We shouldn’t subsidise the new political class

In 1911 MPs began receiving a salary. By paying MPs it was hoped the general population could independently enter politics, rather than simply leaving it dominated by a wealthy elite.

MPs compensation has since betrayed this vision. The system now supports a new political class. In the 1970s MPs' salaries were comparable with average UK income, today they seek triple the average, putting them in the top 2% of earners. Not to mention the abuse of expenses or even illegal activities by some of this political class.

Hence the rise of professional career politicians. Consider Victoria Fowler, Labour’s 22 year old Parliamentary candidate. Her (now-deleted) Wikipedia page cites her running the Warwick Speakers (a student society) and two years experience as a councillor, to justify a potential starting salary of £77,000. Glancing over Liberal and Conservative lists, she is not alone in the political class. Many pursue power with a bland CV of nothing more than work in Parliament, brief Party Research Department experience or a token career in PR. The narratives about working class links or special expertise are common but seem to have little bearing on reality.

The solution is simple. MPs should have their pay fixed around average UK salary. After all, there are many perks, like a £5.8m subsidy for food and booze in the Commons, and prestige from the post too. Perhaps they could continue to receive a second home allowance, or basic temporary accommodation to allow them to attend debates. Travel expenses, only from the constituency to Westminster when supported by just cause, such as a vote, might be reasonable.

Rather than cutting the number of MPs and supporting politics as a full time career, MPs should be part time. Politicians should understand real world working Britons as workers themselves. They should bring genuine specialist expertise, not just the skillset of a student hack. This might reduce time for legislation, though the MPs of past debated in the evenings after work and were not supported by a modern Civil Service. Why must every government create more laws anyway? What of simplification and repeals?

MPs should take a pay cut. We need more parliamentarians from the real world rather than the rising political class. MPs should be part time, and driven by a desire for public service not the raw pursuit of power and a fat cheque at the expense of their constituents.

The problem with democracy

The public is ignorant about politics and lacks even the basic facts that it would need to make sound judgments about political issues. A new poll by Ipsos-MORI shows just how deep this ignorance is. Among other things, the poll found that:

• 29% of people think we spend more on JSA than pensions, when in fact we spend 15 times more on pensions (£4.9bn vs £74.2bn)
• 26% of people think foreign aid is one of the top 2-3 items government spends most money on, when it actually made up 1.1% of expenditure (£7.9bn) in the 2011/12 financial year.  More people select this as a top item of expenditure than pensions (which cost nearly ten times as much, £74bn) and education in the UK (£51.5bn)
• the public think that 31% of the population are immigrants, when the official figures are 13%. we greatly overestimate the proportion of the population who are Muslims: on average we say 24%, compared with 5% in England and Wales.
• people are most likely to think that capping benefits at £26,000 per household will save most money from a list provided (33% pick this option), over twice the level that select raising the pension age to 66 for both men and women or stopping child benefit when someone in the household earns £50k+.  In fact, capping household benefits is estimated to save £290m, compared with £5bn for raising the pension age and £1.7bn for stopping child benefit for wealthier households.

These are not just little mistakes, they’re absolute howlers.

This ignorance is perfectly rational and understandable. The problem is that these are the people who decide who runs the country. How can you choose the best set of welfare policies – ‘the best’ being what you would choose if you had all the information available – when you know absolutely nothing about welfare? How can you choose which of the two main parties is offering the best immigration policy if you haven’t got a clue about immigration?

Obviously, you can’t. And giving more power to well-informed elites seems even more foolish. Political psychology suggests that that the more information you have about something, the more resistant to new, contradictory information you are – or, in other words, the more dogmatically ideological you are.

That ideology is often dressed up in terminology that sounds neutral but makes significant assumptions about the role of the state and its ability to effectively solve society’s problems. Anyone for some ‘evidence-based policy’?

This is a problem not just for elections, but for any kind of administration of the state that gives experts decision-making power. If they are inherently dogmatic then giving them power may be even worse than putting every policy issue up to a referendum may be the lesser of two evils (while still being very unappealing).

