In praise of tax

Sometimes we need to remind ourselves of the purpose of things that are unpopular. Many things have a beneficial purpose, but somehow become associated negatively, not helped by screaming media and opportunistic politicians.

 

The EU would be one such thing. We haven’t had a war among members for two generations. Huge social benefits have accrued to people in former dictatorships in Southern Europe and previously communist nations to the East. We can all enjoy holidays with less restriction and hassle, in some cases without even a border check. We can consider living elsewhere. And we can transact with each other without paying fees to banks and wasting time. We can generally trust products from partner countries, and enjoy the extra variety and benefits of competition that brings.

 

Yet all we here is negative. Stuff about loss of sovereignty and wild bureaucratic interference. True, mistakes have been made with the Euro. But the balance, in my view, is overwhelmingly positive.

 

Similar arguments can be made for the benefits of immigration. The biggest one, we conveniently forget, is the resulting potential for emigration. Ex colonials sometimes seem to think they can trample anywhere, while blocking others from trampling on our land. Then there is the benefit of diversity, not least in cuisine, and the labour market stuff. Twenty years ago you couldn’t find an honest plumber. But again, all we hear is the negative, from benefit scroungers to strained housing associations.

 

An even bigger public good portrayed as an enemy is tax. It is even easier to vilify, because we actually pay directly, unlike for the EU or immigration. We see tax all too painfully every time we look at our wage slip or fill up our cars. But we forget what it achieves, and few public figures see any value in reminding us.

 

Tax started badly as a means of enforcing feudalism, and to prop up institutions such as monarchies and Churches. In less developed societies, tax can still be a means of the wealthy exercising power, such as the agricultural marketing boards across Africa. I don’t enjoy (or even partake) in collections for the Vatican. Today’s news of an arrest of a senior monsignor for fraud will not grow that particular collection box.

 

But, as societies developed, well run states became active partners with their citizens, with checks and balances provided by democracy and legal systems. The state provides all sorts of services for the common good. And these services have to be financed. That is why we pay tax, and we should try to celebrate it rather than complain about it.

 

Someone has to provide water and sewerage infrastructure and service. The police , fire brigade, jails and the armed services needs funding. What about the judges themselves, and the civil service? Health care needs a basis to operate. What about education, the most important investment in the future for any group of people spanning generations? Who is going to build roads or train tracks? What about providing old age pensions?

 

Consider the alternatives to the state (federal or local) providing these services. I can think of three. One is to rely on donations or charity. The second is to make them self-financing, operated by the private sector without state support, so the consumer must pay the full cost. And the third is not to provide the service at all.

 

Charity is how things used to work in the nineteenth century. In practice, it hands incredible power to the wealthy. Those with money (because they do not have to pay tax) can choose where to provide their charity. In return the rest of us must belittle ourselves in front of them. Often the charity is not as free as it looks, but comes with hidden strings such as political patronage or even the self-aggrandisement of publicity.

 

I hate it. It is wonderful that Bill and Melinda Gates choose to invest their fortune for global good. It is better that some banker supports a new theatre at the cost of it being names after him, than the alternative of the theatre not being built. But it would be better still if the public good were served without us having to pray to the banker (or Church), just like the gentry of old. Donations are good. But a system that relies on donations is rotten.

 

Full self-financing has the same effect. The children of the wealthy receive the best education, while their parents receive health care to keep them alive. The rest go without, or at best suffer a lower quality of service. Gated communities are kept safe by security guards, while crime is rarely punished and becomes rampant elsewhere. Inequality of opportunity perpetuates across generations. And roads and sewers are left to disintegrate, except those required by those who can afford the cost of their private system.

 

Now, of course there are limits. If every service is effectively free, why should anyone strive to work harder or develop themselves? If the state starts taking over industries and contractors, then the effects of competition and what capitalists call creative destruction are lost. Just look at the fate of communist countries to see where this leads. There should also be some check on all state budgets.

