Gordon Tullock: a great economist with no degree in economics

It is sad to report the death of Gordon Tullock. He was a friend, likeable and respected as a great economist – even though he had no degree in economics.

He came, rather, from a public administration background, which was why he was the perfect partner to co-author The Calculus of Consent (1962) with James M Buchanan. The book was a counterblast to the ‘welfare economics’ of the day, which saw market failure and prescribed cost-benefit analysis and government intervention. But the book showed, comprehensively and clinically, how there was  government failure too. Politicians and officials are not angels, and their decisions are motivated by their own vested interests. Elections too are not a measure of ‘the public interest’ but a contest between competing and conflicting interests, which no amount of cost benefit analysis can resolve.

The book became the foundation for what was to be an entire branch of economics – or perhaps political science – called Public Choice. The public choice economists, applied the tools of economics – the science of choice – to the democratic decision process. They found that the behaviour of voters, politicians and bureaucrats in the political market place is little different from the behaviour of buyers and sellers in economic markets. They too are self-interested and largely motivated by maximising their own ‘utility’, rather than that of ‘the public’.

Following this approach, Tullock, Buchanan and fellow thinkers in the ‘Virginia School’, which focused on real world political institutions, realised that democratic processes were too often a very messy, exploitative and irrational way to make choices. They concluded that we should not be dewy-eyed about government decision making, and that we should limit it only to the things that are both crucial to do and simply cannot be done any other way.

Buchanan, in particular, emphasised the need for constitutional restraints so as to curb the exploitation of minorities by majorities, or of the silent majority by activist interest groups. On that front, Tullock will be particularly remembered for his delineation of the concept of Rent Seeking. The concept, and even the term, predated that work, but his contribution was to show how the cost of lobbying for government perks and privileges was economically inefficient and politically corrupt. He observed – the ‘Tullock Paradox’ – that the cost of rent seeking was often very low in proportion to the potential payoffs. A little lobbying can win potentially massive privileges (such as ‘quality’ regulation that effectively keeps out the competition). So it is no surprise that the lobbying industry has grown so large. And the more that government’s range, power and tax take expands, the larger are the potential gains.

Many of Tullock’s friends and colleagues were disappointed that he did not share in James M Buchanan’s 1986 Nobel Prize. He never complained about it; and he will still be remembered with respect and affection.

For more on the Public Choice School, see Eamonn Butler’s Public Choice – A Primer

The mansion tax is theft, a bit at a time

Labour’s mansion tax was already starting to unravel even before Shadow Chancellor Ed Balls tried to save it with a few palliatives today. When you have left-wing Labour MP Diane Abbott complaining that the mansion tax would be little more than a tax on Londoners, and when other MPs and candidates nursing slim majorities are worrying that the tax might hit their own voters, and not just rich Tories, you know it’s time to throw in the towel.

Strange, is it not, how politicians never ask how they could cut their own spending, but only think about how they can raise taxes from other people. Mr Balls reckons he can raise £1.2bn from the tax, which he says would come in handy for the NHS, he reckons (though the emerging black hole in the NHS budget is much larger than that). How does he know? He says much of the tax would come from foreigners with big houses in London, but does not seem to know how many of them there are. No, as usual, it will be the Great British public who foot most of the bill, and not just the rich. Tens of thousands of homes in London will be caught by it, for example, where the average price in a ‘prime area’ will probably hit the £2m mansion tax threshold by the time of the 2015 election. And ‘prime’ includes areas like Battersea and Clapham, not just swanky Kensington and Chelsea.

There are already plenty of taxes on property. Not only is there the council tax, but there is stamp duty when you buy a house and inheritance tax when you give it to your kids. Now the plan is to add another, of perhaps £4,000 a year.

We all know what will happen. The tax will be imposed on properties of £2m, and over the years, thanks to (politician-created) inflation and (politician-created) planning restrictions, the cost of property will rise. More and more properties will be hit by the ‘mansion’ tax (yes, including broom cupboards in Kensington), just as more and more people now pay the 40% higher rate of income tax, which was originally targeted at the wealthy but is now paid by people like teachers and police officers.

And our tax (and subsidy) system is already highly progressive. Wealthier people pay higher taxes of many kinds, while poorer areas get subsidies through the local government finance system.

