The vision thing

This week’s obsession of our chattering classes has been an alleged failure of Prime Minister David Cameron’s government to implement a coherent strategy for an apparently flagging agenda. Clearly, bringing the nation’s appalling financial condition under some semblance of control is now so yesterday. Never mind that it was always going to be a long slog and that the journey has only just begun.

The latest bout of whingeing was mostly triggered by the March budget statement with its “unfair” tax cuts, VAT on Cornish pasties, the so-called granny tax and trimmed charity tax credits. The Vision Thing critics say these clearly show up Mr Cameron and his Chancellor George Osborne as out-of-touch posh boys, lacking any ideas on how to take things forward.

What they really show, though, is how special interests have riddled the UK’s tax code with improvised explosive devices that detonate at the merest hint of tampering. From opera buffs to fast-food munchers, we’re all special interests now.

You’d think Mr Cameron’s previous incarnation as a public relations executive would have packaged those measures as a logical progression in dealing with the one issue that will make or break his government into the next election. For the fact is that the UK’s financial condition is the top priority – government overspending is simply unsustainable – and Mr Cameron has restated that view in response to the criticisms.

We at the ASI have been clear that the best way forward is to enhance the UK’s growth potential through various liberal policies of low taxes, more competition, less regulation and the like. Now those exploding measures in the budget are an opportunity to re-invigorate the mission to repair the government’s finances by presenting them as the start of a wider tax reform that does away with breaks for special interests in exchange for steady reductions in overall VAT and income tax rates.

It’s a good simple message and not hard to explain. 

Is there a mole in Boris’s camp?

I nearly choked on my coffee when I was telephone canvassed by the Boris campaign last week. The enthusiastic canvasser promised me that “If elected, Boris will create 200,000 new jobs over the next four years”.  Now I happen to believe in the free market economy; that is, the private sector.  State jobs are bogus.  They are paid for by the private sector which can therefore invest less.  As the state is less efficient it always results in a net loss of jobs.

Was Boris going to employ another 200,000 civil servants?  The girl on the other side of the phone also assured me that Boris had put an extra 1,000 police officers on the beat.  Well, I can live with that.  Was he proposing to add another 200,000 police?  Even if they were to be kept busy enforcing the Coalition’s planned ban on raunchy pop videos, the planned fat tax,  or plain packaging for cigarettes, it seemed a high number. The planned massive increase in internet surveillance will be done electronically.  So how was Boris going to do it?

The Back Boris 2012 website enlightened me.  Sadly virtually every single job proposed to be created is of the statist variety.  As in: private sector pays tax and therefore loses jobs; government spends the tax on creating jobs.  As always when the state “creates” jobs, bureaucracy, failed planning, inefficiency and non-existence of individual financial responsibility will result in eye-watering amounts of taxpayers’ money going down the drain.  When government acts the side effects become the main effect.   There is always a net loss of jobs, as state investment is not as efficient as private sector investment.  When the state grows the dole queue grows more. 

Let us look at some of the job “creating” schemes proposed.  Building 55,000 affordable homes would create 100,000 new jobs.  At 18%, England has more social housing than France, and three times as many as Germany.  If taxes were lower, more people would build or buy their own house, resulting in just as many, if not more jobs.

The tube upgrades would create 18,275 jobs paid for by taxpayers’ money.  God knows that the tube needs upgrades.  However, it is likely that it would cost a great deal less if the tube was run privately.  That would allow for a tax cut, which in turn would allow the private sector to create more jobs and wealth. 

The Royal Docks Enterprise zone: 1,500 jobs.  Why should politicians single out specific politically advantageous zones to benefit from free market economics?  The whole of the UK should be an enterprise zone.  Those who wish to remain over-planned, over-regulated, and over-taxed could elect to form Special Bureaucracy Zones.

The European Regional Development Fund would “create” 2,300 jobs with taxpayers’ money. The ERDF is Europe’s vehicle to support failure.  Instead of tackling failing economies by liberating them from state interference, subsidies are thrown at them.  When that is done by Europe the link with job destroying taxes is completely invisible.  We should refuse to take ERDF money.  We should refuse to finance the ERDF altogether.

