Quotation of the Day

Is from David Henderson, blogging at EconLog:

"I would love to have politicians who are effective at protecting and increasing our freedom. But sometimes the best we can do is get politicians who are ineffective at reducing our freedom."

Quotation of the Day

Is from Alberto Mingardi, writing recently on EconLog about Theresa May's Tory Party Conference Speech:

"...I find it bizarre that so many people wonder about why people feel poorer - and nobody, even among the Tories, dares to say that perhaps taxing them a bit less would be a way--which is entirely within the power of governments, without entailing bold plans for driving the market this or that way--to make people less poor. This would seem a rather obvious policy choice, for 'conservatives.' But apparently it is not."

Quotation of the Day

Is from Adam Smith's 'Theory of Moral Sentiments', Part IV, Chapter II: Of the beauty which the appearance of Utility bestows upon the characters and actions of men; and how far the perception of this beauty may be regarded as one of the original principles of approbation:

"What institution of government could tend so much to promote the happiness of mankind as the general prevalence of wisdom and virtue?  All government is but an imperfect remedy for the deficiency of these.  Whatever beauty, therefore, can belong to civil government upon account of its utility, must in a far superior degree belong to these.  On the contrary, what civil policy can be so ruinous and destructive as the vices of men?  The fatal effects of bad government arise from nothing, but that it does not sufficiently guard against the mischiefs which human wickedness gives occasion to."

The Taxpayer as Insurer

This story has popped up on my social media recently.

There’s relatively scant details in the Daily Record article, or indeed in the online petition that’s been set up by the daughter of one of the homeowners affected.

Here’s my attempt to summarise what’s happened (please feel free to get in touch and correct me if I’ve gotten any of the details wrong – all of my information here is from second and third-hand sources, so who knows what details may have gotten distorted in transit):

The council (local government) in West Dunbartonshire built a bunch of houses several decades ago.  These are what is known in the UK as ‘council houses’, i.e. low-cost housing created for people who, for whatever reasons, find it difficult to find affordable private housing to rent or buy.  Tenants of these properties rent them from the local government, typically at below-market rates.

The central UK government passed ‘right to buy’ legislation as part of the Housing Act 1980.  This entitles tenants of council houses “the legal right to buy, at a large discount, the home they are living in”.  This discount was originally very substantial, at between 33% and 50% of the valuation of the property.  The size of the discount was reduced in 1997, and some of the rules surrounding ‘right to buy’ were changed in 2005.  For example, five years tenancy is now required to qualify for ‘right to buy’ and properties purchased under the scheme since 2005 cannot be immediately placed on the open market for sale, among other restrictions.

The houses in question started out as council houses, but were subsequently bought by their tenants at well below market rates under the ‘right to buy’ scheme.

A few years ago, in 2013, “a serious roof defect was discovered” in a number of these houses.  “Some of these properties have had roofs collapse, with several so defective that they have been deemed uninhabitable, others requiring new roofs to be built and many still to be surveyed.”

I don’t know the precise nature of the building defects, but they sound pretty serious if people’s roofs are falling in and homes are being rendered uninhabitable or deemed unsafe to live in.  A few of them have even been earmarked for demolition.

The specific example given in the article is that of one Mrs Mary Goldie, a 69 year old retired headteacher, who purchased her house in 2008 for £105,000 (~$206,000).  This purchase was not made under ‘right to buy’; the property was already under private ownership prior to Mrs Goldie’s purchase of it.

Mrs Goldie’s house has been rendered uninhabitable by the defects and she’s been forced to move out.  With the help of her family, she’s taken out a mortgage on another nearby property to live in.

The council have subsequently offered to buy Mrs Goldie's house from her for just £12,000 (~$17,500).

The response of Mrs Goldie’s daughter has been to raise a petition “to request financial support from the Scottish Government for the private homeowners of flat-roofed properties in West Dunbartonshire”.

I feel bad for this woman, I really do.  Her house has been rendered almost worthless by the extent of the defects and she’s spent most of her savings on securing somewhere else to live.  It is a nightmare situation for anyone to have to go through.

