ja_mageia

Though my colleagues at the Adam Smith Institute regard me as the 'down' man, always seeing the difficulties presented by any new idea, underneath I'm really an optimist. I really believe that the free market will triumph, despite everything that our system of government conspires to do to shackle it. The free market is an entirely natural system, like evolution itself, which grows and adapts whatever adversity it faces. You can concrete over a path but still, before long, the grass pokes through. So do markets.

And I'm optimistic that Britain will sort out its tax and benefits system, and adopt a flat tax on incomes and a negative income tax to relieve poverty. Looking at the first tentative proposals of the coalition government in general and of the welfare and pensions secretary Iain Duncan Smith in particular, I think we can see the first green blades of common sense breaking through here too.

Our tax system is fiendishly complicated. Civil servants like it that way, because it creates work for them. Whenever you try to tax people, they will find ways round it. And when your own money is at stake, it is worth buying in good accounting brains to protect it. So tax becomes a cat and mouse game with the Treasury: a new tax is introduced, people find ways to avoid it (quite legally), so the Treasury has to close off the loopholes with new rules. A few years of that, and the rule book gets pretty complicated. The standard tax guide for accountants now runs to about 11,000 pages across four volumes.

We should cut right through all this nonsense and have a flat tax – as we have said many times in our publications on the flat tax. Cut out all the deductions, the loopholes and the clawbacks, and have a low, standard rate of tax that applies to everyone. Then everyone knows what they and their fellow workers are expected to pay. No escape and (sadly for accountants and Revenue civil servants), no need for a lot of complicated measures to avoid tax or to make sure people pay it.

I am optimistic that similar simplicity might come to social benefits too. We have roughly 51 different social benefits. They are designed – well, that's too strong: they have grown up under pressure from various interest groups – to make sure that everybody's unique circumstances are catered for, and that nobody falls through any cracks in the system. A laudable aim, but a madly complicated result. We should scrap it all and have perhaps just two benefits – a long- term benefit for those who simply cannot earn for themselves, and a short-term benefit for those struck by temporary unemployment. Instead of a complicated raft of benefits, we should have a negative income tax. If you have a good income, more than enough to live on at a decent level, you should pay tax. If you don't have enough to live on, you should get cash – the negative bit of the tax.

After all, when you get a job, your employer pays a rate for the job. Employers don't ask you about your exact family and personal circumstances before setting your wage. It should be the same with the benefit system. That makes it simple to administer, and it encourages people to curb their costs instead of thinking about how to maximise what they can get from the authorities. True, some people in special circumstances will face hardship. But alleviating that is something that seems the proper role for the charitable sector. True, we need then to liberate the charitable sector, with things like US-style tax deductibility to encourage more philanthropic giving, so that charities can step in where the state falls short and real help is needed. But I am optimistic that we can do that, too.

Goodhart's Law was used as an explanation of why those monetary targets used by Maggie et al in the 80s would never work: my, how the clever people mocked. Of course, those oh so clever people then went on to do exactly the same in spades: we ended up with targets for waiting times in emergency rooms, targets for child poverty and I'm sure it was only the intervention of an election which stopped us having targets for sheets of toilet paper successfully soiled.

For, while originally formulated to deal with certain problems in economics, Goodhart's Law really says that whenever you use a proxy as a target for what you really want to happen either the proxy will stop connecting to the target or people will game it. Thus we had patients waiting in ambulances so they wouldn't be in A&E, policies to bring those families just under the poverty level over it while ignoring the truly poor and, yes, those monetary targets going haywire two and three decades ago.

To see this on the hoof, taking all of the politics out of it, have a look at this:

By counting the cars in Wal-Mart’s parking lots month in and month out, Remote Sensing Metrics analysts were able to get a fix on the company’s customer flow. From there, they worked up a mathematical regression to come up with a prediction of the company’s quarterly revenue each month.

How excellent, we've a method of predicting the financial results from seeing how many people are going to the store. But of course as soon as this is known there will be gaming of the system. Sticking more cars into the parking lots will raise expectations of the financial performance. But no, you wouldn't want to do that, buy the shares and then stick cars in the lots. No, you stick the cars in the lots, wait for the shares to rise on the excellent results to come, then sell them short. As the satellite photos turn out to have been counting the cardboard models you've been putting up the shares will fall of course and you can buy back and retire on your ill got fortune.

