Pullman's patronizing nonsense

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Philip Pullman and other celebrated authors are taking part in a nation-wide protest against library closures. He has suggested that the idea of volunteers taking over the running of libraries is "patronising nonsense". However, the size and scope of the protests suggests otherwise, indicating that there is energy and passion already firmly devoted to libraries.

History suggests otherwise too. Hoping to replace Britain's growing drinking culture (patronising much?!), the Public Libraries Act of 1850 allowed local authorities to build and finance libraries. However, they still relied on individuals for their survival and upkeep, ranging from volunteers donating their time and effort, to stupendously wealthy donors such as Andrew Carnegie and Henry Tate buying them vast collections of books. Often these donors founded their own free libraries. Carnegie alone funded over 3,000 worldwide, with 380 in Britain, whilst after half a century of the Public Libraries Act, there were only 295 government-run libraries by 1900.

In fact, instead of creating all of those 295 libraries, the 1850 Act led to the decline or public acquisition of existing free institutions, particularly the Mechanics' Institutes. Again, these relied on the actions of volunteers and philanthropists, along with wealthy industrialists needing an educated labour-force to recruit from. These institutions served not only as libraries but as lecture theatres, museums and centres of learning, expanding from just a few in 1823 to over 700 by the time of the 1850 Act. Those that survived public acquisition or decline evolved into universities, most notably Birkbeck College.

This public take-over indicates one of the problems of government provision. After all, why should a Carnegie bother funding a library if the state already promises to do so using his tax money? When free of this, it was up to the limitless imagination and drive of individuals to provide library services. Instead, Philip Pullman and others now have to petition government to allocate funds in competition with endless other forms of local authority expenditure.

So, Mr Pullman, if a less prosperous Britain in the early 19th Century could afford to voluntarily lay the foundations for existing libraries and universities, why shouldn't we now? Isn't government provision of these services the true "patronising nonsense"?

Anton Howes is the co-founder of the Liberty League.

A pay cut for the poor

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If Britain’s coalition government is already weary from the barrage of charges that its policies are “unfair” to the less well off, just wait until the lower-paid realize they’re facing a 5% cut in their take-home pay starting next year.

The Pensions Regulator has just issued a reminder (pdf) that all employers will have to provide a pension arrangement to all employees, beginning in October of 2012 on a widening basis until 2016. This requirement calls for a minimum total contribution to an approved pension scheme of 8% of salary, of which at least 3% must be contributed by the employer and the rest by the employee. Employers may choose to introduce a more generous scheme if they wish but the 8%/3% is the minimum requirement.

In practice, the impact will fall mostly on the lower paid since larger companies already have pension arrangements that meet minimum requirements. The greatest impact will be on the smallest companies like local traders where salaries are lower or on companies using a fluctuating workforce like restaurant chains where, again, the salaries are lower.

For employees of such companies, this pension requirement will mean an immediate cut in take-home pay of 5% if the employer chooses the minimum 3% contribution for itself. To be sure, the employee doesn’t “lose” that money; it’s just not available until retirement. The scheme was introduced by the previous Labour government but, as its rollout starts with larger companies in 2012, it will be affecting smaller companies and the lower paid in the run-up to the next election. On top of everything else like inflation and VAT increases, this will be additional fuel to the “unfair” brigade. Watch out for wheezes that will seek to mitigate the short-term effects of the new pension-savings requirement.

We’ve already warned here of the dangers from government meddling in NEST, a cheap’n’cheerful pension scheme being set up by the government for those companies who can’t be bothered to set up their own. The 8%/3% rule will also be vulnerable to political manipulation by successive Chancellors, just like NI has been. Remember “pension simplification” in 2006? That got pretty complicated in a hurry!

Britain, like all modern economies, must significantly increase retirement savings so, on the surface, a mandatory regime may seem justified. However, compulsion seldom delivers the desired result. After all, wasn’t the original National Insurance scheme supposed to deliver a proper pension?