But, what I don’t understand is why are taxpayers being asked to foot the bill for this?  Surely this is a matter to be dealt with between the property owners and their insurance companies?  The petition states that the “insurance companies will not pay out anything”.  I don’t understand why this would be the case.  Surely this is exactly the sort of thing people take out insurance for?! 

The responsibility for maintaining and repairing a property lies with the owner of that property.  Property owners take out insurance to protect against catastrophe, that is, to cover substantial necessary work that they wouldn’t be able to afford on their own.

If the home(s) in question are still owned by the local government, then the responsibility for repairing them lies with the local government and/or their insurer(s).

If the home(s) in question are privately owned, then the responsibility for repairing them lies with the private owner(s) and/or their insurer(s).

I would happily sign a petition that asked for the government to assist the homeowners in dealing with their insurers and to put pressure on the insurance companies to pay out.  I refuse to sign a petition that basically amounts to the taxpayer acting as a private insurer.  I never agreed to insure these properties with my taxes.  And I don't expect Mrs Goldie or her daughter to pay for any repairs I might require on my house.

The Confused and Backwards Thinking of Protectionists

Scott Alexander’s latest post, about the link (or apparent lack thereof - the Easterlin Paradox) between wealth and happiness, on his Slate Star Codex blog is interesting and thought-provoking as always.  I recommend reading the whole thing.

Scott makes some good points and I find myself in complete agreement with his conclusion that:

“...I am forced to acknowledge that happiness research remains a very strange field whose conclusions make no sense to me and which tempt me to crazy beliefs and actions if I take them seriously.”

I do have one objection to his argument.  Specifically, it’s with the way he discusses free trade and protectionism in part II of his post.

Here’s Scott:

“Suppose that some free trade pact will increase US unemployment by 1%, but also accelerate the development of some undeveloped foreign country like India into hyper-speed. In twenty years, India’s GDP per capita will go from $1,500/year to $10,000/year. The only cost will be a million or so extra unemployed Americans, plus all that coal that the newly vibrant India is burning probably won’t be very good for the fight against global warming.

Part of me wants to argue that obviously we should sign the trade pact; as utilitarians we should agree with [Scott] Sumner that lifting 1.4 billion Chinese out of poverty was ‘the best thing that ever happened’ and so lifting 1.2 billion Indians out of poverty would be the second-best thing that ever happened, far more important than any possible risks. But if Easterlin is right, those Indians won’t be any happier, the utility gain will be nil, and all we will have done is worsened global warming and kicked a million Americans out of work for no reason (and they will definitely be unhappy).”

I think Scott’s thinking here is confused.  I don't mean to pick on Scott here, he’s not alone, I think this is an issue where many people's thinking is very confused.  For now, let’s put aside the question of whether or not raising people’s income can make them any happier or not; as this is not relevant to the point I wish to make here.

The way he words this is as if:

1. The US government has the option to take some action X (in this case signing a free trade pact).
2. Positive consequences of X are: a >6 fold increase in the material well being of over a billion people, who are mostly extremely poor by US standards, in just 20 years.  (Additional positive consequences not identified by Scott include some combination of reduced prices, improved quality, better selection and/or improved availability of certain goods and services to American consumers - and to other American producers not in the protected industries.)
3. Negative consequences of X are: 1 million people, who are mostly well off by global standards, lose their jobs and additional fossil fuels are burned, contributing to global warming.  (Note that most of these 1 million people will eventually find other work; some will take early retirement; some may set up businesses of their own.)

Should the government take action X?

I think this gets things backwards.  Here’s what I think is a more accurate way to look at this:

1. The US government has the option to take some action Y (in this case imposing tariffs, quotas and/or outright bans on US imports from India).
2. Positive consequences of Y are: 1 million people, who are mostly well off by global standards, can remain in their current jobs and don’t have to be forced to retrain, find other work, or be forced into early retirement.  Also, less fossil fuels will be burned, leading to less global warming.
3. Negative consequences of Y are: severely retarding the improvement in the material well being of over a billion people, who are mostly extremely poor by US standards.  Higher prices, worse quality, more limited selection and poorer availability of various goods and services to American consumers - and to other American producers not in the protected industries.

Should the government take action Y?

Some people will look at the above and ask what’s the difference?

