Predistribution is an old trick for an old dog

Ed Miliband’s new big idea is that wealth redistribution takes place too late.  One has to be poor first to get government hand-outs of richer people’s taxes.  How much better it would if no one was poor and then redistribution, and all the bureaucracy that goes with it, could be consigned to history. We would all rejoice if benefits could be cut without further impoverishing the poor. He uses Sweden as an example of a predistributive country.

As Neil O’Brien points out in his excellent article in Saturday’s Telegraph, Britain does have one of the highest levels of income inequality, seventh out of 34 OECD countries and that surely fuels the widespread discontent.  Note the booing of George Osborne at the Olympics.

Unfortunately, Sweden is not a good example of a ‘predistributive’ country.  Income tax only looks low because national (social) insurance is four times as high as the UK’s.  The Nordic countries public expenditure is far higher, maybe 50% higher, than the UK’s share of GDP.  They have grown accustomed to being high tax/high public spending economies.  In other words, the hand-outs are given in different ways.

Two factors contribute to the inequality in the UK: housing costs and unemployment.  They compound each other because housing costs are highest where there is most employment.  Governments have tried to move employment to where it has most needed but moving the BBC to Salford and civil servants to Newcastle is not the answer.  The employers most easily moved from the south east contribute nothing to the economy and it would be better to employ fewer civil servants than rehouse them elsewhere.

Inequalities will be reduced when, and only when, employees create more wealth than they earn.  Sweden and Denmark, for example, achieve high personal incomes due to free markets and relative economic strength. Any government that tries to micro-manage its economy achieves precisely the opposite, especially if it tries to raise incomes when there is no productivity to pay for it.  Older readers will recall the futility of government attempts, in the late 1960s, to direct prices and incomes. At the same time, the trades unions were doing their best to destroy such industry as we had.

Today we have Ed Miliband demanding higher personal incomes unsupported by national wealth creation and trades unions backing that up with calls for strike action.  Welcome back, Old Labour.

Make room for a bottom-up Olympic legacy

Interesting proposal from a group called British Future, saying that we should build on the Olympic feelgood factor, and widen the Olympic legacy by having more minority/disabled sport on TV, a single national school sports day, and suchlike.

Hmmm. I would be perfectly content to see the nation taking to sport, cycling to work, insisting that their kids walk to school and run round at the weekend rather than slouch on the couch. But these proposals all sound a bit – well, statist. I would really prefer not to live in a country where some minister could tell schools what day to arrange their sports day on, or could bully broadcasters into carrying programmes (however worthy) that they believed their viewers and listeners were not really interested in.

Better, surely, to have diversity among schools, who might want to do all sorts of different sports activity in their own way and at their own time, in ways that some central ministry could never imagine in a decade. Better too to have diversity of broadcasting, rather than the close central regulation we have at the moment which allows broadcasting 'watchdogs' – that is, a state-appointed quango – to dictate what they should carry. Better, indeed, that broadcasters should owe their living to carrying what their public actually wanted, rather than what ministers want for them (or what they say they want to surveys – who is going to answer 'no' to the question 'should sporting minorities be better represented on TV?'.

The remarkable thing about the Queen's Diamond Jubilee is how little it was organised from the centre. There were more than 2,000 street parties, all of them organised by local people in response to the desires of local people to have them and to help with them. You would think the nation would be street-partied out after the Royal Wedding not so long ago, but no, they came onto the streets with bunting and deck chairs and had a good time. It didn't take any ministers or officials or think-tanks or pressure groups to dictate how we were going to get into the mood, we just did it.

Nor did it cost anything. Actually, for the £9.5billion that the Olympics cost, you could keep the Royal Family up and running for 294 years. And I think that in the last year or two, they have been responsible for at least as many Union Jacks on the streets as the Olympics.

I often figure that interest groups come up with good ideas that we all agree should be done, but somewhere along the way a price tag appears. Sure, we want to capitalise on the Olympic legacy, but maybe not at the expense of higher taxes to fund more central programmes. And worse, it gives the nannies an opportunity to come out and dictate how we should live our lives.