There is perhaps little risk of freedom lovers supporting Red Ken instead.  But who came up with state job creation as part of Boris’s Manifesto?  Is there a mole?

An elbow to the ribs

The Economist reports on “Nudging”, the idea that governments can non-coercively steer people towards towards making the right decisions for themselves.  In other words, make things like pensions opt-out instead of opt-in, so that lazy people end up with pensions, instead of without them.

The overall impression the article gives is how shallow Nudging is as an idea. One example:

A study into the teaching of technical drawing in French schools found that if the subject was called “geometry” boys did better, but if it was called “drawing” girls did equally well or better. Teachers are now being trained to use the appropriate term.

Well, if you say so. I suppose this might be true, but it could just be another of those “correlation equals causation” fallacies that bedevil the social sciences. Statistically, all manner of associations may appear in data surveys, but they don’t necessarily mean that one thing causes the other.

As the article puts it, Nudging is based on the ideas behind behavioural economics: the idea that “all sorts of psychological or neurological biases cause people to make choices that seem contrary to their best interests”.

But what is in anybody’s “best interests”? I am fairly risk-tolerant, so I cycle into work on rainy days and “binge drink” (that is, I have three pints) at least once a week. I hate athletics and can’t understand why anybody would want to spend their money on Olympics tickets instead of going to the pub.

Are these things not in my “best interests”? It’s a silly question. Every action contains a risk/reward calculation whose outcome will differ from person to person. What a person’s own best interests are is entirely subjective — even seemingly sensible things like pensions and health insurance have real costs. It’s no more in my interest to nudge me in one direction than to nudge me in another.

Nevertheless, Nudging seems to have captured the imaginations of the Cameroons, who see it as an exciting new way of making stupid people do what’s best for them without really forcing them to do it. It shouldn’t be a surprise. Nudge policy is shallow, gimmicky and desperately trendy. It’s tailor-made for the government.

Most seriously, there is the problem that, even if you can steer people into doing the “right” things, it’s difficult to know what’s actually right for different people:

Not every policy works as planned: Mr Oullier wants the European Union to test the anti-smoking warnings it puts on cigarette packets, for instance, after research found that those who say they are most shocked by the more graphic images were also those who most craved a smoke after seeing them.

With safety warnings like that, who needs advertising?

The unintended consequences of lobbying laws

Something odd has happened in Washington. The cause, of course, is the usual one – inept legislation. The result, naturally, is the opposite of what was intended. But the really worrying thing is that the UK seems set to do exactly the same.

The Lobbying Disclosure Act was brought in to keep an eye on Washington lobbyists and make sure that politicians were not being bribed by business and other interests. Basically it says that anyone who spends more than a fifth of their time interacting with government officials, politicians or staffers in any quarter – including their time preparing material for such meetings – has to register as a lobbying organisation, which in turn subjects them to various disclosure obligations.

It sounds a good idea. But all over America there are independent policy think thanks who have found themselves caught up in these rules.  Experts and expert organisations who are interested in policy naturally have to talk to politicians; and since politicians read think-tank reports, the entire output of a policy think-tank can be seen as an 'interaction' with them. So expert think-tanks, independently promoting policy ideas for the good of the general public, and who do not represent any special interests, who merely want to inform the public public debate, and who would not even think of bribing politicians now find themselves having to register as lobbyists.

Because the rule is 20% of your time in any quarter, the problem is particularly intense when particular issues arise in any one quarter – issues on which expert staff might be deeply involved. The fact that they have no contact at all with Congress once the issue has passed over does not save them.

Some of them have set up registered sub-groups, into which they place the staff that are most involved in meeting or informing politicians and officials. Even then they have to watch how other staff use their time, in case they might be regarded as breaking the 20% rule, which is a big bureaucratic hassle. Others, like Brookings, have not set up separate organisations but then have to monitor the activities of all of their staff less the perception emerges (whatever the reality might be) that some of them might be spending a lot of time around politicians and officials. Again, since issues are cyclical and experts focus on particular issues that come and go, the result is an enormous cost and bureaucratic headache.

