Dealing with pensions the Danish way

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Whisper it gently but there are a number of things worth copying from the social democracies of the Nordic countries. Sweden has school vouchers, no inheritance tax and no national minimum wage. Denmark has low statutory labour protection, meaning a more flexible workforce. And now, from the Economist, I find that Denmark is the first country to really grasp the pensions nettle.

So far only Denmark has taken the radical step of indexing the pensionable age to life expectancy.

This has to be the way to go, even Brad DeLong, no rightist he, has been known to advocate the same thing. The pensionable age should be set at the average age of death of the previous age cohort.

The basic and simple problem is that current pensionable ages were set when everyone was living rather shorter lives. When Bismark started the state pension you would have to be lucky to reach pensionable age. When Lloyd George started ours you'd have to live longer than average to get it. Now you'll be unlucky if you don't reach pensionable age, although obviously there are some through illness or accident who do not.

With ever increasing life spans this simply cannot go on. We need to work for more years, that's it. You can of course do what you want with whatever savings you have made and good luck to you, but as far as the State is concerned there is no reason why a hale and hearty 69 year old should be consuming the taxes of those still in the labour force. As above, raise the pensionable age to that of the average age at death of the previous age cohort. That would mean around 77 for men, 81 for women as things currently stand. Return the State pension to what it was always supposed to be, social insurance against outliving your rational level of savings.

Of course, there will be criticisms of this. Does Worstall really insist that we must all work until we drop?

No, only that half of us should.

Drowning in the sea of disbelief

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Conservative leader, David Cameron, gave a speech at Imperial College, London, on Thursday, outlining how the Conservatives would roll back the state. This would involve publishing information relating to any public expenditure over £25,000 (why not publish everything?), abolishing such things as ID Cards, reviewing Ripa and also the extradition treaty between the UK & US.

It's painfully true that our freedoms have been eroded faster than ever over the past 12 years, but the Conservatives are just as culpable having been a subservient opposition that has failed on a number of occasions to stand up for liberty. When they form the next government (which they seem certain to do) they will have little room for manoeuvre. It will have to be spending cuts and/or higher taxes (obviously higher taxes would only be to service debt rather than expand government further, but you can't trust politicians). What they will need to do is explain why abolishing large swathes of government is the right course, and why society will be vastly improved without them.

Shining a light on public expenditure is not reining in the state. We will no doubt see the black pen of government used again. If the Conservatives really want to rein in the state then they will need to cut spending and cut taxes. They could then re-energize the UK economy and improve government revenues through expansive growth to pay off the accrued debt of Labour's creation. The beast must be starved to set us free, and allow us to never again be the playthings of authoritarian politicians.

But politicians are a breed that have evolved into beings that can't say no, and seek to interfere in all business. They aim to micromanage all, or they fear that they will be accused of being uncaring and out-of-touch. The blame for this though covers us all: the politicians are mostly at fault for neutering us via centralization and we for our blind apathetic allowance for it to occur. Is it a surprise that scepticism arises when a politician says he will roll back the state.

A dilemma for the libertarian

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If I deny the authority of the State when it presents my tax bill, it will soon take and waste all my property, and so harass me and my children without end. This is hard, this makes it impossible for a man to live honestly, and at the same time comfortably, in outward respects.

Henry David Thoreau

Why is American health care so expensive?

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It's an interesting question, why American health care is so expensive. It's also an important one as various parties line up to radically change how the system works and throw the odd $ trillion or two around while doing so. As Greg Mankiw, Russ Roberts and others point out, part of it may be to do with the remuneration doctors get. Other explanations are also floated, such as the tax deductibility of employer provided health insurance, excessive treatment in the last few months of life, the way in which the US system carries much of the development costs of new drugs, well, add your bugbear to the list. And there's truth in all of those complaints as well.

It's certainly true that the US spends more of its GDP on health care than other countries, there can be no doubt about that. But why not look at this through the other end of the telescope? What if it's the US that is spending the correct amount of national income on health care and everyone else who is wrong, everyone else that is the piker? That was the thought that Johnny Munkhammar of Timbro floated back in 2005 and I still find it persuasive.

Firstly, take the point that as income changes we spend different proportions of those incomes on different things. Subsistence farmers spend almost nothing on entertainment as they are too busy ensuring they subsist. As incomes rise we quite naturally spend more on leisure, education, clothing, housing and making idiotic TV shows. It isn't just amounts that change, but proportions: food now takes some 10% of the weekly budget as opposed to multiples of that only a few decades ago.

Now, how would we decide what is the "correct" portion of these rising incomes which should be spent on any particular sector? The best way to find out what the individuals whose income it is think about it is to have a free market in it. Let the people choose as it were. Now, neither Munkhammar nor I are saying that the US health care system is an entirely free market. But it's a lot more free than anyone else's in the rich world. So perhaps, as incomes rise, people actually do want to spend 15%, 16% of national income on health care, for that's where they perceive the greatest marginal utility? The biggest bang for their buck?

