Economic Nonsense: 34. Governments have a duty to extend equality in wealth and income

Governments in democratic societies are elected to serve their citizens, not to impose some ideological view of what they would prefer society to look like.  If they do try to pursue equality in wealth and income they will almost certainly reduce both.  While there are some who would prefer a society that was more equal rather than one in which everyone became wealthier, this is unlikely to become a popular view.  Becoming richer is something that matters much more to poor people than to rich people.

People are different and they have different goals in life.  Some are born more talented, and some put in the effort and the time it takes for them to become so.  Some people have more economic value than others, though this is not to say they have more moral worth.  People will pay money to see a talented celebrity or sportsman perform, and those individuals can become richer in consequence.  To equalize incomes is to prevent this happening.  Since higher earnings make possible higher savings and greater wealth, to equalize wealth is to prevent people from accumulating the proceeds of their talents.

Most people would prefer society to make provision for the unfortunate or destitute, but this means ensuring they have a decent standard of living, not making them equal in wealth and income with richer people.  Governments that strive for equality can only do so at the expense of liberty, by preventing the free choices and exchanges that people would otherwise make.

Egalitarians have tried to redefine poverty as a percentage of average income, but this is not what it is.  Poverty does not mean inequality, it means not having enough resources to get by and to live a decent life.  Many would rate opportunity above equality, thinking it more important that people should have the chance to develop their talents and abilities and to raise their standard of living.  Many would prefer governments to help make this possible, rather than attempting to equalize wealth and income.

The income inequality obsession

There is undoubtedly a persisting obsession with income inequality, whether this comes from the likes of Thomas Piketty or Russell Brand (whom Kate Andrews very recently wrote an article on), this obsession is unhealthy and, actually, upon closer scrutiny, counter-productive.

The focus on income inequality places emphasis on income being the most important component of inequality. Income, however, is only useful as a means to an end, rather than as an end in itself.  It is a way of measuring and attaining a form of freedom in modern society. It derives its value from affording the individual who possesses it with capabilities. Ludwig von Mises wrote in a Theory of Money and Credit that money is money by virtue of the fact that it is a medium of exchange (rather than it being legal tender or a store of value, for example).

The obsession with relative income rather than focusing on advancing one’s own, absolute capabilities (and/or others’, for that matter) helps perpetuate the frictions of class differences (the income component of them, at least). Income, whether absolute or relative, is not an end-in-itself for the vast majority of people.

Delving more deeply into the real value of money, we find that freedom and the inequality of freedoms enjoyed by people is at the real heart of the problem. Those who obsess over income inequality shy away from addressing the legally imposed inequality of freedom; the right to use one’s labouring capacity as one sees fit, to spend one’s time as and when they want and for the price they will, the right to interact with our fellows to our mutual advantage without third-party interference, the right to speak freely, think freely and live freely – don’t these legal iniquities require more urgent addressing?

The focus on income inequality is the smoke and mirrors of well-intentioned rhetoric. The focus on wealth redistribution rather than the opportunity to engage freely in wealth creation, on compulsory, ever-more rigid education instead of free thought, on dividing society according to income instead of encouraging social cohesion… this focus provides supposed justification for the legal privileging and normative elevation of income pursuit and, therefore, enables subtle homogenisation and, ultimately, degradation of peoples’ capacity for free thought. Addressing income inequality through redistributive policies is, as is all too often the case with such proposals, conservatism in the guise of social liberalism.

Bleeding heart libertarianism and British politics

I have a chapter in a new publication by Liberal Reform, the classical liberal movement within the Lib Dems, in which I make the case that non-libertarians and libertarians may find a surprising amount of common ground if they put their differences of opinion about wealth and income redistribution aside. (Unfortunately, you have to sign up to Liberal Reform’s mailing list to read that piece. You use my email address to login instead: sam at adamsmith dot org)

Basically, the chapter is an attempt to sketch out a British political economy of Bleeding Heart Libertarianism, the movement that has sprung up around American philosophers like Matt Zwolinski. The main areas I identify are immigration reform, drugs legalization and ‘modern mercantilism’ (a broad term for corporate and middle-class welfare).

I do think there’s a lot of common ground between libertarians and people on the left, but for a serious dialogue to work I propose that libertarians shift their focus from opposition to wealth and income redistribution to a single-minded focus on the regulatory apparatus of the state:

I suggest that libertarians concerned with the plight of the poor should abandon their opposition to wealth redistribution in practice and focus instead on the regulatory state, where we have a much greater degree of certainty about the harm caused. For libertarians who wonder if they are BHLs, the question might be: If libertarian institutions existed and serious, significant poverty persisted, would state action be justified in acting to relieve at least some of that suffering, if we had a pretty good reason for thinking that that action would work?

I think that it would, and if you have a serious commitment to welfare so should you. The only problem should be an empirical one, which I cannot say is strong enough to reject all wealth redistribution. While I am extremely confident about the benefits of liberalising planning to allow new homes to be constructed in the UK, I feel less confident about saying that all redistribution is harmful.

So I propose a compromise: a ‘libertarian welfarism’. This might see us reform tax credits and the welfare system into a combination of universal basic income and a ’negative income tax’ that acts as a top-up to people’s wages, adjusted to give a little more to people in low-income jobs and the unemployed. The details of this approach to income redistribution are not important for now: what matters is the idea of a simple, cash-based redistributive mechanism. I find myself very comfortable with this kind of redistribution; other libertarians will be less so. But perhaps they could accept it as the cost they have to pay to persuade others about the other, much more important, things they have to say.