The net effect of this 'anti-corruption' law has not, of course, been to reduce corruption nor even lobbying. Those who want to lobby politicians, or fear they may be accused of doing so, simply register – or find some way round the rules. The net effect is actually that people in legitimate, pro-bono expert policy organisations have been loaded with regulator cost, while lawmakers find it harder to get the independent advice of experts who do not actually want favours from them in return. Think tanks whose only purpose is to promote the public policy debate are now seen as part of the party politics world. So people are regarding them as more and more partisan rather than independent – and perhaps indeed they may be growing more partisan as a result, which means that the quality and independence of policy advice on Capitol Hill is declining.

Another fine example of unintended consequences.

But now the UK government is proposing similar lobbying regulation – setting up a statutory register of lobbyists (PDF). The public consultation on this ends Friday. Professional public-affairs companies – lobbyists, to you and me – are fighting hard to get independent policy groups regarded as 'lobbyists' too, on the usual 'level playing field' arguments (or more properly, the 'if we are going to be skewered by new regulations we will darn well make sure that everyone else is too' argument). But there is a big difference between independent policy experts and hired-gun lobbyists. So the result is that this well-intentioned move could, just possibly and quite unintentionally, change the whole UK policy debate for the worse and cut the political class even further adrift from ideas from non-vested-interest sources.

Everybody's got something to hide

I for one do not wish to see the tax returns of our leading politicians.London Mayor Boris Johnson started this trend, publishing his own returns in order to embarrass his opponent Ken Livingstone, whom he accuses of avoiding tax by having fees paid to him through a private company instead of directly. (Though tax avoidance, of course, is not actually a crime. In my view it's a virtue, because it gives governments less money to waste.)

Now Britain's Chancellor of the Exchequer, George Osborne, stung by accusations that his personal wealth may have influenced his Budget proposals, has offered to release his own accounts. Business Secretary Vince Cable is apparently considering the same. And pressure is mounting on party leaders, such as the Conservatives' David Cameron, the Liberal Democrats' Nick Clegg and Labour's Ed Miliband, to follow suit.

I hope they don't, though I fear that once these bandwagons start rolling, they are hard to stop. Yes, it seems all too obvious that politicians should disclose their personal circumstances to the electors, so that any vested interests they have might be exposed, and so that we can judge whether they are in fact living up to the standards they claim for themselves and are actually practising what they preach for the rest of us. But the reason I don't want politicians to disclose their accounts is that it will prevent other, ordinary people from challenging the political class, further increasing the separateness and power of that class.

Let's face it, even if we have nothing at all to hide, most of us reckon that our family finances are our affair. We really don't want other people snooping into them – not even our relatives, friends and neighbours, never mind random people in the street or journalists from News International. Most normal people see themselves as entitled to a private life. Politicians used to think so too, but now they live their lives on the front page, they have to be prepared to see any part of their lives exposed to public and media scrutiny. Which means that people do not now go into politics unless they are prepared to put up with such exposure. And most ordinary folk, as I say, are simply not prepared to put up with that. So increasingly, politics attracts a very odd class of person, and puts off anyone who is actually remotely normal. And this proposal for politicians to reveal their tax affairs just increases that political class divide even further.

Before long, other members of the political class will be caught up in this 'transparency' frenzy too. Top civil servants, quango chiefs, media editors, newspaper columnists, pressure-group leaders, public affairs consultants, corporate lobbyists and the heads of campaigning charities will all come under pressure to publish their tax returns. Good, principled and independent people will exclude themselves from these professions, rather than have their personal lives pored over. Only exhibitionists, and those for whom the thrill of power is more important than personal dignity and privacy, will apply for such jobs. The political class will get stronger, bigger, and more separate. And unchallenged by those good, principled and independent people for whom the personal price of getting involved in public life is too high.

Unprincipled politics

At a meeting of our Next Generation group this week, Sunday Telegraph columnist Iain Martin talked about the various failings of the Conservative Party. His primary criticism is that the Conservatives under David Cameron abandoned their principles in favour of telling people what they wanted to hear. That might have been a decent electoral strategy when the economy was booming, but once the financial crisis hit it left the Tories rootless and incoherent, so that no-one (least of all the Tories themselves) had a clear idea of what they stood for.