The difference is free trade is what would happen anyway unless the government actively goes out of it’s way to prevent it from happening, if it didn’t erect barriers to trade between people who happen to live in different countries.  Free trade does not require a free trade pact to happen, it just requires that government doesn’t get in the way.

Here’s Scott again, later in the post:

“If we were to actively try to keep the Indians from industrializing, that would be pretty awful. But that’s not the argument at hand here. The argument at hand is ‘are we morally required to sacrifice our own economy in order to help the Indians industrialize?’”

I think many (most?) people would answer 'no' to the above question.  However I think this question is a red herring.  Even more than that, I think the quotation above perfectly highlights what is so confused about many people’s thinking on international trade, globalisation and protectionism.

What does the phrase "our own economy" mean?  It seems from the context and from common parlance that it means "the US economy".  However, it needs to be emphasized there is nothing economically or morally relevant about political boundaries.  Trade between someone in New York and someone in New Delhi is no different, in any economically or morally relevant way, than trade between someone in New York and someone in New Jersey.

Or, as one commentator, j r, put it:

“We don’t use these sorts of rationales to restrict trade between California and Utah or to stop a white American from going to a Chinese American dry cleaner.

What’s the basis for using the nation state as an intrinsically valid moral or ethical unit?”

It seems to me that the argument at hand really does revolve around actively trying to keep less developed countries from industrializing.  Consider the question: what is protectionism?  Protectionism is the active effort of government to prevent, limit or restrict trade across political boundaries.  No active efforts are required on the part of government to allow mutually beneficial free trade.  All this requires is that government doesn’t stop it from happening by erecting artificial barriers to trade.

Contrary to the implication of the question: “are we morally required to sacrifice our own economy in order to help the Indians industrialize?”, free trade does not involve any sacrifice.  It is what would naturally happen if governments and others were to refrain from butting into other people’s business.  Protectionism is an active attempt to retard the economies of the countries which it is directed against (not to mention the adverse unintended consequences on the economy of the country imposing the protectionist measures).

I would rephrase the argument at hand as: “can we morally justify sacrificing the Indian economy in order to help a minority of domestic producers?”

I think many (most?) people would answer 'no' to the above question.  However, our political system often produces outcomes that would appear to suggest an affirmative answer to this question.  I think this is largely a result of the confused thinking about these issues.  Many people’s intuition causes them to get this issue precisely backwards.

Quotation of the Day

Is from Robert Higgs 1987 volume 'Crisis and Leviathan: Critical Episodes in the Growth of American Government':

"[W]e do know something - at least abstractly - about the future.  We know that other great crises will come.  Whether they will be occasioned by foreign wars, economic collapse, or rampant terrorism, no one can predict with assurances.  Yet in one form of another, great crises will surely come again... When they do, governments almost certainly will gain new powers over economic and social affairs... For those who cherish individual liberty and a free society, the prospect is deeply disheartening."

Hat tip to Bryan Caplan.

Quotation of the Day

From The History of England from the Ascension of James II by Thomas Babington Macaulay, Vol. 1, Chapter 1 (Kindle Edition):

"As we cannot, without the risk of evils from which the imagination recoils, employ physical force as a check on misgovernment, it is evidently our wisdom to keep all the constitutional checks on misgovernment in the highest state of efficiency, to watch with jealousy the first beginnings of encroachment, and never to suffer irregularities, even when harmless in themselves, to pass unchallenged, lest they acquire the force of precedents."

Taxes & Laffer Curves

I would like to expand slightly on my last post, with the following observation:

The purpose of taxes and tax policy should not be to "raise as much revenue as possible", i.e. to transfer as much money as possible from private individuals to the government.  Rather, the aim of tax policy should be to raise only the amount of tax necessary to fund the services which we collectively wish the government to supply.

This comes with additional caveats, such as publicly funded projects should be required to meet certain minimum criteria for funding, such as passing cost-benefit analyses.

Sentences I Could Have Written

"Those people who make their living by devising and offering better mousetraps to willing buyers are too often portrayed as villains, while those other people who promise to forcibly take the fruits of the mousetrap factories from their creators and ‘re-distribute’ those fruits to the masses are portrayed as heroes."

That is from Don Boudreaux commenting on an 1883 essay by William Graham Sumner.