 

I am not advocating communism for a minute. I also support trends such as linking unemployment benefit to acceptance of training, or challenges to disability benefit. I don’t see why state workers should have markedly better pension or holiday conditions than those in the private sector. I also support private provision of services.

 

But over my lifetime I see trends that I don’t like. Thirty years ago income taxes took in more revenue than expenditure taxes, and rates were more progressive. Much of the western world has a crisis in infrastructure. And corporate taxes have been relentlessly squeezed due the effects of globalisation – well done Cameron and the G8 for at least acknowledging this last week. Finally, politics itself has become more driven by money. All of these trends have widened inequality of wealth and also inequality of opportunity and social mobility. In each case, the US has a more extreme position than most of Europe.

 

Furthermore society seems to become progressively more virulently anti-tax. Part of this may because the media itself has moved away from state to private provision. The tea party has no trouble finding a willing media. Nor does UKIP.

 

There is a balance, and France, for example, seems to have swung too far towards a high-tax low-incentive model. All I ask is that we all consider three things before we thoughtlessly campaign against any tax.

 

First, do we really want to rely on charity and self-financing? Was the nineteenth century a beneficial model? Almost every tax has an equalising effect. Each time we argue against one, in effect we are supporting the wealthy against the less wealthy. Which, given the skew of wealth in the world, must mean supporting the 5% of them rather than the 95% of us. Is this progress, or regress?

 

Second, even if somehow we are in the 5% not the 95%, to what extent do we have any moral right to argue to widen inequality? True, some people work harder than others, some rise to great heights from humble beginnings. But for far more of us, our wealth is largely a product of where we happened to be born, the education our parents were able to give us, even our gender.

 

Finally, even if you are hard-nosed enough to wish to grab more, think about where history tells us that rising inequality leads. Revolution, war, hardship. Are we more concerned with cutting inheritance tax for our kids, or of giving them a more developed society?

 

So, we will join me in the pro-tax party? Oh well, worth a try.     

Big Brother arrives

I read that sales of 1984 have been rocketing in the last week. I am not surprised. Orwell was quite prescient in many ways, also with Animal Farm. The revelation that the US government seems to be spying on everyone doing anything has sent conspiracy theory into overdrive.

 

Overall, I am quite relaxed about my information. Every time technology advances, some people do not fully participate because they are scared of misuse. In the early days of the internet, I recall some people saying they would never use it because of privacy concerns. Well, we have now reached a stage where the internet makes our lives so much easier that almost all of us are ready to take the risk.

 

The same happened with internet payments. It felt scary, but most of us got away with it, the Paypal came along, then other collectors improved security, and now most of us are happy to play along, enjoying the benefits of simplicity while accepting the risks.

 

Before the internet, it was the same with credit cards, even the telephone. Go back far enough, and there were probably people who refused to use the postal service.

 

Technology can help in so many areas now, not just connecting with friends or making transactions. True, it is a bit weird that pictures of our houses are plastered all over Google maps, but it is a lot easier to find our way around than before. I love the potential use of technology to monitor us medically, or to assess us as insurance risks (you can get a gadget to keep in the car that monitors where and how you drive). Scariest of all, when I log in each morning my computer seems to know what I am thinking, with a whole range of personalised content.

 

In general, I am very relaxed about all this, even welcoming. I also have no problem with having an identity card (or many even), or sharing my DNA with my local police should they be interested in it. The more details can be squeezed onto my identity card, from medical to criminal to taxation, I am all for it, if it helps us to live in a simpler and safer society. I see no problem with a swamping of the streets with CCTV and speed cameras. I should comply with the law, and if others don’t and it compromises general safety then let them be discovered.