The mansion tax is theft, a bit at a time. There will be many people who happen to live in large houses but have little or nothing in the way of income (such as those on pensions) with which to pay the tax. Perhaps the house was their childhood home and they can’t face moving. Moving is a strain even for the most robust of us. Ed Balls says, well maybe poorer people could defer the tax until they sell the house or pass it on after their death. But that makes the tax even more complicated – it is going to need a means test and a lot of extra bureaucracy, more lines on the tax form and all the stuff that has already got us in such an overtaxed bureaucratic pickle. This is a tax we could well do without.

How food banks trump the welfare state

On the face of it, the figures are damning. Food banks in Britain helped over 900,000 people last year, up around a third over the year before. It seems Britain has a real problem with food poverty. Our benefits system just isn’t coping.

But, like so many media headlines, the truth is a lot more subtle. Nearly all food banks in Britain are run by a single Christian charity, the Trussell Trust. In the last few years it has found a niche, sharpened its act, and opened a lot more. So not surprisingly, care professionals have been sending more people along. It may not be that the underlying problem is getting worse, just that it is being better served.

Nor is it the government’s benefit reforms that explain the rise. Food banks were growing long before the measures were passed in 2013, and many of the reforms have not even been implemented yet. And by merging scores of benefits into a far simpler universal benefit, the reforms should hopefully help ensure that people do not in fact fall through the gaps in the over-complicated welfare net.

The underlying problem that food banks help solve is not food poverty, any more than it is shoe poverty, clothes poverty, electricity poverty or water poverty. It is the temporary crises that people sometimes get into when they are unemployed or on low pay. Around 60% of food bank users are once-only users. They hit a crisis and can’t afford the groceries; that is why care workers refer them.

Around 30% of them have problems because their benefits payment has not arrived in time, or they are being penalised for not showing up at interview, or they have simply filled in a form wrongly. And you can blame that on our over-complicated, bureaucratic, distant and unfeeling state benefits system. We spend £94bn a year on it, a seventh of all government spending (and the government spends a lot). If we devolved the process to local communities and voluntary groups, it would work much better.

No government can do much about the fact that food prices have risen nearly 35% since 2007. Well, actually, they could stop subsidising biofuels, which has diverted huge amounts of agricultural produce out of human mouths and into gasoline tanks. And they could do something about the fact that other essentials have been soaring in price too. Government-mandated to renewable energy adds about 15% to the fuel bills of businesses and private sector organisations, plus about 6% on the gas bills and 11% on the electricity bills of domestic customers. That is why poorer people run out of cash and economise by going hungry.

Nearly everyone in Britain is well fed – some too much so – because Britain is a peaceful, trading nation with an established rule of law. Our farmers are not afraid to plant crops in case they are stolen by thugs or invading armies. Our traders bring produce to us from all over the world. If you want to see chronic poverty, look at countries that do not have this thriving market system.

Because this market system makes us a rich country, we can afford to help people who run into problems. The biggest philanthropic sector on the planet is that of America, the world’s richest country. In fact, America, Canada, New Zealand all have large food bank movements. That is because they are rich, and because they have a strong sense of community too. In Britain, too much of that sense of community has been crowded out by our state bureaucracy.

It is actually good to see charities taking on these problems. The state is inevitably large and lumbering. Private charities are much better at tackling individual human issues, like families who run out of cash from time to time.

Of course, the state could help in a very simple way. A large number of people referred to food banks are actually not those on benefits, but people on minimum wages. The government has pledged to take everyone on minimum wage out of tax, and about time too – it is absurd to tax people who are on the breadline. And yet we are still charging them and their employers another, hidden tax, namely National Insurance Contributions. Again, it’s crazy. If you want to help people in poverty­–and get people into the world’s best welfare programme, namely a paying job–you should be making work pay, which for many of the nation’s poorest, is appallingly not the case.

A reminder to Bill of Rights drafters: all we need is one right

“It’s not just the European Union that needs sorting out,” UK Prime Minister David Cameron told his Party Conference this week, “it’s the European Court of Human Rights.” This is not the first time he has said that: he said it to the judges’ faces a couple of years back, at the ECHR’s gleaming headquarters in leafy Strasbourg. They were not overly impressed. But his audience this week thinks he is spot on, and most people in the UK probably agree.

The ECHR is not an EU body but emerged out of the postwar European Convention on Human Rights. In other words, no Parliament agreed to it, no British citizen voted for it, no Prime Minister signed a treaty authorizing its power. Like Topsy, it ‘just growed.’