I more or less agree with that position, with the caveat I’m not convinced the Tories were that principled to begin with. Even a cursory look at the Conservative Party’s history will reveal that Margaret Thatcher’s reputed ideological fervour is very much the exception, rather than the rule. Indeed, many Tories will tell you that the rejection of hard and fast principles in favour of ‘pragmatic’, case-by-case managerialism is the essence of British conservatism. And as Sam wrote yesterday, the trouble with that mindset is that it leads inevitably to the persistent, piecemeal erosion of individual liberty.

After the speech, a few people asked me what I really thought about the coalition government. My honest response is not a terribly positive one. On education and welfare reform, their policies are generally pretty good. Their deficit reduction plan, while far less impressive than the chancellor’s rhetoric would suggest, is at least better than the alternative (I think that’s what they call damning with faint praise – ed.). There have been a few good moves on tax – like raising the personal allowance and cutting corporation tax – but it is hard to ignore the fact that they’ve has robbed Peter to pay Paul and skimmed off the top while doing it.

Beyond that, I struggle to think of anything nice to say. Certainly, when it comes to matters of personal freedom, this government borders on the fascist. The commitment to civil liberties that both parties claimed in opposition seems to have gone out of the window now they’re in government – the electronic surveillance powers trailed last week are even more despicable and grotesque than anything Labour managed to come up with. And when it comes to food, drink and tobacco, the government couldn’t be more in thrall to the bully-state establishment. To be blunt, they plainly care not a jot for individual liberty. 

I had hoped that coalition might mean the best of both worlds – that the Liberal Democrats’ civil libertarian, non-interventionism might be blended with the Conservatives’ fiscal conservatism and suspicion of state power.  That seems an increasingly forlorn hope.

Our road to serfdom

Reading the news this week, I have been reminded of FA Hayek’s classic essay “Principles or expediency?”.

The impossible task of liberals, said Hayek, was to argue for a general principle of liberty in circumstances where “pragmatists” wanted to give a little liberty up for some other direct and visible benefits. The benefits of liberty are unseen and indirect. They are sometimes hard to justify on a “pragmatic” case-by-case basis, but on aggregate are critical to a flourishing society. In Hayek’s words:

"it is not in our power to build a desirable society by simply putting together the particular elements that by themselves appear desirable. … If the separate steps are not guided by a body of coherent principles, the outcome is likely to be a suppression of individual freedom.”

So it is with the government’s plans to store every person's emails, search histories and social networking activities, and read them at will without a warrant.

Josh Lachovich has already highlighted the government’s hypocrisy in proposing this measure. The coalition parties’ manifestos and the programme for government all explicitly ruled out “database state” measures and, indeed, promised to roll back the surveillance state. Of course, these were all lies.

The depressing thing is how predictable all this is. “Pragmatic” erosions of our civil rights to date – CCTV cameras everywhere, centralized government databases of personal information, attacks on habeas corpus, covert surveillance operations by local councils and sundry encroachments onto people’s online privacy – have led naturally to this grotesque new plan.

Every new piece of authoritarianism has been justified as “counter-terrorism”. As Hayek would have recognised, the many freedoms we have given up “pragmatically”, ignoring the value of upholding the principle of liberty, have led to our current position.

Given the amount of our private lives that we conduct online, the government’s proposals are really just a modern updating of 1984’s telescreens, which videotaped the inside of every person’s home. If there is there any meaningful difference, I can’t see it.

The government’s new proposals are crass, authoritarian and stupid. All decent people oppose them, but they may go through nonetheless. When the principle of liberty is conceded in favour of false “pragmatism”, the great benefits of living in a free society go as well.

That is what Hayek meant by his often-misunderstood title, “The Road to Serfdom”. Each step along the way, giving up a little freedom, might seem expedient and sensible. By the time you’re in a country where the government indefinitely stores and can read your emails at will, it’s too late.