An Olympic legacy will amount to nothing if we try to manage it from the centre through state initiatives. it has to come from the hearts, minds and enthusiasm of local people. We need to set them free, though. When parents refuse to help out with school sports because they face the indignity of criminal record checks, when you want to hire a school gym or a village hall for some sport event and get hit with a demand for risk-assessments and a whopping insurance bill, you can hardly expect people to promote sport at the local level. Get out of our hair, and the legacy will create itself.

Back to the stone age at the Trades Union Congress

It's like that moment when the clocks go back, and suddenly the evenings are dark. After a glorious summer of sports and jubilees, suddenly the annual Trades Union Congress meeting is upon us and gloom spreads around.

Austerity isn't working seems to be the slogan this year. Apparently we need more government spending to boost the economy by hiring a lot more public-sector workers and raising their pay. They will then go out and build things, supply essential services, encourage business by buying stuff, and help the government by paying more taxes.

Sounds a bit like inviting in a burglar in the hope that he might spend some of the swag in your shop. Unfortunately, the money to hire more public-sector workers, and to pay them better, has to come from somewhere. The government could borrow the money, but its problem is that it is already borrowing far too much. There comes a time when your creditors reckon you are so deep in debt that you will never be able to repay everyone, so they had better stop lending to you and indeed start getting their cash back. Then you are sunk, of course, like Greece, having to offer 20%+ in the hope that a few reckless or over-optimistic folk might be daft enough to keep propping you up with loans.

So yet more borrowing does not seem a particularly safe source of money to boost public-sector employment and wages. Nor is inflation. We have had too much of that too. A rising cost of living means that people's savings and pensions do not buy as much. And rising prices also confuse businesspeople about what is actually profitable: they cannot see the 'signal' of where the real demand is from the 'noise' of prices rising all around. That gave us the financial crisis: when everything seems to be booming, people make some pretty crass bets.

Or the government could raise the money for public-sector expansion from higher taxes. Don't get me started. A sure-fire way to kill off hard work and enterprise is to slap a high tax on it. We tried that in the 1970s and we got the brain drain. Not many of us who drained out actually came back.

But why should we boost public-sector employment and wages anyway? The fact is that productivity in the public sector is dire. It has flatlined at a time when, for decades now, it has soared in the private sector. Shouldn't we be putting our money into things that are highly productive, rather than things that are not?

And it is fine to talk about downtrodden cleaners and nurses on low pay, but the fact is that the average public employee is, for a similar job, better paid, has a much better pension, takes more days off, and has better fringe-benefits and holiday entitlements, than the average private-sector worker. Private-sector workers have also been more likely to have lost their jobs over the last five years, or to have had to take cuts in hours. So why should a private-sector cleaner be expected pay higher taxes to boost the wages of public-sector cleaners?

Austerity isn't working? What austerity? Government spending is pretty well what it was five years ago in real terms. The government is reducing its borrowing a bit – that is, it is not over-spending, beyond its means, quite as much as it did before. But it is still borrowing £2.50 on every £10 it spends, and still adding to a national debt that is already at record levels.

Adam Smith once wrote that what is right for a family cannot be wrong for a great nation. One reason the economy is sluggish is that businesses and families are actually trying to cut their debt. Once bitten, twice shy. So people aren't spending as much. When people become more comfortable with the level of their household debts, they they will start spending again and growth will resume. It's just a phase we have to go through, like the hangover after a bender, before we can recover. A hair of the dog is no solution, it provides only a temporary relief but actually adds to the problem and makes recovery even harder and longer.

A gradual tightening

Ayn Rand’s Howard Roark succinctly summarises the only real obstacle to individual achievement in a single line: “the question isn’t who is going to let me; it’s who is going to stop me.”

Fans of Rand (and private sector workers) know that few forces in the world have more stopping power than a government. With its monopoly on violence and its ability to rewrite the rules, government possesses the power to interfere with the private lives of those who live under it even when these persons are willing to abide with the multitude of other laws, regulations and taxes, not all of them fair, to which they are subject. And in the exercise of this power it can be unfair and arbitrary; democracies and tyrannies alike have the power to reduce the efforts of a single person to nothing, to crush him utterly for any reason such a government might choose. Last month brought the news that, as has happened many times in many nations, our government has done exactly that.