We are all in favour of human rights, of course, but countries disagree on exactly what those rights should be and how they should be enforced. The UK, in particular, has a very different legal tradition from other European countries – one that has served them a long time, and which they are justly proud of. But being empowered to overturn the decision of the courts in the UK and other countries, the ECHR is effectively imposing one legal regime – a judge-led regime – on everyone.

But why do we want the law of different countries to be identical? We can learn a lot from different countries running their affairs in different ways, then looking to see which way is preferable. Imposing a single legal view on a large number of countries prevents that learning from taking place.

And why should an unelected body deign to override the decisions of different countries’ courts and legislators anyway? Originally, the plan was that the ECHR would simply influence governments to ‘do the right thing’. But now, though it has no democratic legitimacy, it can override the decisions of UK courts and elected UK representatives. So in effect, law is being made by ECHR judges, and countries like the UK are bound by its decisions. That, as Lord Judge pointed out, gives us “a very serious problem with sovereignty”.

That is a particularly serious problem when a country thinks that its entire security is at risk. More than once, the ECHR stopped the deportations of suspects to face serious charges, including terrorism and genocide charges, to face trial overseas. Indeed, the ECHR has stopped deportations of foreign nationals already found guilty of serious offences abroad. Often, the grounds for such decisions have been the UK family ties of the accused, or their ‘right’ to the UK’s generous healthcare system. But what really got ministers’ goat was the Court’s blocking, for a long time, of the deportation of the radical Abu Qatada, wanted on terrorism charges in Jordan.

So now, the UK is to have its own new Bill of Rights, passed by Parliament. Actually, our old one, dating from 1689, has served us pretty well. I only hope that in drafting the new Bill, ministers do not fall for the nonsense perpetrated in the postwar settlement – things like the ‘right’ to free education. Because every right is someone else’s responsibility to provide. You can be sure that every lobby group will be out there, campaigning for ‘rights’ to this or that or the other, all at taxpayers’ expense of course, to be included in the Bill.

But in fact, all we need is one right – the right to be left alone without other people, and especially governments, pushing us around.

If Mr Cameron calls, I will gladly give him a draft.

The end of an auld West Lothian song

The Scottish National Party leader Alex Salmond loves causing trouble (as many contemporaries of mine from the University of St Andrews relish as well). He must be grinning, because despite losing the independence referendum in Thursday, he has really put the Westminster politicians in a stew.

Before the vote, to buy off wavering Yes voters, all the main political parties in Westminster signed a pledge to give more powers to Scotland anyway. On Friday, UK Prime Minister David Cameron correctly declared that if Scotland was getting more power, then people in Wales, Northern Ireland – and particularly England, the only bit of the UK without devolved powers – would expect nothing short of the same.

He is right, even if that reality only made itself plain after the more-powers pledge had actually been signed. And having set the idea running, he realizes that he has to initiate a House of Commons vote on English devolution before the June 2015 UK general election.

Labour leader Ed Miliband is currently refusing to back any such plan, calling it a ‘back of the envelope constitutional change’. He has a point: Westminster politicians are remarkably cavalier about how they change the UK’s constitution. A small public company cannot change its rules just on a majority vote of the directors, so why should a large government be able to change its rules on a simple majority in Westminster? But his real concern is to ensure that the large number of Labour MPs that Scotland sends down to Westminster can still vote on everyone else’s business, the ‘West Lothian Question’.

The impish Alex Salmond will be chuckling at the stooshie he has created. Some say we should devolve powers down to the English cities and local authorities. Others say we need a proper English Parliament. A few talk about barring Scottish MPs from voting on English-only laws.

But devolution of power to the local authorities is a non-runner. We have been promised it for decades, but it has never really happened, and nobody trusts that it will now. As for an English Parliament – well, we have seen the expense of the Scottish one (the extravagant building alone cost ten times its original estimate) and its notoriously poor quality (stuffed, inevitably, with failed local councillors and superannuated MPs).

The simple solution to devolution, all those years ago, would have been to form English, Scottish and Welsh parliaments out of their respective Westminster MPs; and have them meet at Westminster in the mornings on their own country business, then together on UK business in the afternoon. Yes, there will be a few arguments about which matters are ‘UK’ and which are ‘English’. But the solution is costless, and without adding an extra tier of government, you get home-grown politicians of some quality deciding home-grown issues. It is the obvious solution for England. And the end of an auld West Lothian song.