Discrimination and the free market: hardly a piece of cake

We read this week that a judge has ruled that a Christian-run bakery discriminated against a gay customer by refusing to make a cake with a pro-gay marriage slogan. I’m uncomfortable with this particular legislation. Some people have been claiming that such a ruling is a victory for anti-discrimination proponents. The irony seems lost on them – that there is still discrimination going on – it’s just that in this case the discrimination is against the Christian couple running the cake shop.

The Christian couple’s view on homosexuality isn’t one I share, but I defend their right to choose to run their business according to their own religious beliefs and values, and in this case the State should do likewise.

Disapproving customers are free to walk away and shop elsewhere. They are even free to share their disapproval on social media and encourage others to join them in shopping elsewhere. Such responses are powerful in business, because they put pressure on socially undesirable behaviour, and they penalise discriminatory business owners with lost custom, diminished profits, and in extreme cases, bankruptcy.

Any law that makes it illegal to run a business according to your religious beliefs is a law that infringes on the liberties of the business owners in a way that is, in my view, socially undesirable. Saying that, however, doesn’t mean I think all anti-discrimination laws are undesirable – far from it. They just need to be applied more prudently.

As always, society involves tension between a) accommodating people’s right to hold views and beliefs, and b) protecting others from unwanted discrimination. It is probably socially desirable for a racist café owner who wants to put a ‘No Blacks’ sign on his door to be forced not to discriminate. But at the other end of the spectrum it is also socially desirable for another café owner to be allowed to discriminate against under 65s by offering a pensioner discount on Wednesdays and Thursdays. In this case, I prefer the café owner’s right to introduce pensioner discounts over any societal claims that under 65s are being discriminated against.

The question the cake shop case elicits is where on that spectrum do religious views sit? I think people’s religious views should not be legislated against in business such that their freedoms are encroached upon in ways that are unacceptable. It’s quite clear to me that if the choice is between a) forcing a businessperson to make/sell a good they do not wish to, or b) compelling a dissatisfied customer to use another business, it’s a no-brainer that society should prefer the latter. A law that effectively wants to commandeer someone’s bodies and cake-making facilities is to me far more repugnant than the offence these Christian bakers are supposed to have committed.

One final point: the market does a very good job of weeding out discrimination. Suppose racist Jim opened up a shop in 1960s apartheid South Africa but wouldn’t serve any of the majority blacks – he obviously shoots himself in the foot because his restricts his trade options to a minority few and excludes the majority of potential customers.

In short, in a free market it pays not to unfairly discriminate, because whether on large scale or a small one you’re going to limit your potential custom. The more socially undesirable your discrimination, or the more people your discrimination negatively impacts, the worse it will be for you. It is no coincidence that the time at which humans started to trade was also the time that we started to become more civilised and improved our methods of co-existence.

To be able to trade in any age, and in particular, the modern age, you need to be able to think of others; firstly, by coming up with something (goods, services, entertainment) that others want; and secondly, by being honest, ethical, friendly, and developing a good reputation for your business. Far from being a vortex of selfish, uncaring and unethical behaviour, free markets necessitate qualities that make trade conducive, with your success dependent (in most cases) on your being a reputable person who welcomes all and treats everyone well.

An interesting and important question for Nick Stern

We’re willing to go along with the concept here but can we please have an actual number?

With oil prices currently at a low level, now would be the ideal time to introduce levies that remove the implicit subsidy for pollution from petrol and diesel. The revenue from these levies could more than compensate the poorer members of the community for the price increases, give a boost to research and innovation, and contribute to the cleaner and more attractive investments that we need.

We know, we’re rather keener on Pigou Taxes than many others are. But, following the IMF report on subsidies to the energy sector (please note, it wasn’t an IMF paper, it was a paper by people at the IMF. It’s not purely about fossil fuels, it’s about the energy system. And it does depend on the idea that the tax system should be hugely regressive in order to reach its totals about how much tax should be raised by consumption. For example, it argues that the lower rate of VAT for domestic fuel is a subsidy. And you can think of it that way if you like. But two points: that subsidy also applies to renewables and can you imagine the furore from the usual suspects if we argued that to save the planet we must charge 20% on domestic fuel?) we have the above from Lord Stern. And the obvious question is, well, how much?

For there’s a very important point about Pigou Taxes. The entire logical case for them, the justification, is that there is one just and righteous rate at which that tax should be levied. Add up the costs of all of the externalities and that is that tax rate. You cannot, not if you are being intellectually consistent, march around shouting “more”. You must, in each circumstance, calculate what the rate is.

So, some 80% of the cost of petrol these days is tax. Is that enough? For example, Stern’s $80 per tonne translates into a righteous carbon tax of 11 p on a litre of petrol. Ken Clarke introduced the fuel duty escalator to “meet our Rio committments”. Which we take to be a synonym for a carbon tax. That escalator has added 23p or so to a litre of petrol. So, purely on the carbon emissions basis we are already paying too much in the UK.