Alex Salmond doesn't understand the legitimate role of government or the point of a constitution

In the lead-up to the Scottish Independence referendum Alex Salmond was interviewed on Reporting Scotland on the 13th August 2014, where he stated that he desires to protect the NHS and maintain health services "free" at the point of use.  Whilst I don't necessarily agree with that (which I realise is a very uncommon and unpopular point of view in the UK) it is a position that many reasonable people hold.  I fully understand that where people sit on this issue, and others like it, is largely the result of subjective value judgements.  However...

Salmond then went on to state his desire for a written constitution (fine - this is a goal that I can completely get on board with) and that he would work to ensure that in an independent Scotland "health services free at the point of use" were constitutionally protected as a right.

I have to be very careful here, because I don't want to understate the significance of this:

THIS IS AN ABSOLUTELY INSANE, CRAZY, WACKY, RECKLESS, OUTRAGEOUS AND DOWNRIGHT TERRIBLE IDEA!!!

Regardless of your subjective values and your opinion on whether or not you think healthcare should be provided by the state, or by private providers, or some combination of the two, the notion to protect this as a "right" is a total nonsense.

You cannot have a "right" to healthcare that's free at the point of delivery just as you cannot have a "right" to housing or watermelons or education or yachts or mortgage advice or courier services that are free at the point of delivery.  What all of these things have in common is that they cost money to provide - in order to receive them they first must by produced (at some cost) by someone else.  You can't have a "right" to them because that would put an obligation on someone else to provide them at their own cost.

A "right" to free healthcare for you is an obligation to provide free healthcare on your Doctor.  You don't expect to go to work and get paid nothing for your labour so why should your Doctor?

Thoughts on the Scottish Independence Debate

Warning: This post is very long and somewhat wonky.

I realise that I'm quite a bit behind here, but I only had the time to watch the debate last weekend and then had to find the time to write all this down during the last week.


General thoughts:
I found Alex Salmond to be relatively weak, particularly on the issue of a formal currency union with the rest of the UK.  He was evasive of questions that obviously made him uncomfortable.  He quoted Darling out of context and several times referred to obscure documents rather than answer questions directly.  I find the case for independence to be lacking, particularly of any really good, practical reasons for why we should want to be independent.

Alistair Darling's performance was perhaps slightly stronger, although he missed a few tricks.  His best moments were when he quipped to Alex Salmond that "I didn't vote for you." and with his observation that a formal currency union between Scotland and the rest of the UK would require agreement on both sides.  I think Darling was needlessly evasive when questioned by Salmond on whether he thought that Scotland could be a successful independent country, probably out of fear of how it would look of how he might be later quoted out of context (judging by this debate, most likely by Salmond himself).


Opening Statements:

Alex Salmond opened by citing figures of 49 out of 71 Commonwealth countries and 12 out of the 28 EU countries are the same size or smaller than Scotland [pop. 5.3 million]; presumably by way of example that there are plenty of successful small countries and that therefore Scotland could be as well.  The 49 out of 71 Commonwealth countries figure is disingenuous, since not all 71 of these 'countries' are independent states - for example England, Scotland, Wales, Northern Ireland, Gibraltar, the Falkland Islands, St. Helena. and the Cayman Islands to name but a few which are not.  There are 53 independent states in the Commonwealth, 31 of which are smaller than Scotland, one - Singapore [pop: 5.4 million] is about the same size and another one - Sierra Leone [pop: 5.8 million] is not much bigger.  I'm absolutely baffled as to why Salmond would present these figures like this, since the reality doesn't weaken the point he was making anyway.  The 12 out of 28 EU countries figure is perfectly reasonable; there are 9 EU countries smaller than Scotland and 3 of roughly the same size: Slovakia, Finland and Denmark.

He mentions the large number of food banks in Glasgow and rhetorically asks how there can be people reliant on them in this prosperous country [Scotland].  The implication presumably that it is due to failings on the part of the UK government in Westminster.

He then alludes to the Trident nuclear weapons at Faslane and states that £100,000 million (i.e. £100 billion) is planned to be spent on them "over the next generation", of which £8 billion is "Scotland's money" (by which he means is the equivalent paid in tax by the people of Scotland in order to cover this expense).  This is a drop in the ocean compared to other government expenditure, something I've already covered in another post here.

