How much would a minimal state cost?


Most libertarians would say that the core duties of government are few in number: defence and diplomacy, policing, the courts, and so on. Essentially, government is there to protect individual liberty, and not a lot else.

I don't expect we'll ever see such a state – as Bastiat noted, the state, like any living organism, tends naturally to grow – but I thought it might nonetheless be interesting to work out how much it would cost.

Using, I worked out that the annual budget for 'defence' and 'protection', the categories which more or less correspond to those 'core duties' of government mentioned above, is about £70bn. Interestingly, that's about how much VAT set at the minimum rate of 15 percent should raise. Wouldn't it be nice if that was the only tax you paid?

OK, so maybe that's not realistic. But here's a still-radical proposal with a little more relevance to the real world: first, go ahead and restrict the Westminster Parliament to those core functions, and that limited tax base.

Then replace the welfare state with the kind of compulsory savings system that they have in Singapore and Chile, and which the ASI advocated in our reports on the 'Fortune Account'. Essentially, national insurance contributions, rather than going to the government, would go into personal, privately-owned accounts, consisting of health savings, health insurance, unemployment insurance, and a retirement fund.

Then leave the provision of any other services to local government, each unit of which would be responsible for raising its own revenue. They would have to compete with one another to attract residents and businesses, so they would have an incentive to provide the best possible services for the lowest possible cost. It would be a bit like having a free market in governments.

Well done, Prime Minister


In 2000 Gordon Brown stood at the Labour Party Conference and said the following:

In 1997 we said that the future depended upon first building strong and long term foundations for economic stability. We all remember the early 90s. It was Britain's hard working families – the one million who lost jobs in manufacturing, the one million businesses that went under, the million homeowners with negative equity. It was hard working families who paid the price and bore the brunt of economic failure. And by 1997 with the deficit nearly 30 billion, the national debt doubled, debt payments bigger than the schools budget, inflation rising, and the economy on the way back to the old familiar cycle of boom and bust, we resolved to, and under Tony Blair had the strength to, take difficult long-term decisions. Bank of England independence. Tough controls on public spending. The difficult decision to raise fuel taxes. The decision to pay back debt and cut the costs of debt.

We can now quantify those long-term decisions: they were all lies.

Back in March 2001, "unemployment dipped below the 1m mark this morning, for the first time in more than 25 years." 8 years later, this is the situation, "The number of unemployed people increased by 165,000 over the quarter and by 421,000 over the year, to reach 2.03 million. The unemployment level and rate have not been higher since 1997."

And we are all aware of the housing crisis, which is now set to get worse: "The FSA has today issued a statement suggesting that more than 2 million UK homes will be in negative equity within the next 12 months."

The current deficit stands at £77.72bn for the current fiscal year and net national debt stands (using the government's version) at, "a record 49 percent of GDP, or £717.3 billion pounds, in February". And it could rise to £1.5 trillion or just over 100%. And as for debt interest repayments, they will be around £35 billion this year.

So congratulations, Mr Brown. You've managed to make boom and bust twice as bad as it was.

Blog Review 906


A short guide to the defense of liberty.

Regulators are like generals, always ready to fight the last war.

Are fat tails in a financial market a new discovery? Well, no, they aren't.

Mild mannered economist driven to paroxysms of rage by the AIG outrage.

Not mild mannered economist similarly enraged.

Another explanation of where all the money goes.

And finally, poster design competition.


Law making by outrage of the day


Hard cases make bad law, act in haste, repent at leisure....there are any number of aphorisms that suggest that we might at least try and think before we act. Especially where the act of law making is to be committed.

In a frenzy of foaming rage over the retention bonuses being paid to people at AIG Financial Products the House of Representatives has passed a law stating that the tax rate on bonuses over $250,000 a year at firms that have been bailed out by the US Government will be 90%. As Henry Blodgett points out, this is absurd for a number of reasons. It's household income for a start and the effect will be to raise salaries while curbing bonuses: because the tax only applies to bonuses, not salaries.