By revoking the “very highly trusted” status of London Metropolitan university without providing for any transitional arrangements, the Home Office gives that institution’s current and future students a mere 60 days to either find an alternative sponsor or to self-deport. These are not very good options.

Those who would see themselves as members of Middle England, whether working or not, will doubtlessly be delighted by the news. In a Daily Express piece calling for further crackdowns on illegal immigration three days ago, the London Met debacle received an Express mention; and though I do not ordinarily recommend the Express to my friends and readers at the Adam Smith Institute, as it is illustrative of Middle English sentiment to foreign migration, I will make an exception on this occasion.

Adorning its article with a photograph of our deadly serious-looking Home Secretary, Theresa May, the Express trumpeted the government’s efforts to “block sham marriages,” restrict access to credit and mobile phone contracts for over-stayers, deport prisoners, capture abscondees, and track down failed asylum seekers. All of this, the Express tells us, is part of a broader initiative to reduce “net migration” to “tens of thousands” – a stupid, relative concept with no economic basis and, in any case, a move which both industry and academia have vociferously opposed.

But the relevant point for present purposes is the conflationary link, where the Express betrays that it really views all immigrants to be the same, found at the article’s very end: “no decision has been taken on whether to strip London Metropolitan University of its right to take foreign students” – legal immigrants, who jumped through all the hoops, filled in all the forms, paid the fees, and at any rate who should commence studying at London Metropolitan university in a month. As a consequence of government action, these young people will be made to suffer a serious, life-altering disruption in the course of their lives. Given competition for university places and this very late stage, without rapid government intervention to fix its own mistake, individual remedies will not be readily found.

The structure of the Express’ article reveals, and is illustrative of, the struggle for establishment that immigrants in the UK face: whether legal or illegal, well-off or poor, studious and energetic or lazy and dull, immigration is a political question, and immigrants – current and future – are the collateral which unpopular governments post to offset the risks from their other political liabilities. As a political football, therefore, all immigrants are equal and equally problematic. 

Take my own case, for example. A few years ago, after finishing my undergraduate, I had planned to finish graduate school and continue my leave under the “Highly Skilled Migrant,” or the “Super-Immigrant who is rich, pays taxes, and is not entitled to benefits” visa; however, before I could do that, the regime was revoked and replaced. I joined its replacement, the “Tier 1 – post-study” visa, and jumped into “Tier 1 General” class as soon as I could.

Clearly some other people had the same idea as, shortly afterwards, “Tier 1- post study” was abolished and the income, available funds, and educational thresholds for T1General extensions were increased. When this failed to stem the tide of rich, well-educated, taxpaying people remaining the country, the income and funds criteria for extension were increased yet again, and new applications in T1 General were abolished entirely. What was once a quiet and predictable legal environment under Blair has been in complete disarray and subject to constant chance ever since there was a threatening opposition in parliament; over the course of six years, the immigration rules to which many legal immigrants have been subject have been changed, in a fundamental way, at least six times, possibly more. Each change presents new challenges, and more failed applications as migrants cannot meet the higher thresholds. And this, our government tells us, is an indication of success.

I am not alone. From my immediate circle of friends, I can think of a half-dozen examples of well-educated people on the road to success and high taxation whose lives have been hampered by the veritable orgy of recent legislative activity concerning migration. One investment banker I know decided, after a few years in exile in her home country, to return to Britain; she is now tethered to her current employment due to the abolition of T1 General, whereas if she had come but two years earlier, she would have been able to choose her employment freely. Another banker I know who was similarly tethered quit the country and returned to Texas rather than stay tied to a job she despised; still others are prevented from obtaining jobs for which they are qualified, as the administrative burden to smaller companies of complying with Tier 2 visa sponsorship is, for many, absurdly high.