The choice we have in a democracy appears to be between open-minded ignoramuses or well-informed ideologues. There is no reason to think that either will choose anything like the ‘right’ policy for any given problem. And, as Jeffrey Friedman has argued, unlike when you buy the ‘wrong’ flavour of ice-cream and can immediately buy a different kind next time, the feedback mechanism in politics is weak and difficult to discern.

The answer may be to recognise these crippling limitations of democracy and, wherever possible, prefer decentralized market mechanisms. We cannot solve the problem of ignorant voters or dogmatic elites in democracy, but we can at least try to take as much power out of their hands as possible.

Mongolia chooses right in plans for the future

Last Sunday saw Mongolia’s 6th Presidential election. I was glad to see the incumbent President, Tsakhia Elbegdorj, win with just over 50% of the vote. Mr Elbegdori, the candidate for the centre-right Democratic party, was heavily involved in the movement to end 70 years of Communist rule, which was finally successful in 1990. He has a good track record of loosening the grip of government on the country’s businesses, and he is passionately anti-corruption. Another of his achievements (in my opinion) is his work to abolish the death penalty.

It’s great to see an emerging democracy choosing to shrink the state. It may be unsurprising that the people want to get away from the Communist ideology of the past, but the false promises of socialism are always tempting. Mongolia has great mineral wealth, and everyone will want a slice of the pie, but the best way to get rich is through laissez-faire economics. The focus of the presidential race was on Oyu Tolgoi, a huge copper and gold mine: both of Mr Elbegdorj’s rivals advocated a renegotiation of the government’s contract with Australian mining giant Rio Tinto. But Rio Tinto has put a lot of investment into Oyu Tolgoi, and too much government involvement may cause problems. Mr Elbegdorj is more friendly to foreign investors, which bodes well for Monglia’s future.

The country has been doing well recently: this year it is the world’s fourth fastest-growing economy. Poverty has been decreasing, from 39.2% in 2010 to 29.8% in 2011. Of course, there are still obstacles to be overcome, but at the moment it looks as though Mongolia is in capable hands.

If only Britain had joined the Euro?

Will Hutton tells us, in last Thursday's Guardian, that widespread consensus on the UK's staying out of the EU is wrong-headed—joining would have kept our exchange rate low, which in turn would have meant no financial boom and an economy based (more) around producing manufactures. To add to this, our entry would have meant a more activist European Central Bank, which would have been willing to intervene when necessary. There is more wrong with his article than I could possibly tackle in one post, so I will focus on the key elements I've summarised above. None of what I say implies it necessarily would have been bad to have been in the Euro over the past ten years—such an alternative history is almost impossible to conclusively support—just that the arguments Hutton uses are extremely weak.

Pretty much all of his argument is bizarre, utopian and uneconomic. Devaluations work not because they make a country's products cheaper to foreigners, adding to net exports and driving GDP growth. Devaluations work because they boost inflation, which gets around nominal wage stickiness, allowing markets (particularly labour markets) to clear and giving relative prices the space to adjust. They make no difference to the price of a country's goods to foreigners, and in practice often boost imports as much as or more than exports, due to improved conditions. This is even true if we devalue by decree, as Hutton's desired artificially low €-£ exchange rate would be—it's just that the inflation could take slightly longer to come as firms and households bid up prices.

What's more, this is a Good Thing. We don't want to spend energy, time, labour and capital hours, as well as space, producing valuable things only to sell them in exchange for artificially few foreign goods. If countries are happy to send us desirable stuff in exchange for less of our stuff then that's great, and in any case it sows the seeds of its own balance, as consistent deficits (ceteris paribus) will drive down the exchange rate. This may eventually force the UK to run surpluses, but this would not be a Good Thing. Running surpluses means lower social welfare because we are consuming less leisure or goods or services than we would otherwise be able to enjoy. And we may never even have to run one if we keep creating loads of property or financial wealth to pay for our imports.

But let's imagine that Hutton could have subverted economic rules as basic as gravity and magically have kept the exchange rate at his desired low rate without any of the obvious expected balancing effects from wages and prices. And let's imagine that we want to send more goods abroad to get less in return. Would this have supported the manufacturing industries he wants? It's difficult to see how. If the City was providing the best financial services options for the world at £1 = €1.25 then it's not obvious that a cheaper pound, and cheaper financial services, would make them less attractive. The UK's economy contains a relatively large contribution from financial services because the UK is relatively good at financial services—as well as hi-tech manufacturing, advertising, and many service sector areas. These are the UK's comparative and in some cases absolute advantages.