A far better route in the long run is for the government to let individuals figure out their own pension provision. To do that, though, the government must first end the distortions to sound investment decision-making: keeping its own financial house in order, reforming and tightly controlling the benefits system, preventing housing bubbles and no constant fiddling with the savings & investment tax regime.

There’s no magic bullet here. Rather, it’s the long slog of reversing decades of growing state paternalism that stole from the future to pay for the present.

Fixing the 6 Month Offer could get the unemployed into work

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Over the past couple of years, the government has introduced a variety of programmes to address the lingering high unemployment rate. The new programmes – like the “Flexible New Deal” – were intended to address specific concerns, but their fragmented and piecemeal approach has caused many to fall through the cracks and not reach their full potential. Fortunately, the coalition government is planning to consolidate the programmes into a single work programme, similar to their well-regarded Universal Welfare Credit proposal. The 6 Month Offer (pdf) (6MO) should be included and expanded in the plan’s framework, as this would increase worker training, skills and innovation.

In 2009, the government introduced the 6MO to address concerns that those who are unemployed for 6 months and beyond are sometimes considered a liability by employers. By providing paths towards self-employment, work-place volunteering, employer vouchers and retraining, the Department for Work and Pensions (DWP), hoped to strengthen and accelerate their employability. However, as of August 2010, by comparing DWP 6MO sign-ups to UK Department of Statistics unemployment data, one can roughly see that less than 5% of those eligible take advantage of the programme. This is mainly due to the scattershot approach to addressing unemployment rather than unattractiveness of the options given. Increasing these numbers could be accomplished by broadening the programme’s availably while tweaking some of its components.

To fully maximize 6M0 benefits, the coalition government’s workforce reform proposal should incorporate the following:

(1) the 6MO self-employment support, training and volunteering components should be advised and available on the first day of unemployment. Many of those who are freshly unemployed might be ready for a new industry or have entrepreneurial ambitions that could help strengthen workforces or introduce new small businesses in the community. At the least, it will allow the unemployed to begin considering the options for when they themselves are ready.

(2) Encourage volunteer opportunities for all; not just those who are considered furthest from being “labor market ready.” Unexpected networking opportunities could occur and should be encouraged.

(3) Since these options would likely be in addition to job-search assistance/resume support, if an unemployed person selects one, they should be positively rewarded in some fashion. A benefit supplement might nudge them to expand their skills or spend their extra free time active in the community.

(4) Finally, if they are unemployed after six months, mandatory selection of one of these avenues should be required. DWP evidence suggests 75% of workers still unemployed after 6 months have “significant barriers” that require additional support. If one of the options has not been selected, conditionality or sanctions could provide the needed motivation.

The coalition government’s focus on consolidation and simplification is a step in the right direction of improving government efficiency. By applying these principles to unemployment support, and incorporating the 6MO avenues, the British economy will likely be rewarded with a trained, involved and adaptive workforce.

The Giving Green Paper

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Just after Christmas, the government published the Giving Green Paper, a foundational document for David Cameron's "Big Society." From a libertarian perspective the Green Paper contains some encouraging language. It states that "social action is not something that government can, or should, compel people to do; it has to be built from the bottom-up, on the back of free decisions by individuals to give to causes around them"; that the government seeks to "empower communities. by giving people the power to really change things in their local area," and that those in power have finally "acknowledge(d) the limits of government."

Unleashing the creative and philanthropic potential of the ordinary citizen, the paper argues, is the best way to create a better, fairer, and more just society. However, before this can take place, a kind of cuddly paradigm shift the paper refers to as a "cultural change" must first occur. Francis Maude, Cabinet Office minister, illustrated this when he lamented the fact that charitable giving is not a cultural assumption: "for some things there's an absolute social norm that if you go to a restaurant you expect to tip somewhere probably between 10% and 15% and that's kind of an understanding. There's no similar understanding with charitable giving."

While noble, though, these sentiments are not grounded in reality.

First, when one goes into a restaurant, the giving of a tip is not an absolute social norm. It is, at least the way I see it, primarily a gesture of one's financial well-being directed at the pretty brunette across the table. Or a discretionary reward to one's waiter, to be withheld in the event that the service is subpar.

