuff, not economic danger such as unemployment. And to be fair I put myself in the same danger because you can’t ask people to do things you’re afraid to do yourself. The alternative was nothing getting done. That’s what you get sometimes in Africa, I’m afraid. Quite often, in fact.
I took the decisions, I stand by them and I’ll justify them to anyone if asked. No, I was not perfectly informed and no, I could not predict with unfailing accuracy what the outcome would be, but I made pragmatic decisions using my best judgement of what was reasonably likely to happen. Nothing bad happened, but even if it had I would still have stood up and accepted the consequences because, basically, that’s what I was getting paid to do.
That’s life. People need to make decisions and sometimes they will be wrong. The idea of having elections and stuff is to reward people who get it right most of the time and punish people who get it wrong most of the time.
Stasis and inaction are not viable options, unfortunately. And without risk and decision, there will be no progress in anything.
Now, how about some answers to the economic questions about poverty?
EG