And would the UK be better under the ECB (albeit with some British influence) rather than its own Bank of England? It's hard to see why Hutton thinks this. The BoE let inflation rise to hit 5.2% on the CPI measure, and has consistently allowed inflation to stay above target—the ECB has inflation below its 2% target, despite the obscene jobs crises in Spain, Greece and other crisis-hit countries. It is basically refusing to do any monetary stimulus. There is essentially no debate in Europe over whether the ECB should actually meet its inflation target, or indeed consider other economic variables, or go yet more radical and drop inflation targeting altogether. Would the UK's input really outweigh the massive consensus there, especially when the UK is divided on the issue itself? Again, I am sceptical. Strangely, Hutton seems to think that pointing to the UK's own situation and reminding us we're not living in "a land of milk and honey" is sufficient to gloss over the fact that most of the Eurozone is doing so much worse!

This laughable logical leap is nothing compared to his claim that both sides of the political divide are "united only in their belief, against all the evidence including Britain's export performance, that floating exchange rates are a universal panacea." As might be expected, he doesn't give the tiniest shred of evidence that the consensus view holds that floating exchange rates are not only the best exchange rate policy, but a panacea for all types of economic ills. But really, that's not the point. Even if everyone did—ridiculously—think that floating exchange rates were actually a panacea for economic problems, that wouldn't go any way to implying that they weren't better than fixed exchange rates.

Will Hutton's argument is completely invalid, though perhaps he gets some points for making such an outlandish and unpopular case. If it would have been good for the UK to enter the Euro 10 years ago, then it is not because it would have allowed us to permanently rig all markets to send off more of our stuff for cheaper than it is worth. And it seems completely implausible that the UK could have influenced the ECB enough to see it ditch its destructive hard money policies during the crisis, instead it seems more likely the UK would be just another country suffering under its negligence.

Politics is so nasty because we're all speaking different languages

If you’re frustrated by how vicious and pointless politics is, a brief Kindle single by Arnold Kling may offer some insight. “The Three Languages of Politics” (£1.34, US link) dissects one of the main problems with politics: that progressives, conservatives and libertarians are all speaking different languages that rarely overlap and cause us to misunderstand and vilify our opponents.

The three languages are based on three different ways of thinking about problems. Progressives, says Kling, see political problems as being conflicts between oppressors and the oppressed; conservatives as between barbarism and civilization; libertarians as between coercion and freedom. These ideologies cannot be boiled down to these three things, but the rhetoric used by their adherents often can be.

As a libertarian I often find discussions with non-libertarians frustrating because they don’t even seem to care about the stuff that matters to me. (I’m told the feeling is mutual.) On drugs, for instance, conservatives seem not to care at all about the fact that people are put into jail for what they do in the privacy of their own home, and progressives often only seem to object to the harm caused by anti-drug laws, not to the very fact that these invasive laws exist at all.

Of course this is frustrating and it is tempting to say that these people are coercive authoritarians – just as a progressive might say that I am a defender of oppressive businesses when I advocate for looser business regulation, or a conservative would say that I want to let British society unravel by letting more people immigrate to the UK. Maybe they have a point, maybe not. We’re speaking different languages without realising it.

The phenomenon of ‘motivated reasoning’ doesn’t help. The more informed a person is, the more closed-minded they are. If your web of belief about politics is well-developed, you will have stronger prior reasons to dismiss new information that contradicts what you already know. We are much quicker to question the methodology of a study whose conclusions we dislike than one we like.

And politics is usually about tribes, too. Even if you aren’t a member of a political party, you probably know people you consider to be on your side in politics, particularly if you are immersed in politics in your job or an extracurricular hobby. Much, even most, political discourse can be seen not as an effort to change the minds of your opponents (or your allies), but as a way of developing your status in your tribe.