Bankers, with their relatively high incomes, have it relatively easy – others are less lucky. Take, for example, the couple who had to fly abroad for a quickie wedding – planned, but two years early – in order to get around the fact that Tier 1 had tightened up. Or the self-sufficient lighting designer and AV technician who could not start his own business and legally remain after finishing an Open University course, despite having all the resources and connections to do so. Or the law graduate who, being supported by her parents, not eligible for (or taking) benefits while working as a paralegal, self-deported when she could not afford to jump into Tier 1. The young lawyer who tried to get a mortgage, but was rejected by the bank because the credit risk of a time-limited visa was too high due to the high probability of rule changes or non-renewal. The finance professional who, on account of the fact that her visa allowed her only to work in Scotland, was ordered to leave (which, being a law-abiding American, she promptly did) after being successful enough to find work in London in spite of the recession.

I could go on. What is clear from my view in the trenches is that the government’s obsessive tinkering with the rules is hugely disruptive and damaging to business and individual lives, and it must end.
It pains me greatly to have to hyperlink again to the website of the Express, doubly so as the article concerned features Tory MP Douglas Carswell – one of my favourites – arguing in favour of further tightening, in this case by “[insisting] on medical insurance” for all incoming migrants. For certain sorts of immigrants this is a proposal I would support (there are some stories I would like to tell to support this point which, for a number of reasons, I cannot). What is not made clear is whether the enterprising young things – the university students who are destined to  pay taxes and NI and work in banks and law firms, for newspapers and insurance companies, in your productive industries as well as in enterprises of our own – would have to buy independent insurance, too.

If this were the case, I should object, since including bright and promising migrants in such a proposal would be, in economic terms, a silly thing to do. Tighten the noose if you wish, but this is the 21st century and we are young, we are hungry and we are mobile. If this country tries to stop us, there are plenty of others that won’t.

Summary

Ayn Rand’s Howard Roark succinctly summarises the only real obstacle to individual achievement in a single line: “the question isn’t who is going to let me; it’s who is going to stop me.”

Fans of Rand (and private sector workers) know that few forces in the world have more stopping power than a government. With its monopoly on violence and its ability to rewrite the rules, government possesses the power to interfere with the private lives of those who live under it even when these persons are willing to abide with the multitude of other laws, regulations and taxes, not all of them fair, to which they are subject. And in the exercise of this power it can be unfair and arbitrary; democracies and tyrannies alike have the power to reduce the efforts of a single person to nothing, to crush him utterly for any reason such a government might choose. Last month brought the news that, as has happened many times in many nations, our government has done exactly that.

By revoking the “very highly trusted” status of London Metropolitan university without providing for any transitional arrangements, the Home Office gives that institution’s current and future students a mere 60 days to either find an alternative sponsor or to self-deport. These are not very good options.

Continue reading...

Why you can't trust the American poverty statistics

A nice little chart here at Cato showing how spending on food stamps has risen over the past decade.

We can see that expenditure on this anti-poverty programme has risen considerably over 12 years. In fact, if we assume away inflation and GDP growth (not quite right but close enough in this past 12 years, especially with respect to food prices) then expenditure on this programme has risen from 0.12% of US GDP to 0.56% of GDP. Call it, allowing for the uncertainty over the GDP and inflation numbers, a fourfold increase in real terms.

Now, I think it should be obvious to everyone that giving poor people a means to purchase food means that poor people are less poor. We would also assume that some who were poor before this distribution are not poor after it.

But here's the interesting question. Fully 0.5% of GDP is being given to the poor in just this one redistribution programme. What difference does this make to the number of poor in the US?

The answer is, distressingly, absolutely not one iota. By the official statistics this redistribution does not lift one solitary person up out of poverty: in fact, does not even alleviate poverty in any way recorded by the official statistics. Further, this is true of all of the major US poverty alleviation programmes. Their Section 8 housing vouchers (roughly, housing benefit), Medicaid (health care for the poor), the EITC (working tax credits). Adding these together the US spends a good 4% or more of GDP on poverty alleviation. Yet apparently it alleviates no poverty at all.