This newer calculation tells us that there’s more. Air pollution and so on. OK, that’s fine, so, what’s the number? What’s the righteous Pigou Tax for that? They also say that a significant portion of the costs of petrol is congestion, accident damage etc. That’s not something that can be attributed to the fuel: if we were all driving electric cars those things would still be there. That’s a cost attributable to the transport system, not the fuel. And by far the largest part of the costs they attribute to this sector is the idea that consumer purchases should be taxed in order to raise revenue. And that if the tax is less than the amount they declare is correct, then that’s a subsidy. But no one can say that UK petrol isn’t paying tax. So that’s out too.

So, in our calculation of what the correct petrol tax is in the UK we’ve got those two things. Carbon emissions, which are already being overpaid for, then pollution costs. So, what’s the number, what should be the tax? And as above, “more” isn’t a serious answer.

We have a very strong suspicion here. The reason we’re not told what the number is is because that correct, just and righteous, number is actually lower than we’re all being charged currently. Which is why Stern, the IMF and everyone else doesn’t actually calculate it. Of course, we’re willing to change our minds if they would calculate it and also let us see their workings….

Madsen Pirie writes for the Times on EU subsidy of rapeseed

Madsen has a piece in today’s Times (paywall). He links the yellow fields of rapeseed that are making hay fever sufferers sneeze and wheeze to EU subsidies. After the Canadians bred a low acid version of rapeseed in the 1970s, the EU originally subsidized the seeds and the planting of it, not the actual crop. Then it went on to subsidize it for making bio-diesel, because it wanted a renewable energy source. So our green fields have been overtaken by a lurid yellow that many people dislike, and hay fever sufferers dash to the chemist’s in large numbers.

By careful breeding, Canadian scientists produced a low acid version. Rapeseed was transformed, and spread rapidly across Britain, changing the look of the spring landscape with its lurid yellow flowers. Its UK production soared from about 1,000 tonnes in 1970 to more than two million tonnes in just a few years.

It was not the crop itself that made it a farmers’ favourite but the EU subsidy paid to those who planted it. The EU paid cash not for the crop that resulted but to fund the seeds and planting. It was a bonanza for landowners.

Read the full article here (paywall).

Against the idea of a 100% inheritance tax

There are arguments in favour of a 100% inheritance tax. For example, we could look to John Rawls and the argument from behind the veil of ignorance. If we didn’t know where we would arrive in that lucky sperm club lottery wouldn’t we prefer a society in which starting points were equal? So, tax inheritances at 100% and then distribute that wealth as a starting grant perhaps.

However, the idea does seem to fail on two points. The first is that while it’s true that we can’t take it with us, therefore this could be seen as a “fair” tax, that people will fight, struggle and even lie to be able to provide an inheritance to their children does rather militate against the idea that people do see it as a fair tax. Peoples’ actions do seem at odds with that particular result of that particular blend of moral reasoning.

But much more importantly we’ve evidence that such a system is not efficient. For we’ve had societies that did effectively have 100% inheritance taxes: and those societies failed precisely because they did.

Both Mamluk Egypt and the Ottoman Empire worked on the basis that whatever was accumulated during the lifetime of the elite (with the Mamluks, generals, with the Ottomans, Pashas) in the way of property, businesses, land and so on, was theirs for life and only for life. When they popped off those estates, however grand or vast they were, were distributed to the next generation of generals and pashas. With the Mamluks the children of the generals were, as they had not been recruited as military slaves from the steppes, specifically barred from even attempting to join that next generation of the elite.

This led to a certain short termism in how such properties were managed: having reached the top there would be, at most, a couple of decades to enjoy the wealth. Nothing could be passed down to the next generation. Thus, don’t invest in anything, simply extract. Societies in which we do have 100% inheritance taxes therefore seem to become extractive ones, not investing ones. With all of the obvious connotations for the living standards of the subsequent generations. To say nothing of the current living standards of the peasantry being extracted from.

Whatever the philosophy here we have tried it as a species and it really just doesn’t seem to work.

The immigrant’s pledge

I wonder if would-be immigrants to this country might find a readier acceptance if they were to undertake a voluntary pledge similar to this one.  I think most would readily do so.

“I am grateful that you have allowed me into your country to seek a better life.

I promise in return that I will respect your culture and your customs and I will learn your language.  I know that your ancestors fought for centuries to establish freedom of speech and I will support that freedom.  I promise that I will respect the right of others to seek to improve their lives, without regard to their sex or sexuality. 

I will do my utmost to be a good citizen.  I will do my best not to be a drain on your resources, but to make a positive contribution to your economy and to your essential public services through the work that I do and the taxes that I pay.

I will respect your laws and I will respect my fellow citizens and do what I can to prevent harm coming to anyone.

I will try to live my life in such a way that I will be a credit to my new country, so that those who allowed me to come here and contribute to its future will be glad that they did so.”