Yes, it probably would be illegal, yes, it probably would be market manipulation but that's not the point here. Only that it's an example of what happens when we all decide to start using some glorious new metric to measure performance: as soon as we do someone starts gaming it and our new metric is now useless.

Sorry folks, but setting targets just doesn't work.

The coalition government outperformed most expectations in its first 100 days. The document that set its agenda contained measures causing unease in both parties. It did not just highlight areas of overlap; there were few of those. Instead it represented horse-trading, with Liberal Democrats agreeing to some policies they opposed in return for Conservatives doing likewise.

It has been a surprisingly firm government. George Osborne has impressed the City and most analysts with his resolute approach to spending cuts. He reassured the financial community that Britain is serious about bringing the budget to balance and eliminating the huge deficit run up by Labour.

Education reform is radical. With the state allowance per child going to finance free places at new schools founded by parents, teachers and business groups, parents can escape from under-performing schools. It will restore much of the social mobility lost with the grammar school closures.

Some talk of lowering university admission standards for applicants from poorer schools, but the planned reform outflanks the issue. The new schools should raise standards sufficiently for their students to win university places on merit.

The welfare details have yet to be filled in, but Iain Duncan Smith stressed that welfare dependency as a career option will be closed off. This is as it should be, with welfare to help people without trapping them. Duncan Smith's principle, that work should always be worthwhile, is a good one. Coupled with the raising tax thresholds, the work/welfare balance looks set to shift dramatically.

Critics say that the reviews and commissions established simply kick difficult issues into touch, but what the government has been doing is laying down markers in key areas while it still enjoys some honeymoon popularity. There will be tax simplification. There will be much unwinding of Labour's surveillance state. There will be a power transfer to local levels. There will be reform of financial regulation. There will be a thorough shake-up to make our armed services better able to do their job.

People want from the government a clear sense of purpose and a determination to put right much of what is wrong with Britain. Business still awaits news on how over-regulation is to be curtailed. And we still wait to hear how our police forces are to be made more user-friendly and efficient.

But the early news and the omens are good so far, and better than many people expected. If the coalition carries on as it has started, and survives the faults and fissures of in-party manoeuvring, it could well go the full term.

A study has pinned the blame on bad management for lazy council workers. The average town hall employee spends just 32% of the day working, compared to 44% of those in private companies – which is still exceeded in better performing countries.

Executed by management consultancy group Knox D’Arcy, the study suggested that increasing working rates of council workers would eliminate the need for savage governmental cuts to frontline council services. Instead, up to 27% of workers could be cut.

It’s right to say that raising productivity levels would mean thousands of workers per council could be got rid of. However, if workers want to sit idle all day and there are people prepared to pay them for it, that’s fine! But local authorities don’t have any money; only other people’s. And those other people, the general public, don’t currently have a choice on whether or not they pay council employees. People will work if there’s an incentive to work and won’t work if there’s an incentive not to – and that goes for managers as well.

Bad management may be the proximate cause of lazy council workers, but the ultimate cause is lack of market competition.

The fact is it does not need to be the council who empty the bins, run the local leisure centre or manage tourism. The UK's 410 local authorities spend over £113 billion on day-to-day services, employing more than 2.1 million people and delivering 700 different services. These are all services (the genuine ones; not pseudo-services like equality and diversity) that could be run and managed by private companies, far more diligently and effectively, in a competitive market.

I'm beginning to wonder whether any government programme or regulation actually helps the deserving groups that it is advertised as helping. Too often, I think, they help rather well-paid administrators, anti- poverty lobbyists, special interest groups and the friends of politicians.

Take higher education. It is heavily subsidised by taxpayers because it is supposed to help the whole country. But does it? By far the greatest beneficiaries are students themselves. The association of university heads has calculated that, over a lifetime, graduates earn £160,000 more than non-graduates. But graduates leave university with an average debt of just £23,000. That's a pretty spectacular return on investment.