Cash for no access

As long as government rules vast parts of our lives and our businesses, with nannying and interfering and market distorting measures left, right, and centre, some will try to pull the duvet towards them, leaving others out in the cold. This weekend's cash for access story is just another in a long line of similar cases.

The allegation of cronyism exposed over the weekend illustrates the absence of a free market capitalist society in 2012 Britain.  A free market is neutral.  It treats every individual equally, without privileges: you work, you thrive.

Since time immemorial people have spotted that there is a faster route to prosperity: to take it away from others.  Once, this was merely the preserve of common thieves.  The clever ones identified a more efficient device, called government. And if this government calls itself “democratic” new heights of refinement are achieved: take away from some to give to others under the guise of “fairness”, “equality”, and morality.

Sometimes it is called redistribution, as in: rob Peter to pay Paul, in the hope that Paul will vote for the robber.  Sometimes it is called crony capitalism, as in: privatise company’s gains, but socialise the losses.  Sometimes it is called fairness, as in: do all of the above, but hide it under the moral high ground.

There is a whiff of zero sum thinking about political favours.  It is the logic of the Genghis Khan and his hordes from the steppes, who pillaged and murdered their way through large parts of Europe to enrich themselves. The idea that there is only so much to go around, and that it is therefore essential to take from others to enrich yourself.  Redistributing the pie, instead of making the pie grow for all.  Redistributing by taking away property, granting privileges, and ordering people about; instead of creating wealth by way of property rights, equality before the law, and leaving people free to pursue their dreams and aspirations as they see fit.

Trade unions are at it.  Employers’ organisations are at it.  Businesses are at it.  Collectives are at it.  And you? You pay.  Cash for no access.  Not that most people, notice, of course: a large chunk of the financing system for the redistribution of favours by politicians is carefully hidden in inclusive taxes such as VAT or stealth tax such as PAYE which take the loot away without you even touching it.

Want to stop cash for access? Take away the cause.  Prevent government from looting the nameless. Reduce the size of government.

A free market take on the 2012 budget

Generally positive on tax…

• Cutting the 50p tax rate to 45 percent is a step in the right direction, but the Chancellor should have scrapped this altogether. The danger is that the 45p will become a permanent rate. The government should commit to scrapping this new top rate tax before the next election.

• Raising the personal allowance to £9,025 is also very welcome. The government should raise its target from £10,000 to £12,400, which would lift minimum wage earners out of tax altogether.

• The government’s commitment to merging income tax and national insurance is very encouraging. Britain’s tax code is absurdly complex and tax simplification should be one of the government’s top priorities.

• The ‘tax receipt’ idea could make a big difference. By making spending more transparent, people will be better able to hold the government to account for its fiscal policies. With a bit of luck, these tax receipts could sow the seeds of a small government revolution as more people realise how wasteful government spending really is.

• The additional cut in corporation tax is a good, pro-growth measure that will boost Britain’s economic competitiveness. But it should go further – competing with large countries is not enough anymore, and a corporate tax rate higher than 20% is still too high. Furthermore, the new and/or expanded allowances and tax credits the chancellor announced will increase complexity and run against the general theme of tax simplification.

But there are a few negatives on tax too…

• Raising tobacco duty by 5% above inflation is petty, vindictive, and possibly self-defeating. Such taxes are already extremely regressive, hitting the poorest the hardest. Moreover, high levels of tobacco duty are already encouraging smuggling and counterfeit cigarettes. Cigarette smugglers will be very pleased at today’s duty hike.

• Reducing the 40p rate threshold will mean that only basic rate taxpayers will benefit from the personal allowance rise. Up to 300,000 people will now find themselves upper rate taxpayers as a result. This will hit single-earner families particularly hard.

• The General Anti-Avoidance Rule is a bad idea. It leaves far too much latitude for bureaucratic discretion. It adds another layer of complexity on our labyrinthine tax code. And it is an affront to the rule of law. Radically simplifying taxes is a much better way of ensuring people pay their fair share.

• Raising Stamp Duty Land Tax on homes worth more than £2m is a politically-motivated sop to the Liberal Democrats. Taxes like stamp duty are damaging because they discourage transactions and gum up markets. They also raise very little revenue.