However, there's one further level of stupidity that no one seems to have noted as yet. US tax laws apply to those who work in the US, of course. They also, uniquely amongst countries, apply to US citizens who work in other countries. But they most assuredly do not apply to non US citizens working outside the United States...even if they do work for US companies which have been bailed out by the Feds.

So, let us take the purely imaginary example of a London based subsidiary of a large US insurance company. This subsidiary bankrupted the parent company by being silly fools in the derivatives market. Difficult to imagine, I know, but suspend disbelief for a little bit more. The staff of this subsidiary were a mixed lot, as is common in finance. Some Americans and some from other countries. The result of this law is that those American employees, working for this US company which has been bailed out, will face 90% tax on their bonuses. The non-US employees will face the standard 40% UK tax rates. The end effect would be, I assume, that Americans would no longer work for the overseas offices of American companies, their jobs going to non-Americans who are in no danger of being touched by this law.

D'ye think that anyone at all in Congress thought about this when they were slavering to pass this law? No, me neither.

But of course this is entirely hypothetical. I have no idea whether there are any non US citizens that work for AIG Financial Products, the London derivatives subsidiary of a large US insurance compay and the company whose bonus plans sparked off the legislative frenzy and the bailout itself.

Straight As no longer enough


This week Cambridge University confirmed that from next year, three A-Grades at A-Level (the exams British school children take at 18) would no longer be enough for a student to be admitted. In future, students will need at least one A* and two As to be considered for a place.

There have been predictable complaints about this, with some arguing that such an admissions procedure will discriminate against students from state schools. But what did the government expect when they introduced the A* grade? If universities weren't meant to use it to distinguish between students, then what was the point?

Moreover, it's not exactly the university's fault if demanding a top grade means only people educated in the private sector can get in (though that is clearly an overstatement). On the contrary, it's the state schools, and by extension the politicians who believe they can run them, that deserve to be the targets of criticism.

It is also politicians who have debased the exam system and made the introduction of an A* necessary. As the Telegraph says, "Last summer, more than a quarter of A-level exams sat in England, Wales and Northern Ireland were awarded an A grade and the rate has more than doubled in 20 years." Grade inflation is not that different from monetary inflation – by increasing supply for political reasons, government agencies have decreased value. It seems they just can't help themselves.

The other thing that irritates me about this story is the implication that lies behind it, that requiring excellence (if that's what an A* means) is some kind of unjust discrimination. It isn't. Rewarding achievement and success is the way the world works, and rightly so. That's all Cambridge are doing.

Nowhere to hide


According to ZD-Net the UK government has plans to monitor all social media traffic including the likes of Facebook, Twitter, MySpace & Bebo.

"Social-networking sites such as MySpace or Bebo are not covered by the directive," said Coaker, speaking at a meeting of the House of Commons Fourth Delegated Legislation Committee. "That is one reason why the government (is) looking at what we should do about the Intercept(ion) Modernisation Programme, because there are certain aspects of communications which are not covered by the directive."

The U.K. government has previously said communications interception is "vital" and has hinted that social-networking sites may be put under surveillance. And responding to a question from Liberal Democrat Parliament member Tom Brake, Coaker said all traffic data on social-networking sites and through instant-messaging services may be harvested and stored.

Web inventor Sir Tim Berners-Lee is not terribly keen on this idea and thinks that people should not be snooped on. This is yet another worrying turn of Labour's survelliance government and one that we should probably not be terribly surprised to read about.

Blog Review 905


Yes, there are arguments for subsidising the production of public goods. But remember, education isn't a public good, even if it is publicly provided.

Most shocking: Ken Livingstone is actually correct on a matter more important than whether newts are cute.

The BBC definitely seems to be holding the law in contempt.

Why new regulation when the market itself just isn't going to make that mistake again?

As a little changes, some reasons for optimism.

Bankers aren't the only people getting rewards for failure you know....

And finally, meet Obama's teleprompter.