The reason being that the US, uniquely, does not count benefits in kind, nor benefits through the tax system, when calculating who is poor. They could double spending on the poor and there would be exactly the same number of poor people as when they started. In fact, in recent decades they have doubled spending on the poor. And they've still got the same number of poor people.

Just a little warning should anyone ever brandish US poverty figures at you. They're very strange indeed and absolutely cannot be taken at face value.

Why Marginal Revolution University won't work

Alex and Tyler have announced their new Marginal Revolution University. And I'm afraid that I have to say that I don't think it will work.

I should be careful to distinguish what I mean by "work" of course. They're very good teachers and I'm sure that those who take the courses will learn a great deal. This is one definition of a deliberate act of education working and by that definition of course it will work.

However, when we think of a new method of doing something entering the market we mean more than it just being the marginal (sorry) addition to that market. What we're really interested in is whether this new method can sweep away the old. Can restructure that part of the economy completely to all our benefit. And by that standard I think it's doomed to failure.

Not because it might not educate people better. Current universities are built still upon the limitations of medieval book production technologies. The whole idea of a lecture, one person shouting at a crowd, comes from the idea that books were simply, pre-Gutenberg, too expensive for all to have a copy. Thus they must be read out to the students. This is clearly no longer true but 600 years later we're still working within those past technological constraints. I think it's therefore fair to say that within higher education there's some resistance to change.

What we really want to know is whether online courses can replace, not just augment, the current university system. And I don't think any set of online courses is ever going to get the chance. They won't be accredited, it won't matter how many you have you'll never be awarded the piece of paper which is a degree. For those who have the power to award such degrees now know very well that they will be swept away if that does happen. Thus we'll have a great deal of institutional reluctance to allowing that to happen.

This is what I think is one of our major economic problems at present. There's all sorts of shouting about how we all have to be innovative: even the EU parrots the catchphrases. But that's only half of the story. We also need the destruction of the old ways to make way for the new and all too much of our economic and political life is in the preservation of those comfy sinecures  the old ways present.

Another way to put this is that almost all innovation and productivity gains come from entry into and exit from markets. We've all the cheeleaders for the entry part but no one seems to be making the exit happen: far from it, huge amounts of energy seem to be being spent on preventing exit.

I hope of course that Alex and Tyler do succeed. As they point out, their first course takes half the time for all of the same material as that traditional university technology. Think how much we would all save if a first degree took 18 months not three years (for the English that is). Think how much more if it were not done on campus. But the great problem is going to be those who currently make a living from a slow campus degree: and unfortunately they're also the same people who determine what a degree is.

Individualism is not atomism

A post on ConservativeHome this morning wrote about the differences between individualism and conservatism:

While the concept of personhood is central to philosophical conservatism, so is the connectedness of each person to other people within the organic institutions of family, community and nation, each of which of which stretch out beyond ourselves not only in space, but also in time through the traditions that sustain a living culture.

The post sparked an interesting discussion on Twitter about the differences between conservatism and libertarianism. I think the writer's main point is that small-c conservatism places a lot of emphasis on tradition and community cohesion in a way that libertarianism does not. I think the writer is talking about a sort of atomism ('men are islands') that is rare in most libertarian thought. [Note: I had thought this was a Tim Montgomerie piece, but in fact it's a group blog that's written anonymously. I've changed this post to reflect that — Sam]

Adam Smith may not have been a libertarian by modern standards, but he was one of the first great liberal individualists, and he was certainly not a conservative. Yet his work was all about the power of cooperation and compassion to better the human condition. The great achievement of The Wealth of Nations was to show the productive powers of individuals working in peaceful cooperation with one another, specializing and trading with one another to both people’s benefit. The Theory of Moral Sentiments, similarly, emphasised the social nature of morality and decency. We are good because we see ourselves in others, and empathise with their plight.

Modern libertarian writers carried on this emphasis on cooperation, most notably Ludwig von Mises and FA Hayek. In Human Action, Mises is clear that all the achievements of man that we call civilization have been the result of peaceful cooperation between human beings. The ‘feelings of sympathy and friendship and a sense of belonging together … are the source of man's most delightful and most sublime experiences.They are the most precious adornment of life; they lift the animal species man to the heights of a really human existence.’

