The Government should launch Welfare Bonds

There’s an idea going around at present that the Government should launch “Defence Bonds”. Apparently £1.2 trillion a year and counting is not enough to fulfill the primary duty of any government, the defence of the realm.

The base problem is neatly illustrated by Sir Simon:

Britain should spend less on defence. It is a waste of money and should be reduced so more could be spent on supporting employment, welfare and growth.

The argument is that there are no immediate threats - despite The French being only 26 miles away - and therefore just don’t spend anything on anything military.

Except the justification for government is that - or at least one of them is that - we the people are too short term in our outlooks. We are indeed subject to hyperbolic discounting for example. Business only cares about the next profits report and so there has to be an adult, somewhere, taking care of the long-term. That’s government in this story. So, the long term collective things have to be done by government.

At which point it’s necessary to point out that something like a navy takes a generation to build up. At least a generation in fact. It is necessary that Admirals - even if we might decide to have fewer of them than we do ships - have been Midshipmen. No, really, it is. So too with an army, Colonels and one pippers, Sergeant Majors and fresh privates, CPOs and seamen. That’s just how it works. These are long term assets - or long term costs if you prefer - that cannot just be created when desired.

But Sir Simon gives us the actual effect of politics and government on such long term considerations. Heck with that, spend all on buying votes now!

Thus this current suggestion that Defence Bonds should be issued. An attempt to get around the insistence of politics on spending everything on the next micturation in pursuit of votes.

We think this should be done the other way around. Defence, as one of those basic and necessary tasks of a government, should be funded out of the general tax revenues. That is what we all cough up for after all. If more is to be spent than that then let us issue Welfare Bonds. To raise the money to pay for that welfare, obviously.

We tend to think there won’t be many takers for such bonds which, to us, would be just a proof of a very basic idea. Of course there are many who enjoy collecting welfare payments, there are rather fewer happy to pay for welfare. So, let us actually see this. Tax does the things that really have to be done by tax, those nice to haves like an extensive welfare state are paid for by investors willing to pay for them. Revealed, as opposed to expressed, preferences that is.

We would note that one of us did research voluntary tax payments back for the tax year of 2005. 5 people made such extra payments and four of them were dead. So, as we say, we’d not expect Welfare Bonds to be all that successful in their sales. But then that’s precisely why to issue them - we’d all be able to see that money/mouth interface, wouldn’t we? What a joy that would be.

Tim Worstall