Free to sell, free to buy


The Department for Culture, Media and Sport is currently undertaking a consultation on Ticketing and Ticket Touting. On their webpage the Department states, "The Government... does not favour legislation to prevent secondary sales.  But new laws cannot be ruled out if voluntary measures do not succeed and conditions for consumers do not improve. The consultation urges ticketing companies to tighten up sales of tickets if they want to prevent them being resold. "

However, polling by ICM for eBay has revealed that 86% of people think that they should be allowed to resell their own tickets if they can no longer attend the event. 83% of the public also show an understanding of property rights, agreeing with the idea that the ticket is theirs to sell on. 80% of people also believe that reselling tickets should not be against the law if they can no longer use it. And further evidence shows that 85% agree that the organizer, not the government, should ensure that tickets don't end up with touts. Over two thirds of people can also tell the difference between an individual selling their ticket and a tout, unlike the government and some event organizers who lump everyone together.

It is clear from this data that there is little need for the government to act. The event organizers need to implement a system that controls ticket sales so that the so called 'touts' aren't the ones purchasing tickets directly so that they may resell them on after events have sold out. One problem area highlighted by the polling data was that of the 13% who attempted to get a refund when they had unused tickets, only 42% were successful. If organizers were more willing to refund tickets then this would cut into the potential profits that touts could make and also offering a more secure environment for purchasing tickets. The answers to the problem of professional touts are straightforward and event organizers shouldn't be relying on/pressuring government to implement legislation that criminalises all merely to ensure their own profits on what is currently a bad business model.

One small step for Brown, one giant waste of time for the rest of us


In the midst of a complicated recession, Gordon Brown proposed a small solution to improve the status of public service in the UK. Brown wants to integrate user reviews into the NHS system: “He proffered a vision in which patients choosing a family doctor or parents looking for child care could benefit from the same kinds of reviews and ratings that are now available for books and other products on internet sites like Amazon."

Gordon Brown wants the public focusing not on why they are jobless, but on a public complaint forum where citizens review NHS professionals, centres, and hospitals. The problem with this plan is that people simply do not have enough choice of where they can be treated in the first place. These reviews will simply bring people together to complain about the problems they face at NHS clinics. Why have information without choice? It is like living as a prisoner on bread & water exclusively, but if one day the warden decided to display menus for some fabulous restaurants in the mess hall. You can look all you want at restaurant menus and reviews, but meanwhile you know what’s going to be on your plate when you sit down to eat.

Migration tax planned


News of yet more taxes seems to be a drop in the ocean these days, with few batting an eyelid. A tax of £50 for a UK work visa (£20 for students) may seem an insignificant amount, but it’s still a tax increase and it’s still a bad idea.
The issue of migrant work is clearly a contentious one when so many British workers are becoming unemployed, but in order to ensure the prosperity of Britain we cannot afford to forget the long-term. We cannot allow the government to drag us out of current difficulties at the expense of much greater, long-term, goals.
The labour market has been allowed to stagnate. A wave of regulation and taxation such as the National Minimum Wage and national insurance contributions have made the UK workforce uncompetitive internationally and has reduced competition internally. Hardworking migrants are an asset to our society, boosting economic productivity. We only attract unproductive migrants because of the welfare state the government has created. There is no utilitarian benefit in protecting unproductive British workers when there are others willing and able to do the same jobs from abroad – instead we should be incentivizing productivity to make our labour market more productive – a recession should be acting as a wake up call to our inefficient industries.
The introduction of such a tax may be a nifty vote-winner for the government, but it will be damaging in the long run. The fact cannot be ignored that migrant labour plays a large role in our economy. If we earn a reputation as isolationists, there will no doubt be some reactionary policies abroad. These would have major negative impacts on many of our geriatric industries.
The motive for this levy is to ‘raise £70 million over two years to help pay for public services’. Surely a simpler solution would be to reduce spending on public services by £70million?

Or as Alice Thomson points out, in The Times to pay for the work shy: Two nations: those who work, those who won't