Second, these appeals from the Government to give more come across as hollow, given what it is actually asking taxpayers to do. In England, what is and what is not charitable has a statutory definition. Per the Charities Act 2006, "charitable purposes" are defined as, among other things: the prevention or relief of poverty; the advancement of education and health; community development; the promotion of religious or racial harmony, equality and diversity; the promotion of the efficiency of the armed forces, police, fire-rescue and ambulance services; and the relief of those in need. In other words, the Government is asking the citizen to make contributions in areas in which the state is already very active, and indeed where the state is more active today than at most points in British history.

Britain is a welfare state, and this year stands to be annus horribilis for the British taxpayer. Government forecasts for FY 2010-2011 estimate that HMRC's gross receipts will be £441.7bn; 52% of which, £230.9Bn, will be paid by British wage labourers and consumers (as £150.2bn in Income Tax and £80.7bn in VAT). Compare this with the £270bn the Government estimates will be spent on social services and debt service alone (£226bn and £44bn, respectively) and one begins to get a picture as to why British taxpayers are reluctant to give to charitable causes: they are giving quite enough already.

Tis better to give than to receive

I find this reasoning unconvincing, but the frequency with which it is encountered merits discussion. This common view is evidence of a deep distrust of the forces of production, and an affinity for common control of them, that has been written into British and European cultural consciousness gradually over the past two hundred years. Generations of intellectuals have regarded free-market or libertarian beliefs as malicious, oppressive and delusional, bound to “so many bourgeois prejudices, behind which lurk in ambush just as many bourgeois interests” (Marx, 1848), or as simple “selfishness” and “one and the same thing [as animality]” (Badiou, 2010).

To be sure, under the conditions in which socialism first arose — a harsher time with pronounced class divisions, child labour, and other unpleasantness — socialist ideas may have had a stronger case. However, these conditions do not prevail today: the middle class is now dominant; the dark satanic mills have been replaced by gleaming air-conditioned edifices of glass and steel; the rich, middle-class and and poor alike consume the same products and culture; and the internet has made a virtually limitless amount of information freely available to ordinary people everywhere.

This brings us back to Toby Ord. First, his organization and its members are proof that human nature and social responsibility are not mutually exclusive, and that people are certainly able—though perhaps not predisposed—to engage in meaningful voluntary altruistic activity. Second, we should note that Giving What We Can states openly that its members commit “to give 10% of their income to the most effective charities they can find,” as measured by the number of “Disability-Adjusted Life Years” preserved by their donations. One wonders what our society might look like if all social welfare provision were as rational, efficient, and accountable as this.

The argument that “libertarianism is unworkable due to human nature” is a case of outdated cultural prejudices failing to catch up with the spirit of the age. The idea that a lumbering centralized state is necessary for the protection of the working class is the consequence of using an antiquated theory outside its proper context, of examining 21st-century problems through a 19th-century lens, and those who employ it are blinded to liberal possibilities for a fairer, freer, and more prosperous society. To be sure, though, if anything like a libertarian state is ever going to work, it will need many more people like Toby Ord.

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I read an intriguing story last month about Toby Ord, a lecturer at Oxford University, who has pledged to donate £1,000,000 to charitable causes over his lifetime. Dr Ord is no millionaire – he currently earns £25,300 per year. He and his wife have pledged to give annually 10% of their income to charitable causes, and they’ve convinced others to do the same through his internet-based organization, Giving What We Can.

My non-libertarian acquaintances often ask how the libertarian state could work. While such discussions tend not to resolve anything, they almost always turn to the subject of public service and welfare provision. At this point, I argue that the state should be minimal, and financial contributions to it should be voluntary as far as possible. To this, a social democrat reacts with disdain, and suggests the libertarian solution is unworkable as (1) it is not in people’s nature to be altruistic and (2) such services would go unfunded unless citizens were compelled to pay for them through taxation. Thus, the argument goes, the state is right to compel them.