If this is true then it's the US that has the better system, not us in Europe who deliberately cram down the amount spent on health care as a percentage of national income. We're deliberately denying the will of the people in over riding their wishes and insisting that the Man in Whitehall knows best.

Why we're mad as hell

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A council cleaner in Buxton earning £14,000 a year - officially below the poverty line - pays her income tax and then gets an extra bill from the BBC for a licence tax. She pays that to a wealthy TV executive driving into London who claims on his expenses for a congestion tax paid to a government quango.

The taxes are used to fund a taxpayer maintained MP's flat-screen television so that the MP, eating food paid for by the taxpayer can watch the Prime Minister on television talk about a "fair and equal" society and how he is determined to make the economy grow.

That's mad as hell, and so are we, and we are NOT going to take it any more.

The dispersed interest of taxpayers is gradually being allowed transparency of the grand corporate culture that emerges when big institutions get grand ideas.

Those cultures have to change. Three hundred pound hotel rooms, expensive meals after an "extended working day of 12 hours" do not go down well with the small businessman tucked in his Travelodge bed with the late evening hamburger half-eaten at the bedside after 16 hours on the road trying to avoid trading losses. They go down worse with the cleaner from Buxton hearing about six hundred pound restaurant meetings for Controllers when she's stuck in a janitorial cupboard being told by her supervisor that her supplementary hours are being cut due to shortage of cash.

It's time the BBC executives "got it" as well as MP's.

All good things…

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After a wonderful month in Westminster, I bid a fond farewell to my friends at the Adam Smith Institute.

It was an exciting time in UK politics and, consequently, an exciting time to be at a leading UK think tank. Courtesy of the ASI, I had a front row seat for the unfolding of the MP expenses scandal, the historic European Parliament elections and the near collapse of Prime Minister Brown’s government. There was a two-week period when not a day went by without a major media outlet – be it CNBC, the BBC or a national newspaper – calling for an interview with someone on the ASI staff. I had an amazing experience from start to finish.

It was a privilege and a pleasure to work with the outstanding people at the ASI. The people at ASI are of the finest quality as are the ideas and work product they generate. They certainly convinced me to reevaluate my policy positions in a number of areas.

Although I leave 23 Great Smith Street behind, I will certainly remain connected to ASI through the Facebook groups, Twitter and, of course, the Blog.

Change is coming to the House of Commons. I can hardly wait to see what role ASI will play in the development of a new (and better) Britain.

How to prevent future boom-bust cycles

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An Austrian Perspective on the Great Recession of 2008

Deepak Lal Lecture on YouTube

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Public sector ineptitude

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The DWP (Department for Work and Pensions) announced yesterday that the amount of five key income related benefits that went unclaimed rose to £10.5bn in 2007/08. While it is perhaps sobering to know that there are those out there who do not feel the need to rely on the government to survive, we also have to bear in mind that the unclaimed money won't be coming back to us anytime soon.

For many of those non-claimants, especially the pensioners, the money that is currently rotting in government hands is in fact their own that they lost through being forced to pay taxes. The government over the past 12 years has created a monster: a complicated tax system and an incomprehensible benefits system. The simple approach of setting free all of those who are low-earners by raising the allowance would of course render a huge number of civil servants redundant, but at least they'd understand the claims system. This is the approach that is needed to tighten up wasteful spending by government and to assist in lowering the burden of taxation.

The unclaimed benefits numbers are further compounded by the fact that the level of fraud/over-payment continues to remain around £2.7bn. There are also underpayments of around £1.2bn. All of these figures represent why the public sector should not be handed our money to dish out on the whims of politicians. And why the system as it currently stands is in serious need of a simplifying overhaul.

MP Expenses: Do two wrongs make a right?

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The MP expenses scandal dominated the headlines during much of my time at the Adam Smith Institute. Each day I watched with great interest as new stories unfolded. The one thing that struck me about the public’s response to the scandal was how genuinely surprised so many people appeared to be that the MPs would do such a thing. It was a stark contrast to what I perceive as very low expectations among Americans for the scruples of their elected representatives.

Beginning with Watergate, the American public’s confidence in government officials has been rocked by scandal after scandal. Hollywood and the news media only foment the discontent with sensationalized accounts of government corruption. Public opinion has spiraled downward to the point that there is almost an assumption that all politicians engage in some sort of clandestine impropriety. For example, what surprised the US public about the Monica Lewinski affair was not that Bill Clinton was messing around with an intern, but that he actually got caught doing it.

I believe that this deeply ingrained distrust of politicians is one reason why Americans resist increased state involvement in their lives: they do not trust government to do the right things for the right reasons.

Perhaps the MP expenses scandal will awaken the UK electorate to a similar sense of governmental skepticism. If such a nationwide mentality were to develop and lead the public to take matters into their own hands (i.e. tell the government that it has had its chance at managing the national infrastructure, and it is time for the citizenry and the markets to take over), then what is now a blight on the reputation of Parliament may eventually be celebrated as the first step towards freedom.