Gordon Brown used to spend much of his available spleen, which was considerable, on chiding the universities for taking too many students from well-off families, and too many with a public school education. Try as he might, with all kinds of financial bullying and incentives, he just couldn't make it any different. So it's a double imbalance; not only do we subsidise universities that raise the incomes of their graduates well beyond the benefit to anyone else, but those students also come from better off backgrounds too. The young person who leaves school to become a bricklayer in Bootle pays higher taxes to send Old Etonians to Oxford to become Prime Minister.

If the universities were privatised, this would change in short order. For a start they would probably introduce, like the private University of Buckingham, snappy two-year degrees that kept down the cost and made student loans less daunting. If they charged those who could afford it realistic fees, and used the money for bursaries to gifted but poorer students, it would do more to open up opportunity, increase access, and spread benefit through the whole country than what we do today.

And what is true of universities is probably true of other government programmes. If you really want to help the people you say you want to help, rather than well-off people and public-sector administrators, the market can probably help you do it far more effectively than some public sector programme.

What with the collapse into stinking rubble of the Soviet style socialist economies and societies back in '89 to '91 there's not been a great deal that supporters of socialist ideals can point to as successes of such ideals. No one's (sorry, we can find apologists for absolutely anything, so very few) pointing to North Korea as the blueprint for a desirable society and while Cuba has its praise singers no, "Sure, they've no freedom and nothing to eat but they do have free health care!", is not taken as a valid argument in adult company.

So large scale, countrywide, imposition of said socialist principles is something that's been tried and no, it doesn't work. But what about the small scale? Might it be possible to reorder society from the bottom up? Looking at the Israeli kibbutz movement, it would seem not:

Today, of the 273 kibbutzim in Israel, only about 60 still operate on a truly communal basis, in which all members are paid the same basic sum whatever their work, with services provided by the collective. Most of the rest have introduced reforms in response to what the Kibbutz movement calls "a severe socio-economic crisis [that] threatened the future of numerous kibbutzim – they owed huge debts to the banks and thousands of young people were leaving the communities. The kibbutzim were in danger of falling apart." The principal reforms were to introduce differential wages and privatise some of the services........But the "earthquake" was the introduction of differential wages. It turned the kibbutz philosophy on its head. "The jobs we once thought were the elite jobs – physical work in the fields and orchards – turned out to pay the least," recalls Ney. Managers were paid more than labourers, and productivity was rewarded.

It's worth reading the whole piece. Without a price system no one knew what was the most productive use of labour: without a price system there was no rationing of resources. Now there is a place where properly communal living is possible, where Marx's from according to ability and to according to need works: the family. But even there it's tightly constrained as anyone who has cousins knows: as Haldane pointed out, the sacrifices we'd be willing to make for two brothers would require 8 cousins to extract from us.

Now this sort of communal living, if it won't work with an all volunteer starting population, with people entirely raised within this egalitarian ethos, won't work even when motivated by the building of a new country and new way of life, well, I think we can say that it's been tried in the circumstances most favourable to its success and that failure shows the failure of the basic idea, not of the particular circumstances. We're just not going to make this egalitarian communalism work with human beings at any scale larger than the family.

We should be careful of the baby/bathwater problem though. One of the historical strands that makes up British socialism is the success of various communal and community movements: the mutuals, friendly societies, co-ops (and Co-Ops), those things which so enriched life in this country. That people will group together to achieve a certain task, voluntarily collectivise some part of life is just fine: it's when all of life is so organised that it seems to go wrong.

But then voluntary collectivisation of some part of life is hardly an exclusively socialist notion, we could use Burke's "little platoons" as an equally apt description of such actions.

But it does seem that we've tested this radical egalitarianism, at the micro scale and the macro, community and nation, both forced and voluntary, and it just doesn't seem to work. So sorry to those who still believe in it all but socialism is dead: get over it.

Faced with years of reckless overspending by their predecessors, the new government has rightly decided that it needs a no-holds-barred assessment of how much of this is simply wasted, how much is unnecessary, and how much could be spent more efficiently.

Why this is no time for salami slicing.