He mentions that for more than half of his life Scotland has been governed by parties that "we" didn't elect at Westminster and that these parties have given us the "Poll Tax" and the "Bedroom Tax" (which of course is not a tax).

Salmond ends his opening statement by stating that: "No-one, absolutely no-one will do a better job of running Scotland than the people who live and work in Scotland." this is a very reasonable point taken in isolation, but it strikes me as somewhat ideologically inconsistent to support Scottish independence on this basis whilst simultaneously expressing a desire for an independent Scotland to remain within the EU.  He's essentially taken polar opposite positions regarding the UK and the EU.

Alistair Darling's opening statement contained exactly what you would have expected it to, he stated that he was proud of Scotland and wants it to prosper, but doesn't believe independence is the best thing to do and cited the strength of the UK.  He advocated a "best of both Worlds" approach.


Economic Prosperity & Social Justice:
The debate began with the themes of economic prosperity and social justice, which were bizarrely lumped together.  Economic prosperity is self-explanatory enough, but the definition of "social justice" is more difficult to nail down and I suspect many people understand it to encompass various different things.  The reason I find it odd that these two things are lumped together is that certain things which some people would consider part of the definition of "social justice" I view as being at odds with economic prosperity.

Darling claimed that as part of the UK, Scotland enjoys unimpeded access to a much bigger market.  This would be a good point were it not for the existence of the EU, which provides the same benefit across all 28 member states.  He also observed that Scotland enjoys additional security as part of a bigger country.

Alex Salmond stated he had a "vision for Scotland" which includes a prosperous country/economy and a 'just' society; at no point did he define what he meant by 'just'.  He referenced over 30,000 children in Scotland in poverty due to social security changes (he wasn't specific on what social security changes specifically).  He also mentioned the "bedroom tax" (a misnomer since IT IS NOT A TAX!) affecting 80,000 families in Scotland.  He didn't offer any discussion on how these issues would be any better/worse in an independent Scotland.

Salmond went on to cite a "risk assessment" by a "major accountancy company" completed "last week" which ranked Scottish independence as the 6th risk behind the UK leaving the Euro amongst other things.*  The whole point was rather incoherent - how do you compare such a diverse wide array of potential risks that may or may not affect a nation and rank them.  Even if you can do so, the 6th biggest risk is really high up the list of all possible risks (which is an infinitely long list).

Asked about the risk that the Union will keep pensioners poor Alistair Darling noted that being part of a bigger, stronger economy spreads the risk.

On Salmond's point that an independent Scotland would always get the government "it" voted for Darling quipped that he didn't vote for Alex Salmond.  As I mentioned here this was more than just a joke, it highlights an important fundamental truth about democracy.

Right at the end of the first part of the debate a gentleman in the audience asked Alex Salmond how ending peoples reliance on food banks is to be achieved in an independent Scotland, whether it is by encouraging people who are able to make a contribution or whether by raising taxes and paying out more in benefits.  Unfortunately ITV cut back to their "spin room" immediately after this excellent question was asked and they never returned to it for the rest of the debate, so Salmond got away without having to detail any specifics of his proposed means to this end.


Cross-Examinations:
Darling pointed out that a formal currency union between Scotland and the rest of the UK would require agreement on both sides.  Darling was very persistent in trying to get an answer out of Salmond on what is his plan B if an independent Scotland is unable to negotiate a formal currency union with the rest of the UK?  I found Salmond's response to be very weak, he repeatedly avoided the question stating only that a currency union was in Scotland's best interests and that he would therefore push for that.  When pressed on the issue he refused to give any clarity on any alternative arrangements.  A casual observer could easily take this as an admission of not having a plan B.