[Continue reading] 

On the third day of Christmas...

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My true love sent to me: three french hens, which in the song apparently represent the theological virtues of faith, hope, and charity (or, if you would like to be modern, love).

Of these, faith is the most problematic. There is something odd about a religion that wishes evil on people, solely because they do not happen to share it. For many centuries the Christian religion was strictly intolerant of others; then even particular strains of the Christian religion refused to tolerate each other. Three or four hundred years later, it is not exactly a love match, but at least they now mostly get along (mostly) without killing each other. Let us hope that such enlightenment eventually comes to today's religious extremists too. I would rather like to live in a world where different religions live in peace, and where we don't have to cancel school nativity plays or stop using the word 'Christmas' in case others find it offensive. A world where people pray for unbelievers, rather than set out to slaughter them.

A word on charities. The UK government plans to rely more and more on private charities to deliver its Big Society agenda; but governments can really mess up charities. They can become completely reliant on the state, turning into political campaigners for more state funding, rather than the doers of good work that they started as; or they can find their private backers deserting them. An interesting case of this was the Royal National Lifeboat Institution, which was created in 1824. Thirty years later it ran out of money. So in 1854 it started accepting government subsidies. But it found that, for every £1 it took from the government, it lost £1.40 in private donations. People couldn't see why they should fund something that the government was paying for. Now the RNLI proudly refuses all government money and still manages to rescue some 6,000 people a year. Bravo!

Be very careful of US poverty numbers

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We should always be very, very, careful with the poverty numbers that come out from the US. For they calculate their poverty level in an entirely different manner to everyone else. We and the rest of the industrial world look at what people have after all the things we do to alleviate poverty. After tax credits, housing benefit and all the rest. This is sensible, because what we want to know is not how much poverty is there before we start to help but how much is there after the help we already do give: how much remains to be done in essence?

Have a look at this calculation here. They've got it a little bit wrong in that the minimum wage worker doesn't have more disposable income than the $60,000 a year household, rather they have a larger consumption bundle. And, of course, it's really consumption that defines poverty, not either income or disposable income.

But here's the important point. When the calculation is done of how many poor people there are in the US the only part of that assistance that is included is the TANF amount. That $2,040 going to the extremely poor family. For the only thing that is counted in determining poverty is cash income: the effects of the tax system (and thus tax credits) and benefits in kind (food stamps, Section 8 housing vouchers etc) are ignored. That some $32,500 in various assistances offered to the minimum wage household is simply not taken into account at all.

Which, when you think about it is really rather strange. For that minimum wage household is enjoying a consumption bundle considerably higher than median household income for the US as a whole (which is $49,000 or so, but that's a pre tax number, and as we can see, the min wage household has higher consumption than the $60,000 one).

And the implication of this is that, to the first level of approximation at least, is that there are no working poor in the US. The problem has already been solved. The US welfare state is sufficiently large, sufficiently redistributive, that working at minimum wage leads to a better than median lifestyle and consumption bundle.

What poverty?

Private legal aid will cut litigation abuse

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The cuts to legal aid announced yesterday follow a report published by the ASI this summer which called for a radical redesign of the legal aid system that ends the subsidy for litigation. Understandably, some people are alarmed – withdrawing legal aid means that the recourse to the courts will be out of the reach of many people. But the government subsidy creates the wrong incentives for people and encourages an overly litigious society. Free legal aid is sometimes a good thing, but it has to be done by private charities to avoid abuse.

As I have written before, government programmes must be blind to specific circumstances as much as possible. This is partially to limit unpredictability, but largely to avoid giving too much power to government bureaucrats. If much discretionary power is invested in individual civil servants, they can abuse these powers and create injustices in the system. On the other hand, private charities can choose who they want to help based on the specific circumstances of the person in need. Obviously, this allows them to minimise abuses in a way that the necessarily-blind government programme cannot – they can spot the people who are acting within the letter but not the spirit of the rules, and can use more discretion to prevent abuses of the system.

