Public choice economics

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John McDonnell seems incredibly naive for a man who has spent nearly 30 years in elective politics. Seriously naive: 

Given this history of a party created and motivated by the highest ideals, founded and motivated by the self-sacrifice of generation after generation of its members and supporters, party members have looked on aghast, in disgust and anger at the self-interested, self-serving political faction fighting among ministers and MPs over the last week. Ambition and naked self-interest have taken over from any sense of political purpose.

As James Buchanan has been pointing out over those years this is simply what happens in a system that grants such powers to politicians.

It isn't that this year's or this decade's crop of politicians are any more venal than those of any other time and place. It's simply that the limits and checks on them have been reduced so that the innate venality is able to express itself.

For all economic actors are self-interested, it the limits that we place upon its expression which re important. In market systems we do it by competition. In politics it appears that we don't.

Let's put it another way. Would Mr. McDonnell be so aghast at a group of children gorging themselves sick if they'd got the keys to the sweet shop?  Naive to think that politicians won't do the same.

The solution is simple, simply have fewer politicians with fewer powers so that there's less of ours that they have access to.

Who's in control?

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Although the political show of resignations, reshuffles and elections is damaging Gordon Brown and the Labour party to their core, there needs to be a rapid solution or conclusion if Britain is to move forward 

At the moment we are a country lacking any clear government, leadership or direction. Gordon Brown has taken his hands off the helm and we are heading straight for shallow water. We clearly need a change of government, in a recent poll 66% of people said they would like an immediate election if Gordon Brown stood down. However, we live in a country where the wishes of the people have little part to play in governance. We are currently in limbo – if there was a terrorist attack in London or a flash flood, would the government really be in a position to respond? Party politics is clearly a major distraction from fixing past mistakes.

It would be easy to think that as long the Labour party are concentrating on damaging each other at least they aren’t focussing on damaging us. But we currently have a government wielding huge power but with no clear idea what to do with it. If there is one thing we have learnt from the past month, it is that we need to limit the power of the government and introduce much greater levels of transparency and accountability.

Leftists and localism

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Having read a few recent publications from the think-tank Demos, I was struck by the deep problems that leftists have in trying to tune into the latest buzz for localism. A centralized state is deeply unfashionable, so the think-tank that was so influential under the controlling hand of Tony Blair, is treading water in attempting to unite leftist ideology with localism.

For example in the latest paper, A Stitch in Time: Tackling Education Disengagement, the failures of a centralized state are acknowledged: “the approach cannot simply be the standard policy approach of tugging on central policy levers", yet in the next instance calls for the creation of a “national educational policy framework". Apparently, “there is a major role for central government to play in improving how things work at the local level." Yet this is exactly the problem.

This is no criticism of the research itself, but reading it clearly brings to light the tensions apparent whenever statists try to fit their model into the fashion for localism. This circle cannot be squared; the policies of control cannot be localized. Of course, many in the other two parties suffer similar problems, but this caused by the same statist predilections.

So far the most authentic and consistent calls for localism have come from voices on what could be called the libertarian wings of the Conservatives and Liberal Democrats. Unless the Labour Party radically reforms, it will never be the party of localism. As things stand, its ethos is entirely inconsistent with freedom, difference and competition.

Mob rules

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It seems that Mr Finklestein, over at The Times, has been unsettled by the current feelings of animosity being shown by everyone towards MPs. He claims that he can't join in with the heckling of MPs, and is unable to comprehend how we can be fomented into a baying mob by some common-or-garden theft. Especially when it's balanced up against all the so-called 'good' work our humble MPs do for us. Or compared to the suffering of those in Zimbabwe or Darfur.

Why are we angry? A natural reaction to seeing a wrong committed is the hope that  the transgressor is punished in some way; hopefully so that they do not undertake a similar action on another occasion. In the case of the MPs we, the taxpayers, have quite simply been stolen from, lied to and are sure that justice will be stopped from taking it's natural course. We are all feeling cheated and also impotent.

In any organization there is a desire to construct a collective identity that reflects the moral worth of the assembled individuals. In this case tarring all MPs with the same brush is fair. After all they wrote the rules by which they are now being judged, and they also had multiple opportunities to punish those who were abusing the expenses system. But alas they were all 'on the take' in one way or another, the organization itself was morally bankrupt, and it seems that it had an effective hold over any new entrants.

The taxpayers feelings have coalesced around the issue of the breech of the bond of trust that we hold with politicians. Trust  is something that we can and should always show in each other, unless, of course,  someone transgresses against us. In this instance we have all had our trust broken as the baying mob shows.