All of these factors contribute to a poisonous political environment that rewards tribal point scoring above all else. Disagreement is never comes from honest error, but from malice or stupidity. Arnold Kling’s “The Three Languages of Politics” is a wise, insightful deconstruction of the hatefulness of political discourse. It is a classic. Everyone who talks about politics should read it.

Cash, questions, lobbyists—and perverse regulation

UK Member of Parliament Patrick Mercer has resigned under accusations that he took cash (from journalists pretending to be lobbyists) to ask questions in the House of Commons. It has renewed calls for lobbyists to be registered and regulated in order that we know who our MPs are talking to.

Regulations invariably have the opposite effect of those intended. Such a move would damage independent debate. After all, policy think-tanks also talk to MPs. They may be utterly independent, getting their funding from public subscriptions rather than from companies. But if any organisation that talks to an MP has to register itself as a 'lobbyist', what is the result.

We have seen the result in the United States. Think-tanks carry on as before, but they have to set up a separate 'lobbyist' body comprising any of their personnel who have frequent discussions with folk on Capitol Hill. The effect is to politicise think-tanks and put a wall between their independent policy experts and the politicians. An issue comes up, a think-tank expert has important things to say, but cannot say them directly to the policymakers.

What is the best solution? Doctor, heal thyself. MPs should certainly declare their interests and whom they take favours from. But if MPs could be subjected to recall motions by their constituents, they would be a lot more careful about taking favours from business – and perhaps more careful to listen to independent policy advice.

Ultimately, though, if individuals ran their own lives and Parliament had a lot less power, it wouldn't be worth lobbyists (and journalists, let's remember)  trying to bribe them.

Tax Freedom Day has finally arrived

As of June 2024, this is out of date. Please refer to Tax Freedom Day 2024 for the updated statistics.

Tax Freedom Day—the day when the average UK resident finishes paying George Osborne and begins putting money in her own pocket—is finally upon us.

After 150 days of sending all our money to the Treasury, we can earn for ourselves over the rest of the year.

The ASI's Director, Dr Eamonn Butler, says “Tax Freedom Day, which the Adam Smith Institute has been calculating for 25 years, is the plainest way to show what the tax burden really is. That is why the Treasury hates it. They of course want to conceal how much tax we pay, which is why they are so keen on stealth taxes.”

“But we put in every tax, including stealth taxes – income tax, national insurance, council tax, excise duties, air passenger taxes, fuel and vehicle taxes and all the rest – and show just how long the average person has to work to pay their share of them all. The stark truth is that this burden costs us all 150 days of hard labour every year. That's not how long a rich person has to work – it is the time the average person must labour for the tax collectors.”

“In the Middle Ages a serf only had to work four months of the year for the feudal landlord, whereas in modern Britain people have to toil five months for Osborne’s tax gatherers.”

“An increasing number of economists believe that Britain's taxes are too high and are choking off recovery. Some politicians say they need to keep taxes high in order to balance the government's books. But the trouble with governments is that they always spend everything they raise in tax – and then as much more as they can get away with through borrowing. Just as the rest of us have had to cut back, so should the government. The UK economy would be a lot healthier for it.”

Steve Baker, Conservative MP and member of the executive of the 1922 committee, adds: “Many congratulations to the Adam Smith Institute for once again revealing the shocking truth about taxes and overspending. This doomsday machine of deficit spending, debt and currency debasement will eventually blow up and there is no kindness in pretending otherwise. Politicians who are serious about the prosperity of our country and the wellbeing of the poorest within it should take note.”

For more information see our press release or our Tax Freedom Day page.

Time to privatise the courts

Britain's Ministry of Justice is considering "wholesale privatization" of the courts and tribunal service. Quite right too. Anyone who has seen the country's courts in action knows how inefficient they are, to the frustration of all who use them. That is because they are a monopoly, and monopolies do not have to please their customers – in this case, not just the public who use them but the taxpayers who fund them.

The Adam Smith Institute advocated privatization of the court system decades ago in its Omega Report and the replacement of civil courts with a system of arbitration. Some of this has been started, falteringly. It is time to bring a new, privatised vision to the sector.