Mises’s (and my) individualism lies in his view of individual people as being the most basic unit of analysis in human affairs – only the individual acts:

The individual lives and acts within society. But society is nothing but the combination of individuals for cooperative effort. It exists nowhere else than in the actions of individual men. It is a delusion to search for it outside the actions of individuals. To speak of a society's autonomous and independent existence, of its life, its soul, and its actions is a metaphor which can easily lead to crass errors.

The questions whether society or the individual is to be considered as the ultimate end, and whether the interests of society should be subordinated to those of the individuals or the interests of the individuals to those of society are fruitless. Action is always action of individual men.

This does not mean that the fabric woven by individuals acting together is not valuable, but simply that we cannot understand society except as the product of many individuals acting together to achieve their own ends. Those ends might be selfish or they might be altruistic.

FA Hayek is even stronger about the importance of tradition and social cooperation in understanding society and individuals. The latter period of his life – in works such as The Constitution of Liberty, Law, Legislation and Liberty and The Fatal Conceit – was devoted to studying the importance of tradition in society, and the pitfalls of a rationalism that tries to fix or improve on tradition that ain’t broke.

Hayek, again, was an individualist and favoured libertarian or classical liberal institutions. He understood the power and importance of tradition as phenomena that emerged as the result of human action, not of human design – in other words, as ‘organic institutions’ that hold people together and establish very bonds of trust and empathy that allow market institutions to flourish. Hayek was an arch-skeptic of grand plans to improve the human race.

Ayn Rand’s celebration of selfishness is the aberration in the libertarian tradition, not the rule. (Indeed, she didn’t consider herself a libertarian and didn’t like people who did.)

The sort of atomism that ConHome's writer is rejecting is, I think, quite different to the sort of individualism that I and many other libertarians adhere to, and is very rare. Even the most grisly caricature of a selfish libertarian would have to admit that she could only get rich by trading with others.

The core of libertarianism is the belief that people can only prosper by cooperating peacefully with each other, socially, economically and spiritually. Individualism, yes – the interests of individual humans should always be our ultimate concern. But atomism, the idea that men are islands? No.

The organic roots of oaks and free markets

‘David Cameron will announce tomorrow that the oak tree has been dropped and the torch of freedom will once again be the Conservative party logo.’  So wrote Benedict Brogan for a tongue-in-cheek Telegraph blog.  Brogan’s mirthful explanation for this ‘back to the future’ change?

The move is being promoted by Downing Street as a “decisive” switch that demonstrates the urgency with which the Prime Minister is advancing the cause of free enterprise and a more robust grip on the economy.

Hold on, Mr Cameron, good news!  The cause of free enterprise can still be championed by the Tory party’s venerable cultural symbol.  As a traditionalist, for example, you will appreciate these inspiring lyrics from ‘Heart of Oak’ to rouse your industrious compatriots:

’Tis to honour we call you, as freemen not slaves, / For who are so free as the sons of the waves?

Fortunately, too, free market economics is synonymous with the organic principles of generation and growth which should be at the heart of conservatism, modernised or otherwise.  For in The Wealth of Nations, Adam Smith praised the ability of entrepreneurs to struggle and triumph against adversity:

The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which publick and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.  Like the unknown principle of animal life, it frequently restores health and vigour to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the doctor (II.iii.31).

In his 1974 Nobel Prize lecture, Friedrich von Hayek denoted this undirected, up-from-below phenomenon as ‘spontaneous order’:

...in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority.  Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims.  We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based—a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed. [emphasis added].

Hayek’s discomfort with the ‘power to coerce other men’—whether for good or ill—and what Smith called ‘the extravagance of government’ and ‘the greatest errors of administration’, is another reason why a return to the Tory torch (factual or otherwise) may be a bad omen, especially if it were meant to signal, in Brogan’s mirthful rendition, ‘a more robust grip on the economy.’