Salmond referenced the Fiscal Commission Working Group Report, which you can read in full online here.  Salmond referred to page 4 of the report, but that's just part of a Foreword, the actual bit we're interested in here is Chapter 7 (pp. 121) and the "Technical Annex - Assessment of Key Currency Options"

In a nutshell, the report sets out 5 potential options for currency in an independent Scotland:

1. Formal monetary union with the UK
2. Informal monetary union with the UK (sterlingisation)
3. Join Euro
4. Set-up new Scottish currency (floating exchange rate)
5. Set-up new Scottish currency (fixed exchange rate)

Salmond quoted Darling speaking on Newsnight Scotland describing a currency union between an independent Scotland and the rest of the UK as "logical" and "desirable" for both countries.  This is selective quoting by Salmond who has cherry-picked these words specifically to make it look like Darling has either backtracked (Gasp! Someone changing their mind? - How awful!) or is being disingenuous now.  In fact, if you watch the clip you'll see Darling has been remarkably consistent in his views on a potential currency union - he states that it makes sense within the context of political union (and points out that this is what we have now!).  Watch the clip here and get the full context of his comments for yourselves.

Salmond then quoted David Cameron saying that Scotland could be a successful independent country and pressed Alistair Darling on whether he agreed with this statement.   I think Darling was needlessly evasive of this question.  I think Salmond was probably correct when he stated that Darling probably does agree with the statement, but just doesn't want to say so for fear of how it will look (or possibly for fear of how it will later be quoted out of context by Salmond).  I think this was a waste of an opportunity for Darling, he could have said something along the lines of:

"Yes, I do, but I think that Scotland can be even more successful as part of the UK."

Or, he could have asked Salmond to clarify exactly what he meant by "successful"?  There are all sorts of different criteria by which we could reasonably measure success.


Audience Questions:
Alistair Darling pointed out that public spending per head in Scotland is higher than in the rest of the UK - something that he supports.  I disagree that this is necessarily something to be supported in and of itself.**  That being said, I think Darling's answer touched on two important points: firstly, that Scotland is financially better off as part of the UK; secondly, and more importantly, even if Scotland would be financially better off if it were independent from the rest of the UK, using this as a justification for independence is on shaky moral grounds.  An analogy: the 10% of richest people in the country could be financially better off were they independent from the other 90% as they then wouldn't have to subsidise or support poorer members of society - does anyone seriously think that's a good justification for the richest 10% to secede from the rest of the UK and declare themselves independent?

It's interesting that there's a general narrative amongst the nationalists that the Scottish people would be better off financially if Scotland were independent from the rest of the UK (since they wouldn't be subsidising others in other parts of the UK on average), but at the same time they pursue statist policies, including taxpayer funded higher education, taxpayer funded medical prescriptions, etc. and that they don't seem to see a contradiction in these positions.  The whole nationalist narrative is full of contradictions and seems to be based around a general xenophobia or misplaced feelings of oppression rather than based on any fundamental principles as such.

Darling references this IFS report and suggests that in the event of Scottish independence, in the early years of independence circa £6 billion of cuts would be required.  I'm assuming Darling has estimated this from the figure of £6.4 billion reported in Table 1 (pp. 19) as the budget deficit of Scotland in tax year 2010-2011 (the most recent year covered in the IFS report) based on a geographical share of North Sea oil & gas revenue (the most realistic, but also the most optimistic case).

Darling described "free" (read: taxpayer funded) higher education as a "theoretical right" in reference to cuts of 130,000 college places.  I don't like this - basically because it is an outright nonsense.  "Free" higher education cannot possibly be a right for anyone because it costs resources to provide.  This is the distinction between negative rights and positive "rights".  If there were a right to receive education without paying for it directly that would put an obligation on someone else to pay for that education - who is that someone else and why should they be paying rather that the person receiving (the vast majority of) the benefit of the education?  This blog post is already far too long to get into a detailed discussion of such concepts, so I'll save any further comment for another day.

Alex Salmond answering questions on the issue of pensions referred to Scotland's declining working age population.  He referred also to 37,000 young people leaving Scotland each year and spoke about retaining these skilled people within Scotland and ensuring they are allowed to stay here.  He gave no details about how he planned to achieve this or how it would be any easier/better within an independent Scotland.

Darling attempted to emphasise the additional economic opportunity that comes with being a part of the UK.


Closing Statements:
Darling's closing statement was a narrative of not introducing any new borders or boundaries to increasing wealth and opportunities and the additional security that comes from being part of a larger country such as the UK.

Salmond's closing statement was a reiteration of the points he made in his opening statement.  He emphasised that Westminster governments have often not reflected the votes of the Scottish population, that Scotland is a wealthy nation with abundant natural resources and that this can be used as a basis for a more 'just' society and that no-one will govern Scotland better than the people who live and work here.