I expect many people to find this kind of thinking quite outrageous, but to me the really strong arguments for libertarianism are based on our beliefs about ignorance and incentives, not justice, so they should only preclude redistribution of wealth as a matter of pragmatism. There’s no intrinsic reason you can’t combine those ideas with “left-wing” beliefs about what a good world looks like any less than they can be combined with “right-wing” beliefs about the kind of world we watnt. I don’t know if libertarians will ever be able to have the same influence on the left that we’ve had on the right, but it’s worth a try.

The poverty we can relieve

The Joseph Rowntree Foundation (JRF) has a new report out today that takes a look at living costs for the poor and the cost of achieving a ‘socially acceptable standard of living’ in modern Britain. The report continues their excellent approach to poverty measurement, which looks at the cost of a basket of goods that most people would consider necessary to have a decent standard of living.

This approach is very reasonable, and does a good job of contextualising domestic poverty without being led to the sort of absurdities of straightforward relative poverty measures, which, for example, “improve” every time someone wealthy goes bankrupt or leaves the country. The JRF’s method is quite a neat combination of the best elements of relative and absolute measures of poverty.

It’s important to remember that poor people in the UK are still very rich by global standards. But that’s not to say that their problems aren’t still important and worth trying to solve by allowing more wealth to be created. There are some things we can do to help people in poor countries, such as removing barriers to trade and migration, which would also be good for poor people in the UK, but that shouldn’t stop us caring about relatively less poor people in the UK.

The JRF is right to highlight the fact that rises to the cost of living hit the poorest the hardest. I think it’s probably a mistake, however, for anyone to assume that benefits cuts are the main causes of the living standards squeeze for the poor. They might be a factor in declining or stagnating incomes (not as much as the overall economic climate, though), but they don’t explain why the cost of living is rising so rapidly.

Paradoxically, things like ‘affordable housing’ requirements can actually end up hurting people in need of affordable housing. They disincentivise higher-end developments and cause the demand for those homes to be pent-up in the existing housing stock – so, in other words, instead of building new houses for the rich, existing affordable homes are converted to accommodate them, reducing available units for people who need cheaper homes. Liberalizing the planning system so that supply can meet demand would do a lot to reduce the cost of living for the poor.

I also think it’s crazy and inhumane that we tax minimum wage workers so much. A full time worker on NMW earning just under £13,000 a year will have to pay more than £1,300 of that in tax. That’s a scandal.

And of course a lot of the problems facing people on low incomes are due to the overall economic climate. If Mark Carney really does implement a nominal GDP target, the resulting economic recovery and job creation will mitigate some of the worst problems facing people at the bottom of British society.

Don’t hate the players, hate the game

I usually agree with Mark Littlewood, Director-General of the IEA, so I was surprised by his piece in the Mail on Sunday this weekend. Mark proposes a public register of everyone claiming benefits of any kind – pensions, disability living allowance, jobseeker’s allowance, and so on. This strikes me as a very bad idea indeed.

Mark’s aim is to increase public awareness of benefits claimants who are receiving much more in benefits than most people would think reasonable. This, he hopes, will increase the public’s appetite for welfare cuts. Actually, I think people overestimate how much money individual people on benefits get, but the proposals are undesirable for other reasons.

Mark says that “This wouldn’t be a matter of ‘naming and shaming’ anyone. After all, if you are legally entitled to a particular benefit, what is there to be ashamed about? Anyone ashamed to claim money from the State maybe shouldn’t be claiming it.”

In my experience, most unemployed people are profoundly ashamed of being unemployed. Removing their privacy, exposing them to gossiping neighbours and their children to bullying classmates, will just make that even worse.

And Jobseeker’s Allowance only accounts for a small proportion of the welfare budget. These proposals would also include people on disability benefits for socially stigmatized mental illnesses and physical disabilities that they would like to keep private.

Mark says that Britons “are far too reasonable to start taking up pitchforks and burning torches and assaulting imagined benefit cheats.” I am less sure. This is, of course, the same country that saw a paediatrician being hounded by vandals who confused the word “paediatrician” with “paedophile”.

These proposals would humiliate people on benefits and rob them of their privacy. They don’t deserve it. Many (probably most) of them are dependent on welfare because of the state itself, and it is senseless to make their lives even more difficult instead of tackling the real causes of their poverty.

If you think that unemployment is largely caused by government mismanagement of the economy, it makes no sense to humiliate people for being out of work. If you think that government welfare has crowded out private charity, you shouldn’t blame people forced to rely on government disability benefits. If you blame planning regulations for the high cost of housing, you should focus on those regulations before you cut off the money that mitigates the problem for a few poor people.

I wish the only problem today was the government’s unwillingness to cut spending. In fact, that spending usually exists to relieve much bigger problems that can’t be found on the Treasury balance sheet. Often, those problems are state-made.

To me, this is one of the key messages that ‘bleeding heart’ libertarians need to get across to other free marketeers. Cutting back the state is a bit like a game of Jenga – if you blithely pull away the supports that people rely on before you take away the causes of that reliance, you’ll only end up making things worse.