Local government takes lessons in deficit financing from the Great Depression

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There really ought to be a word for an unhappy coincidence. I am currently reading Taxpayers In Revolt: Tax Resistance During the Great Depression by David T. Beito. In it, he describes a pernicious practice that local governments used during the 1920s and 1930s to circumvent plebiscites capping government debt and limiting state and municipal taxes.

According to Beito:

By the end of the 1920s, local governments hit on the "tax-anticipation warrant" ... to evade the debt limit. For many vote-conscious politicians in the 1920s, the tax-anticipation warrant proved an irresistible temptation...

[P]oliticians had every reason to gamble that continued prosperity would ensure the safe retirement of the warrants or at least put off the final day of reckoning. In short, the tax-anticipation warrant seemed a foolproof method of financing the expansion of local government and at the same time circumventing tax resistance.

I read those words, written 20 years ago about an era 80 years ago, last night. This morning, in the Financial Times, I read these words, written presumably last night about right now:

Four of Britain's biggest city councils have called on the government to introduce a revolutionary scheme that would let them raise billions of pounds for regeneration schemes on the back of future tax revenue. This type of scheme was pioneered in the US where it is known as "tax increment financing"... The move by Newcastle, Liverpool, Manchester and Birmingham [would allow] local authorities ... to issue bonds that could be paid back using the increased tax base that - it is assumed - would be the direct result of improved infrastructure....

Tempting though it would be to remind these spendthrift municicrats that they have no way of knowing whether their cherished scheme has justified, let alone will justify, the investment, there remains the basic problem affecting all deficit financing: the ability of today’s service recipients to pass the cost of schemes they support onto tomorrow’s taxpayers.

This creates enormous moral hazard, especially as more mobile taxpayers can support municipal bonds that will be paid for by those who buy their houses, while they can sell up and move to lower-leveraged areas.

Being a firm believer in localism myself, I don’t believe that government should be allowed to prevent local authorities borrowing if they wish. Local voters should punish fiscally-lax councillors. But there needs to be protection for the homebuyer, caveat emptor notwithstanding. At the very least, vendors should be obliged to inform buyers of any outstanding liabilities that might impinge upon them through local taxation as a result of past profligacy. Thus property prices would be discounted to reflect wasteful “public" borrowing, and home-owning voters would be a bit more reticent about voting for deficit spending.

Good for candidates

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This is a very good time to be a parliamentary candidate – for any party. The point is that as a candidate, you are untainted by expenses fraud and false claims. There is a good chance that your sitting MP is so tainted, in that all were part of, and connived in, a fundamentally corrupt system. It was designed to make the salaries of MPs seem modest and reasonable by hiding a huge part of them under the cloak of tax-free expenses.

Now it is payback time, and every MP with dubious claims out there is at the mercy of opponents using the local press to attack their expenses record. More than the usual number will elect not to re-stand, walking off with their gold-plated pension pots. This means that many candidates will not face incumbents, but faces as fresh as their own. Of the MPs who do try for re-election, many will not succeed, fatally tainted by what has been revealed.

The new House will be known as the "Parliament of Fresh Faces," in that record numbers will be new to Westminster. In many ways this clearing out will serve the nation well, taking with it the accumulated debris of cosy carve-ups that entrenched power and privilege in the hands of the long-serving. Fresh faces mean a fresh look, and a chance for some of the root-and-branch reforms needed to get Britain out of the hole in which the present crowd have dumped it.

Reforming politics

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In the wake of the parliamentary expenses scandal, there are lots of different ideas being bandied about on how to reform parliament, clean-up politics, and so on. Some ideas are better than others, but almost all of them are based on the same fundamental misconception – that we actually need full-time, professional politicians.

It all stems from what I call the West Wing view of politics, which is full of deeply moral politicians and brilliant staffers, all earnestly striving to make a difference. Too many commentators share this outlook – they are so in love with politics that they imagine political power is the only real driver of progress, and suppose that if only we had the right people in charge everything would be better.

But this naïve faith in the potential of politics of misplaced. First of all, the brilliant idealists tend to be grand planners, so sure of their own intellect that they want to re-make the world according to their own preferences and expect everyone to be grateful. Ultimately though, one political master plan is as bad as another.

Moreover, most politics has nothing to do with idealism. On the contrary, it tends to be a sordid and cynical business, where winning is everything and the only rule is not to get caught. That's what the expenses scandal and the Damian McBride debacle have laid bare, but these are just headline grabbing examples of what's been going on for years. It's the nature of the beast.

And that's why the best kind of political system is one in which politicians have so little power over our lives that it doesn't really matter which of them are in charge. Any reforms to the system should be done with that principle in mind.