* It would have been helpful if he'd mentioned the name of the company that carried out this "risk assessment" - the cynic in me suspects that no such document exists and it's all rhetoric.
** I'm in favour of public spending being as low as possible - after all, the goal is not to spend as much money as possible, it's to get the best and most cost-effective results possible.  Put another way - we want to get as many public goods/services as possible for the lowest possible cost.  One is also reminded of the law of diminishing returns as well as the fact that one will never spend others money so carefully as they would spend their own.

On the Cost of Trident

During the Scottish Independence Debate between Alex Salmond and Alistair Darling, Mr Salmond alluded to the Trident nuclear weapons at Faslane and stated that £100,000 million (i.e. £100 billion) is planned to be spent on them "over the next generation", of which £8 billion is "Scotland's money" (by which he of course means is the equivalent forcibly extracted in tax from individuals living & working in Scotland in order to pay for this expense).

He's not explicit about exactly what time frame is a generation.  Assuming a generation is say 30 years and taking these figures on face value, that means £3.33 billion per year, of which £270 million per year is coming from Scottish taxpayers.

The UK government budget 2014 estimates total expenditure of £732 billion in 2014-15 (ignore for now that they also estimate revenue to be only £648 billion - if you earned £648 per week would you think it a particularly sensible policy to spend £732 per week?)

Scotland represents approximately 8% of the UK in population terms, so assuming similar patterns of taxation and spending as in the UK as a whole (it's not going to be exactly the same, but it'll be close enough for my back-of-the-envelope estimate), total government spending in an independent Scotland would be circa. £59 billion.

£270 million is less than 0.05% of £59 billion - that's a rounding error!  It's about 50 quid per person per year.

To put this into perspective, the UK government is forecast to spend £222 billion on 'Social protection' this year alone (this includes state pensions, child benefit and jobseekers allowance) - that's billion with a b.  This works out at over £3400 per person.  That's 68 times larger (or two orders of magnitude larger) than spending on nuclear weapons.

Believing that Scotland should get rid of it's nuclear weapons on the basis that you don't agree with them on moral grounds or on other principles is one thing, but to argue for getting rid of them on the basis of cost is a very weak argument indeed when their cost is so much smaller than so many other things the government spends our money on.

The Bedroom Tax is not a Tax

Warning: This is a bit of a bugbear of mine, what follows is pretty much just a rant.

Disclaimer: Just to get it out in the open before I get any complaints about defending this unpopular policy: I am not a fan of the under-occupancy penalty, I think it is unfair to large numbers of people, many of whom will be among the most vulnerable members of our society (minorities, the poor, the sick and the disabled).  This post should not be taken as a defence of the policy, which I oppose.  This post is merely about the term "bedroom tax" which is an inaccurate and misleading way to describe this policy.  I think it may also be counter-productive for opponents of the policy to label it such, in much the same way as calling anyone who disagrees with your political leanings a communist, a Nazi or (most commonly) a fascist.

[Begin Rant]

Let me state explicitly and to avoid any ambiguity: the "bedroom tax" is NOT A TAX!

I'm talking about the under-occupancy penalty - to give it it's proper name - which is part of the Welfare Reform Act 2012.

So, if it's not a tax, what is it?  It is a reduction in benefits paid out to people living in council housing deemed to have "spare" or "unoccupied" rooms.  Some people may read this and think to themselves "what's the difference?"  I suspect that that's how the colloquialism "bedroom tax" came about in the first place.  Someone has equated a withdrawal of benefits to a tax.  And taxes are bad, right?  So, the bedroom tax must be bad!

Whilst I agree with the conclusion, it is not because of this argument.  The problem here lies in the first premise, that equating of a withdrawal of benefits to a tax.

From the perspective of an individual, a reduction in benefits and the levying of a tax may look the same and may have exactly the same consequences for the individual concerned.  For example, imagine Dave currently works part-time in a low wage job, he doesn't earn enough to pay Income Tax or National Insurance (Social Security) contributions.  He also receives some money paid to him by the government in benefits of some sort (e.g. Child Benefit, Working Tax Credits, Carer's Allowance, etc.).  Now, imagine the government alters the tax rules, so that Dave now has an annual tax bill of £200, but his benefit payments remain unchanged.  The effect of this is obvious: Dave is £200 per year worse off, he's going to have to cut back on £200 per year of consumption (or saving) or draw into any savings he may have.

