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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Poverty, equality and hope

Written by Anthony de Jasay | Thursday 09 April 2009

It is not people being poor that causes social ills from school failure, teenage pregnancy, crime and short life expectancy, but the fact that some people are poorer than others. It is not the level of income, but the differences between levels that really matter. It follows that fighting poverty is the wrong battle except if it reduces inequality. The right target is inequality and never mind if reducing it were to leave the poor as poor as before. They, and society as a whole, will still be healthier and happier.

This, stripped of rhetoric, is the latest twist in the convoluted chain of arguments for altering a more or less liberal order out of all recognition until justice proper is decisively subordinated to what some call "social" justice. Explicitly shifting the target from poverty to inequality, to the point where poverty becomes irrelevant as long as it is the same for all, is a radical novelty.

There are more potent ways of fighting poverty than soaking the rich. Inducing people to form and preserve two-parent families, if indeed they can be induced to do so, could be wonderfully effective. Another very potent means is to raise the demand for labour, the main or only thing the poor have to sell. One obvious cause of rising demand for labour is capital formation which, in turn, is fed by public, corporate and personal saving. We can't predict what would happen to corporate saving, but we know that public saving is generally negative. Personal saving is typically much greater proportion of high than of low incomes. Hence the same national income unequally distributed yields more saving than if it were equally distributed. By saving more, the very affluent are, so to speak, raising the price they will have to pay for labour tomorrow. In any event, unequal affluence holds out more hope for the poor than equal poverty.

Extracts from Equal Poverty, Unequal Affluence published by Econlib.

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Fat cats

Written by Anthony de Jasay | Monday 06 April 2009

Except the stars of “showbiz" and spectator sports to whom all is forgiven, fat cats do not have a good press. Even those who have done great things, built and run vast and vastly productive organisations employing thousands of men and women who are all at least a little better off as a result, - even captains of industry are widely blamed for their income and wealth that is regarded as ranging from the provocative to the obscene. When, by a combination of gross collective misjudgment, ill luck, mass hysteria fostered by the perverse incentives governing the panic-mongering media and equally perverse solvency and accounting rules the fat cats of finance got themselves in deep trouble, the jubilant public all but cheered. Admittedly, as the music stopped, many bankers displayed singularly bad taste, but even perfect discretion would not have saved them from the detestation owed to fat cats.

At the other extremity of society, the underdog enjoys general sympathy. There is a presumption that he must be in the right and the top dog (or should it be overdog?) is in the wrong. This is so not because of what either may have done, but because one is now beneath the other. The top dog may be blameless, but sympathy goes to the underdog and sympathy is easily mistaken for an imperative of justice.

All these sentiments and attitudes spring from deep-seated emotions that cloud cooler judgment. One such may be the shock and fear at the sight of gross inequalities of any kind that hurt what Isaiah Berlin called the “love of symmetry". Another may be the emotive appeal that playing Robin Hood holds for most of us (and hang the Sheriff of Nottingham). Half emotion and half calculation inspire the gut feeling that rich-to-poor redistribution enhances the common good (the “aggregate utility" of superannuated textbooks ) while incidentally also raising the income of the person advocating it. Finally, pure emotion excites good old-fashioned envy; do down the fat cats, chop off the tall poppies even if the person feeling that way expects to reap no profit from it.

Extract from The Fat Cats, the Underdogs, and Social Justice published by Econlib.

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Social insurance and unemployment

Written by Anthony de Jasay | Wednesday 04 February 2009

Among my triad of perpetually repeated social mantras is the idea that society is a good thing if and because it functions as a mutual insurance association. It protects everyone from life’s unforeseeable ups and downs by indemnifying the losers out of the gains of the gainers. The association, being mutual, is programmed to break even, everybody has a random probability of being a gainer and paying a premium or being a loser and collecting compensation. Since losses reduce happiness more than gains increase it, everyone is made happier, – at least ex ante, which is what matters.

The fallacy of this schema resides in the obvious fact that due to different endowments and capacities, some people are always more likely to end up as gainers rather than losers and others are more likely to end up as losers rather than gainers. Mutual insurance where some always pay premiums and others always collect them is not just, at least not in the sense supposed by the fallacy of society providing equitable protection against risk.

There is, however, a real-life variant of this scheme that we find in most industrial societies, namely compulsory social insurance by payroll deductions. This system, quite apart from its morally dubious premises, is probably responsible for the tendency to chronic unemployment being more prevalent in modern industrial countries than the tendency to excess demand for labour.[Cont'd - click 'read more']

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The social market economy

Written by Anthony de Jasay | Tuesday 03 February 2009

The idea underlying the social market economy is that the free market efficiently produces a quantity of goods and would distribute them in a certain pattern among the economic agents who produced it, but that this distribution can be made morally and practically better by making it more “social". This can be done by interventions that do not react back on the productive functions of the market, leaving it free and untroubled. In addition, the economy yields a bonus, so that total production is not only (morally) better distributed, but also greater than it would otherwise be; for in the social market economy, relations between employers and employees are more peaceful, less antagonistic and hence more productive than in a mere market economy.

Let us deal with the minor issue, the bonus first. History provides only meagre lessons about why social upheavals happen and how they are prevented, but such lessons as it does give tell us that revolutions happen after oppression is relaxed and social order is disrupted more by the appeasement of tensions than by the tensions themselves. Concessions to the weaker party teach it that it is entitled to concessions, and will demand more. Industrial relations tend to be worse and strikes more prevalent under heavily redistributive left-wing governments.  There is not the slightest evidence that the rise of the welfare state was conducive to industrial peace and productivity, let alone that it “saved Europe for capitalism" after World War II. [Cont'd - click 'read more']

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Liberal, Libertarianism and Classical Liberalism

Written by Anthony de Jasay | Sunday 01 February 2009

American English has expropriated the word “liberal". It uses it to signify a mishmash in which “lifestyle" must be absolutely free, subject to no rules of common decency and traditionally agreed norms of good taste, while “economic“ freedoms are subject to mild contempt and irony (“free choice between two dozen flavours of ice cream") and subordinated at every turn to labour union privileges, eminent domain, public interest, “positive rights", equal access and the administrative regulation of markets. The “liberal"of English English is replaced by “conservative".

Before this linguistic occupation of their ancient terrain, some liberals started to call themselves “libertarian". This conjures up images of wild devauchery, emancipation from authority, might over right and much else that gives honest citizens goose-pimples. It is doing liberalism no good. Other liberals have opted for calling their creed “classical liberalism." This term is perhaps the worst of all. It is instinctively understood as the opposite of “modern".  It is outdated, fuddy-duddy, 19th century, nice enough and worthy in its own limited way, but not up to the “great challenges of contemporary society".

The point I am trying to make is that retreat and peaceful acquiescence in the colonising infiltration of alien notions does not pay. It does not pay at the level of language any more than at the level of judgments of value and the finding of facts.  The order of the day should be to resist and counter-attack.

Extracts from a speech introducing Liberale Vernunft, Soziale Verwirrung, 27 January 2009 in Zurich.

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