The private charity sector avoids the downsides of the overinvestment of power in individual caseworkers for two reasons. One is that charity money is voluntarily given, so the donor has every right to be picky about whom her money goes to. The second, “demand-side” point is that without government crowding out effects, a multiplicity of charity providers will offer services, filling in the gaps. If, for instance, a charity’s workers discriminate against redheaded people, some people will direct their money towards charities that provide for them. If the government discriminates against red-headed people, it is extremely difficult for people who have already been taxed to pay for the welfare system to extend themselves even further to fill in the gap.

This argument applies to legal aid just as it does to other forms of government welfare. Government subsidies for litigation have had harmful effects on the legal system and society because legal aid has had to be given for even very spurious cases, in order to give the wannabe litigant the benefit of the doubt. Allowing the private free legal aid sector to fill in the government’s role will improve discretion without creating abuses of power.

Help the unemployed: abolish the minimum wage

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It’s not often that I have quite unreserved praise for a government policy, but Iain Duncan Smith’s welfare reforms are a rarity. Graduating welfare payments to ease people on benefits into work, withdrawing them from people who turn down jobs and simplifying the system are all good measures which will reap dividends in the years to come.

It is regrettable that the government has decided to increase the Department of Work and Pensions’ budget to pay for these measures, when the money could have come from the already-bloated welfare budget, but this is a relatively minor point. The reforms are timely and much-needed, and have been implemented almost exactly as conceived.

The government can go further to help the unemployed, however. As Eamonn Butler argued last night on Jeff Randall Live, the minimum wage should be abolished immediately to allow the private sector to create jobs for the currently-unemployed. Currently, this prices the unskilled and inexperienced out of the market – if their labour is worth less than the minimum wage of £5.93/hour, no employer can hire them without losing money.

This doesn’t affect most workers, whose experience makes them more valuable than this, but it creates an artificial barrier to entry for the long-term unemployed who lack these skills. All economics students learn that a price floor will create an oversupply because supply exceeds demand. The same goes for the price of labour – supply of labour will exceed demand (ie, jobs), creating unemployment.

As Ludwig von Mises said, “Unemployment in the unhampered market is always voluntary” – in a free market, unemployed people will price themselves down to what they are worth to get a job. If you prevent them from doing this through the minimum wage, you’ll condemn them to involuntary unemployment. Duncan Smith has done a lot to help the unemployed get back into work, but unless he removes the biggest government barrier to employment, all of it might be for nothing.

Don't cut child benefit – abolish it

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I’m a pragmatist who’ll take a cut in spending as it comes, so I’m broadly supportive of the cuts to child benefit. But the plan to penalize people who fail to comply with the Treasury’s quick-fix method – requiring mothers to disclose the incomes of their cohabitees – underlines how broken the current benefits system is.

‘Universal benefits’ are not really universal at all. In the case of child benefit, they are a transfer from childless people to people with children – not a vertical transfer from rich to poor, but a horizontal transfer that rewards one life choice over another. (Some would say that society needs children to be born to support the old age pension system. But since we already have a declining birth rate, this is more an argument for pension reform than for maintaining child benefit.)

What this means is that arguments in defence of child benefit that say that cuts to child benefit will favour one group at the expense of another are mistaken – they already favour one group (people with children) over another (people without children).

The cuts to child benefit are good and should go further, but they’re being implemented in a way that is so ham-fisted a way as to make even the most committed cutter wince. Plans to fine anybody who doesn’t comply with the measures are misconceived – if you are a family who has a lodger and don’t know how much they earn, prepare for a hefty fine. Furthermore, setting the bar at the higher income cap will only increase the disincentive to work for people on the margin and reduce overall economic output. Now is not a time to discourage economic activity.

We need a more radical approach – child benefit should be scrapped altogether.

If there are very poor people who cannot afford to support their children, either let this be included in the ‘Universal Credit’, or allow private voluntary charities to provide for them. But horizontal wealth transfers that reward one lifestyle over another should be ended both because they are unjust and they skew incentives. The government claims not to want to ‘pick winners’ in the economy, so why do they pick winners in society?