As Smith cautioned, ‘What is the species of domestick industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him.’  If a decision must be made in favour of either the individual or the State, the presumption must always be made for the wisdom of individual entrepreneurs.

The stateman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it (IV.ii.10).

So, oak or torch, modernised or traditional, the Conservative party must always stand for individual initiative in economic endeavours, cognisant of the government’s circumscribed role in supporting such entrepreneurship.  And that’s no laughing matter.

France provides a lesson in how not to cut a deficit

The French government seems determined to drive out its wealthiest and most productive citizens. President Hollande is striving forward with his anti-rich campaign, setting a target of raising €7.2 billion through taxes and levies on high earners, wealthy households and big corporations. Steadfastly ignoring evidence that suggests imposing high taxes on the most productive and those who are most able to move abroad will be at best inefficient, at worst ruinous, he proudly boasts of the huge revenues he expects to bring in.

One big idea is to raise the top rate of income tax for those earning above €1m p.a. to 75%. European Affairs Minister Bernard Cazeneuve defended against the notion that high earners and spenders will simply move out of the country by stating that there are ‘French bosses who are patriots’ and ‘there is a range of measures we will take in favour of business, measures that will support investment and encourage business to stay in France.’ Leaving out the odd notion that businessmen and wealth creators put patriotism above financial security, why not encourage businesses to stay by not taxing them and the people that run them? This would have the double benefit of not trying to redistribute the collected taxes into businesses that the government think are best for the people rather than those that the people think are best for the people. Cameron gleefully offered to roll out the red carpet for French ‘tax refugees’ (to which French Labour Minister Michel Spain rather weakly reposted that rolling out a red carpet over the channel would ‘risk taking on some water’).

This August, France became the first EU country to impose a financial transactions tax for publicly traded businesses with a market value above €1bn, deciding that the originally proposed 0.1% wasn’t high enough and doubling it to 0.2%. FTTs are supposed to reduce incentives to destabilise the market through speculation, but in reality increase volatility and reduce price discovery and liquidity on the market. Further, unilaterally implemented FTTs will not raise the revenues expected due to tax avoidance strategies by traders and businesses. A prime example is Sweden in the 1980s, which imposed a 0.5% (later 1%) FTT on all purchases and sales of equity. This resulted in a mass exodus of between 90-99% of Swedish traders to London and the tax was eventually abandoned as it did not raise the revenues expected.

Not only is Hollande driving out domestic productive individuals and businesses, it seems he would also like to discourage wealthy tourists from contributing to the national economy. The French Constitutional Council has approved a tax on foreigners with second homes in the country, raising capital gains tax on the sale of second homes from 19% to 34.5% and raising the rate rented home owners have to pay from 20% to 35.5%. The extra capital gains tax mirrors the tax on French residents that they pay in exchange for the social benefits they receive from the state; note that foreign homeowners will not receive these benefits, which is believed by some to make the tax discriminatory and therefore against EU law. Because of the ‘social’ nature of the tax, those affected may not be covered by the UK-France double tax treaty, which prevents individuals from paying income and capital gains taxes twice. Again, revenues collected from this move won’t be nearly as high as the predicted €50m, as foreign homeowners will just relocate elsewhere.

Other easy sources of revenue come from a €2.3bn levy on wealthy households and €1.1bn in one-off taxes on large banks and energy firms. All of this comes amid bizarre schemes such as temporarily cutting fuel taxes for three months and hypocritical policies such as bailing out ailing bank Dexia and guaranteeing the debts of non-systemic mortgage lender Credit Immobilier de France. Scapegoat policies against the wealthy might win Hollande votes from the disenchanted poor, but they won’t help them get back on their feet in the long run.

Don't budge against nudge

Last night I debated at the first Sp!ked Drinks event about 'nudge' policy. Here is what I prepared for my opening statement against 'nudging'. It's worth bearing in mind that this is an attack on nudge policy as it has been promoted and implemented by governments, not necessarily on the book by Sunstein and Thaler. 

Nudging is a new way of talking about an old idea: that people do not act in ways that are best for them, and should be helped along by their betters.