Like David Myddleton, I'd cut the number of MPs and place strict limits on the number of days parliament sat. I'd pay MPs a small attendance fee like the one they'd get for doing jury service, and expect them to spend most of their time doing a proper job. Perhaps then they'd realize that all most of us want from them is to be left alone.

If I were King...

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According to the front-page of Friday's Daily Mail, "one is not amused!" And you can see what they mean – there's not much in the news at the moment to inspire pride in the country. Being Britain's monarch probably isn't what it used to be.   The question that occurred to me is, if the Queen really were that unhappy with the state of British politics, could she dissolve parliament and call a general election without having to await the advice of the Prime Minister? There's no doubt that such a move would defy convention, but legally I don't think there's anything to stop it happening.   It's probably what I'd do. And I might say something like,   "Naturally, it is up to the political parties to determine which candidates they field and how they are selected, and then it is up to the electorate to decide who will represent them. But I would expect voters to take a very dim view of any candidate guilty of parliamentary corruption, and of any party which selected them."   In other words, let the purge begin.   Now, I suspect readers might think it odd that a libertarian would write about what an unelected monarch could or should do. I can see their point. But there is actually an interesting libertarian case for monarchy, which Hans-Hermann Hoppe makes in his book Democracy: The God That Failed.   His argument is that democracy, by its very nature, produces bad leaders. To rise to the top in a democracy, you have to be a skilled demagogue. To stay there, you have to value immediate advantage over long-term considerations. A monarch, by contrast, is like a property owner – their incentive is to preserve the long-term value of the country. Of course, Hoppe doesn't advocate monarchy as an ideal – he is a proponent of a 'private law society' – but rather as the lesser of two evils.   It's certainly an intriguing perspective.

Wanted: A culture of change

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The world of British politics is a unique, complex confusing place. Parliament is confused in its approach to change; it seems unable to decide whether it is a progressive flexible body looking to the future or an established conservative organisation building upon history.

The past months events have highlighted not only the failures of many individuals within parliament, but also the system itself. I can still remember being taught the concept of parliamentary conventions during an A Level politics class and being slightly perplexed by their influence over such important decisions. When we questioned why politicians are obliged to follow the conventions with such rigidity the response was plain: “they just are, it’s always been like that".

The expenses scandal and subsequent removal of the Speaker has undermined the notion of parliamentary conventions, the taboo has been broken, and as such we are facing a constitutional crisis. Foreign democracies must look at British politics with an air of bewilderment. Under a codified constitution the rules surrounding MPs pay, the office of the Speaker, accountability and subsequent scrutiny would have been much less ambiguous. The system we currently have fails to safeguard the fundamentals we have the right to expect within parliament, including democracy and effective scrutiny of the executive.

There needs to be effective reform, soon, and not the type of reform made by MPs to benefit MPs. A new culture needs to be bred within parliament making it far less insular and with a focus on public rather than self service. These changes need to start from the bottom up, for example, by adopting US style primaries and implementing term limits we would stop the abundance of career politicians and make many safe seats more competitive. This would make many MPs work a lot harder for our money and remove much of the established dry-rot that plagues the houses. We would also not have another unelected Prime Minister.

This change needs to happen soon or there could be huge and permanent repercussions for Britain. Two months ago we would have said a Speaker would never by forced from office by MPs, just as we said it would be impossible for the fascist BNP to hold a seat of power – now that is an incentive if we ever needed one.

How much should MPs get paid?

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In an ideal world we would not need to be represented by MPs, but as things stand the question of their remuneration will not go away and needs to be addressed. The general line MPs and the media are taking on the expenses dibacle is that MP fraud grew out of the politically charged problem of MPs not want ing to be seen to award themselves more wages. Frankly this is just an excuse to justify their behaviour and should be wholly ignored. Give or take the odd thousand either way – as of today – £64,000 is ample reward for the job of an MP.

Politics is a career these days. Young men and women decide at an early age to charm and smarm their way into political office. The profession of the politician is much the same as any other and should be treated as such. Of course they deserve a decent wage, but they already have one, especially given the bonus culture.

By bonus culture I don’t mean MPs dishonest and fraudulent expenditure claims, I mean the lucrative advantages of getting to the top of their profession: speaker fees, non-executive directorships, TV series and autobiographies. Like other professions, getting to the top certainly pays, as 'Tony Blair Inc.' explicitly testifies.

So if it is agreed that MPs should be earning as much as they are legitimately being paid now, how should this figure change over time? I would not tie it with any measure of inflation (who knows what that could lead to?) but instead link it to ebbs and flows in equivalent executive pay; excluding public sector pay for obvious reasons.