Now, lets imagine an alternate scenario where Dave's tax bill (from Income Tax + NI) remains zero, but in this alternative universe the government reduces Dave's benefits payments by £200 per year.  What is the effect on Dave and his consumption?  The answer of course is exactly the same as in the previous scenario where Dave's benefit payments were untouched, but he was taxed more heavily: Dave is again £200 per year worse off and he's going to have to cut back on £200 per year of consumption.

This is, I suspect, where shallow thinking has led some to conclude that:

Reduction in Benefits = Tax

Therefore,

Under-Occupancy Penalty = Bedroom Tax

The problem with this equivocation is that taxes and benefits are not morally equivalent.  This becomes apparent if, instead of looking at it from the perspective of a single individual affected by the changes, we look at it from the much wider perspective of society as a whole:

If the government reduces the benefits it pays out to Dave, it must also reduce the amount it taxes Nick (all other spending remaining equal), since all benefits payments are someone else's taxes.  The government has no money of it's own, it merely shuffles money around between individuals.  This offsetting benefit to Nick exactly cancels out the harm done to Dave (in strict monetary terms).  Whether or not this is good or bad policy depends on the specific circumstances of Dave and Nick and crucially it requires a value judgement.  A similar story can of course be told regarding taxes, albeit the opposite way around.  If the government increases the taxes it charges Nick then it can increase the benefits it pays out to Dave.  Again, a value judgement is required to judge the merits of such a policy change.

The key difference is that a tax is the government taking money by force (or the threat of force - if you don't pay your taxes you can go to jail) from an individual who has rightfully earned that money.  A benefit is the government giving out money which it did not rightfully earn (whoever paid the tax to fund that benefit did).

Viewed in these terms then a reduction in benefit is seen to correspond to a reduction in tax, or in other words a reduction (however minor) in the coercive power of the state.

An increase in tax is precisely the opposite - an increase in the coercive power of the state.

From the libertarian perspective the former is unambiguously a good thing and the latter a bad thing.  However, that being said, policy changes that reduce the coercive power of the state still have to be weighed up against the harm that they inflict upon individuals.  In my opinion there is a long list of more desirable policy changes which could be made to reduce the coercive power of the state which I'd rather see implemented (e.g. university tuition fees and prescription fees in Scotland) and the under-occupancy penalty scrapped.

[End Rant]

Public Transport in Cuba

I recently had the opportunity to visit the fascinating country of Cuba.  Whilst there I was informed by a tour guide of the solution the Cuban government have come up with to tackle the problem of providing public transport.

As you may already be aware Cuba is a socialist country, in fact judging from my own experiences it is by far the most socialist country I have ever visited (including China and Vietnam).  The government owns just about everything: it's part or whole-owner in all the hotels, about half of the cars we saw driving around were government owned (you can tell from the colour of the license plate), 85% of the farmland, all of the shops and most residential property lies in the government's hands.

As a foreigner you're not allowed to buy property in the country, you can only lease it from the government.  Prices in shops are set by the government so are the same everywhere (our rep pointed out that even though there is a 'duty free' shop at the airport this is essentially a joke as the prices are no different to anywhere else) - the only exception to this are flea markets.  Locals are only allowed to buy a private car from government-run car dealerships; the type of car they are permitted to buy is dictated by how much they have paid to the government in taxes.

Many locals therefore, drive government-owned cars and/or rely on public transport.  The solution the government have come up with to provide it's citizens with public transport is to introduce a simple law which is essentially this:

If you are driving a government vehicle (i.e. one with blue license plates) and you have space for additional passengers you must stop to pick up hitch-hikers.

They enforce this by having government officials man hitch-hiking posts (which operate like bus stops) and flagging down vehicles with blue license plates to check if they can accommodate the hitch-hikers.

I wouldn't dream of hitch-hiking or picking up a hitch-hiker in this country, but I've been assured that it's an incredibly common and safe practice in Cuba.