Understandably, this is a popular idea – most of us think that other people are very stupid, and people drawn to politics often think they have the right ideas for other people.

Many people like the idea of nudging because it isn’t as extreme as old-fashioned paternalism – they don’t want to force you not to eat so much, they just want to move chocolate oranges away from the checkout counter.

But seemingly-small nudges can have big implications about how we view the individual’s relationship with the world. Making organ donation the default means that your body by default belongs to the state or to society, not to yourself. Making military service something we have to opt out of would do the same thing.

Nudging food companies into cutting salt or sugar input is not benign at all. Companies who comply with government do so because if they don’t, a much less voluntary approach will come sooner or later. Government may nudge softly but it always carries a big stick.

Much of the argument for Nudging comes from a misunderstanding of why people are libertarians.

If you have built your models of the world around a wealth-maximising homo economicus, nudging is a godsend. The model of economics that is based on all-seeing wealth-maximisers is a very silly one.

If you thought that that was the best or indeed only argument for leaving people be, you would indeed be quite excited by Nudging after you had discovered how silly your views of human beings were. Here we can use the wisdom of government to correct the folly of man.

But the chief problem with government intervention in our lives – whether it is Nudging or direct paternalism – is not that it interferes with homo economicus, but that government is usually a lot worse than we are at knowing what is good for us.

This is true on two levels.

The first is that government can be very ignorant of the consequences of its actions, and what makes government different from private action is that it is a collective approach.

A government nudge to do something will necessarily affect everybody, so if it makes a mistake, the problem will be compounded across society.

There are countless examples of seemingly-good government nudges that have turned out to have very bad unintended consequences:

Bicycle helmet laws and ‘nudging’ public information initiatives that seemed like a no-brainer have resulted in more deaths, possibly because drivers act more recklessly and fewer cyclists take to the roads.

The food pyramid that was used to ‘nudge’ people into eating right advised people to eat between six and eleven servings of bread, pasta, cereal and rice a day, things we now think may make us fatter and less healthy.

After the Potters Bar train crash, trains were slowed down to a crawl in some areas to avoid more crashes. The unintended consequence was that more people took to the roads to get to work on time – and driving is significantly more fatal than train-riding. By trying to make trains safer the government almost certainly caused more people to be maimed in car accidents.

Bank regulation in the 1990s and 2000s that was intended to make banks act prudently drove them to take on much of what was then thought of as the safest debt – mortgages, government bonds, and triple-A rated securities.

The list goes on.

Government and the experts it listens to are no less at risk of making errors than ordinary people. When government makes certain ‘good things’ a matter of policy, one mistake can have society-wide consequences. Governments are blind to individual circumstances.

The second meaning of the idea that the government doesn’t know what’s good for us is that there is no objective standard of what is good for us.

Some of us choose to act in ways that other people regard as being very silly. Some of us like to smoke, because we judge the pleasure we take from smoking to outweigh the costs of doing so. Some of us may not care about the down-sides as much as others do – hence, some people smoke, and others do not.

Many fat people do not care that they’re fat, especially when it comes as a consequence of being able to enjoy their favourite foods whenever they want. Like beauty, what I find pleasurable may be repugnant to you. What’s fun is subjective.

It hardly needs to be said that ‘living longer’ is just one criterion of many that people value. When we try to nudge people into behaving in certain ways, we necessarily try to define other people’s idea of a good time.

So we are pushed into drinking less, eating better, cycling everywhere and giving up smoking altogether. Wholesome activities are promoted. Healthy sports are encouraged, promiscuous sex and watching pornography are discouraged.

Why? What is the objective standard by which these things are deemed good and bad? There isn’t one. Or, rather, the standard is the policy-makers' own preferences. Any nudge will end up being a promotion of policy-makers' preferences onto other people. In a word: paternalism.

Nobody other than ourselves can know exactly how much pleasure we take from doing something. This is, fundamentally, the problem with all paternalism, including nudging.

Nudging is just a new term for the old idea that our rulers know what’s good for us. The chief argument for libertarianism is not that people are wealth-maximising machines. It is that nobody knows better than I do what makes me happy.