The budget is weakest where it strays into industrial policy…

• Was the tax credit for animation, video games, and high-end TV production designed just so the Chancellor could make his ‘Wallace & Gromit’ joke? These are unquestionably attractive, wealth-creating industries, but the government should not be picking winners and advantaging politically-favoured businesses over less fashionable ones like this.

• In promising to fund superfast broadband in 10 British cities, the government is creating a role for itself where it just isn’t needed. Over the past two decades, the private sector has delivered (and continues to deliver) a vast digital infrastructure at virtually no cost to the taxpayer. It is hard to think of a better example of something the state should simply stay out of.

• The Chancellor’s call for increased airport capacity in the South East is a good thing, but it is worth remembering that the politically-motivated rejection of such airport capacity has been explicit government policy up until now.

• The various credit, business, and construction support schemes contained in the budget are misguided, and will do little except preventing markets from adjusting to changed economic circumstances, as they must if we are to return to robust, sustainable growth. Nevertheless, these schemes are probably small enough to be dismissed as pointless gimmicks rather than serious market distortions.

The macro outlook is worse than the chancellor is letting on…

• The growth forecasts the chancellor announced still look implausibly optimistic. The public sector, financial industry, and housing/construction sectors all boomed unsustainably in the 2000s, and must probably contract further as the economy rebalances. We are weighed down by debt, and the deleveraging process has barely started. So in the absence of significant and radical supply-side measures to boost growth in the rest of the economy, it is hard to see how these forecasts can be met. And that’s before you even consider the sizeable downside risk posed by the eurozone crisis and our still-fragile banks.

• The government’s borrowing costs are low not because of the chancellor’s fiscal rectitude, but rather because the Bank of England is directly intervening in the gilts market to reduce borrowing costs via quantitative easing, and because things in the eurozone are even worse than in Britain. The economy may be getting better, but the overall macro-economic picture remains far worse than the chancellor is likely to admit. 

• Finally, it is worth remembering that for all the talk of austerity Britain, the government will still borrow £126bn this year. That’s £14.5m an hour, every hour, all year long. 

Regional pay is the only sensible option

The Chancellor's proposal to end national pay bargaining in the public sector has been met with the usual howls of protests from trade unionists. They see it as a stealth cut in their members' wages.
Maybe, but for decades there has been a stealth rise in those wages. Public pay now averages 8% more than in the private sector – and the hours, holidays, sickness breaks, and of course those gold-plated pensions, are all much better. But the difference is a shocking 18% in Wales.

What has been lost in all the fuss and smoke is that no current public sector employee will suffer a pay cut. Wages will come to reflect local circumstances and the local cost of living, but the changes will be phased in gradually. Public sector workers in the South East, where the cost of living is higher and the public-private differential is just 0.5%, will actually get a pay rise. That's not a sop to rich southerners at the expense of poor northerners. It is simply recognising that the cost of living in different parts of the country is different.

Many areas of the UK are poor precisely because high wages in the public sector, brought about by the national pay rates system, have driven out private sector jobs and investment. Quite simply, when public sector wages are 18% higher, people's focus is on getting a job in government, not in the wealth-producing industries. Employers cannot compete when the public sector has an edge like that, and siphons off the most qualified workers. It means that it becomes much harder to recruit staff and start new businesses – so fewer new businesses are created, and the region remains in thrall to government, rather than developing new industries and initiatives of its own.

The same is true in reverse, of course, when private sector wages are higher than public sector ones. Then, the public sector cannot get the staff it needs, and schools and hospitals are understaffed, or have to get staff from abroad. I used to be governor of a very good state school in Cambridge, which had such a high reputation that it never had any trouble getting potential new teachers to come for interview. But when they checked the local property market, they quickly discovered that they could not afford to live there. So replacing and recruiting staff became a nightmare.

It is only fair and sensible to take account of local circumstances in public pay bargaining. It will be good for the country too. And it will be particularly good for industry and employment in those depressed parts of the country where high public wages have driven out private enterprise.