The legal profession more generally needs reform too. Its trade union and its standards bodies are pretty much the same thing. Again, it is a closed shop. While the ability to represent people in court has been opened up somewhat, the monopoly remains, just as it does in medicine. Let us hope that the Ministry of Justice's proposals have a clear vision of how we can deliver justice in a more modern way, more competitively, more cheaply and at a higher standard. That is what privatisation usually does.

The debt and deficit cost of political policies

UK Conservative Party Co-Chairman Grant Shapps MP has started "deficit alerts" on his Twitter account whenever a Labour politician appears on television to demand more spending on this or that. Here is a sample:

@grantshapps: "Deficit Alert! Ed Balls calls for £16.5bn more borrowing "this year" on #Murnaghan - same old Labour answer would mean soaring interest rates."

I am glad that politicians should be so focused on the debt and deficit implications of public policy. But we need to make it systematic.

As ASI Fellow Miles Saltiel has pointed out in the past, the UK's official national debt – about £1trn but who's counting? (precious few in Westminster, that's for sure) – is about one-sixth of the government's total liabilities. Most of those commitments are 'below the line', unseen. They include the cost of nuclear decommissioning, of Network Rail's debts, of future pension obligations, plus future commitments on healthcare, education and (more recently) social care and childcare.

The trouble is that politicians propose measures without any review of their cost, other than the cost in the current year. The full financial impact – next year, the year after and the year after that in perpetuity (since government spending programmes are almost never abandoned) – is never expressed.

I propose that whenever any measure is introduced into Parliament, the Office for Budget Responsibility should audit its future financial burden. New health treatments? Fine, but the Bill has to include the price tag of what it will cost in the decades ahead and an analysis of what that will do to the national debt and interest rates. Better social care? School leaving age raised to 18? Green technology subsidies? All fine if we choose them, but we must be told the long-term price.

Of course, knowing the future cost of their measures would not stop politicians from introducing things that look small but have a big future impact on the budget. But it would at least provoke a healthy national debt about what is and is not affordable. 

Is nationalism a force for good? Yes

The nation state is—in its fundamental nature—a free and tolerant political system. National loyalty requires only fondness for a geographical location (and its history) which can be acquired by anyone who moves to a nation, as well as those born and brought up there. In principle national loyalty requires no significant revision of values, nor does it exclude people on the basis of their family, colour or any other unsavoury criteria. It is, taken on its own, a remarkably benign form of attachment. 

Loyalty is necessary for political institutions to uphold their laws. Laws protecting private property, free speech and so on do not hold sway because they have been written down by a legislator but because those subject to them believe they are authoritative. This requires general acceptance of their content and the body charged with enforcing them, which in turn requires a loyalty and trust for that body and for other citizens. In non-nationalistic countries such as Kazakhstan trade can't rely on its participants' having particular reason to trust one another. Nationalism avoids such pitfalls by enabling a trust of a pool of strangers – something which characterises flourishing societies.

The strongest ties among humans have proved to be religious, tribal-ethnic and national. They are typified by attachment to that which is familiar. The first two of these however, when elevated into political form, are intolerant of differing values and of differing bloodlines. The conflict between family love and religious obedience has characterised some of the worse strands of the Middle-East's history. In Africa tribal loyalties have underpinned devastating atrocities – in the 1994 Rwandan genocide for instance the Hutu people massacred the Tutsi (a group seen to have different physical characteristics). Twenty-two years earlier the Burundi Genocide had seen a reversed tragedy. Similarly fascism is not an extreme form of nationalism but an extreme form of tribalism—members of Hitler’s Aryan race were identified by their appearance and bloodline, not their attachment to a particular nation. We would do well to celebrate our often mocked pride for the rolling hills. Other attachments have proved much less tolerant of our differences and freedoms.

Another reason is philosophical. Where we happen to have been born and brought up is certainly arbitrary from a moral point of view – but this is no good reason to rule it out as mattering. Which mother we happen to have been born to is arbitrary, and yet no one claims we should shun her on that basis. Similarly we come across our friends arbitrarily, even if they have been chosen carefully from those we’ve met. My point is not that we should consider important all aspects of our lives that aren’t up to us, but rather that their being arbitrary shouldn’t be a reason not to think them important. In other words, arbitrariness should give us no reason to feel uneasy about the benefits that national attachment brings.