 

Occasionally, progress leads to a strange situation. Technology may allow the police to target suspect groups very accurately according to characteristics. Then they can be forbidden from using the technology, because it feels like discrimination. Interesting. It feels wrong to reject technology. Yet black youths have a case to complain if they are stopped are hassled more frequently than others. It is easy for me to say as a member of a perceived low risk group, but for me any technology that helps make us safer should be welcomed. The flip side is that police have no right to tarnish any individual until they have clear evidence, and they should set some limits on the imposition of everyday lives of all of us. If we embrace the technology, then hopefully the next manifestation will be so smart that the blameless members of groups currently singled out would fall off the invasive radar.

 

By the same token, if I am a safer driver, I should get cheaper car insurance, and if my medical behaviour makes me a lower a risk I should get cheaper medical insurance. That is the market at work, and it should lead to a trend where people drink less coke and keep to the speed limit. Of course, this then plays into the whole debate about tax and welfare, since the same groups tend to lose all of these trade-offs. I say let the market work, but make sure welfare offers a way out for those who need it.

 

So this week we learn about the US Government and its incredibly widespread snooping. And, even though they are welcome to snoop on my all they wish, I am still angry. Why? Well, start with the various responses offered by the US government and other actors this week.

 

First came the denials. Always with weasel language. Try this from Google. “Any suggestion that Google is disclosing information about our users’ internet activity on such a scale is completely false”. Note “on such a scale”. So a bit smaller (or even a bit bigger) would be OK then?

 

Next comes the claim that it works. We are supposed to believe that dozens of terrorist plots have been foiled due to this programme, and sometimes a suitably horrific plot is quoted as an example. Well, I have my doubts. And, I suppose if you lock up all the Muslims in the world, violence by Muslims might decrease (until they were let out, of course).

 

Then there is the claim that the agencies hardly ever use the data collected. So that makes it OK then?

 

Note the inherent contradictions within these first three responses.

 

Then comes the most insidious of all. We only spy on foreigners, not Americans. Apart from how unlikely this is (is there a citizenship tag on all information?) the degree of insult to foreigners is breath taking. It also betrays the way their brains work in legal terms. The only constraint seems to be US law. And that is determined by US politics. So the concept of a Briton using a service from a US company, who then gives its information to the US government is somehow acceptable, with no disclosure. Oh no it isn’t. No doubt the people at Google or Verizon hate it as much as anyone else, since it has the potential to invalidate their business model. But it would be asking a lot for Google to act as whistle blower here.

 

Next is a claim that the spying happens, but under tight judicial and congressional oversight. Which is in secret, therefore no effective oversight whatsoever.

 

Finally, they go after the whistle blowers themselves. From what I read, admittedly not from unbiased sources. Edward Snowden sounds like a hero, not a traitor. He has made a huge sacrifice, and will be hounded for it for life. The EU has taken steps to protect whistle blowers recently. Obama would be doing his country a service if he publicly exonerated Snowden. If he really believes what he says about debate being welcome, that is what he would do. Don’t hold your breath.

 

The idea that a programme of this scale could be secret in the first place is equally ludicrous. Seemingly, there are tens of thousands of people in run of the mill companies who are required to operate the programme and who therefore have required some security clearance. There is no chance that this could work without leaks, and the true terrorists must have a good idea what is going on, without any help from Mr Snowden.

 

So the responses betray the warped thinking and the insults that the programme entails, and we should all be angry. But the most important point is this. The existence of this sort of secret programme totally undermines any US counter-claim, whether about Iranian censorship or Chinese IP theft. All claim to the moral or even legal high ground is lost. It is no wonder that so many nations are so suspicious of the USA, and how little progress is made on global standards. The Iranians have already built an all-purpose internet firewall. The Chinese are doing the same. More will follow. Who can blame them? And what a tragedy for all of us who value openness and progress through technology.

 

Finally, let us cut the liberty bs. Americans are brainwashed into believing their nation stands for freedom and liberty. Compared with many, it does. But since 2001 the trend has been an ugly one, whether from lines at airports to background checks on driving licenses or the number locked up or via this sort of programme.

 

So please, USA, take whatever data you like about me. But disclose it. If you want to use private companies for your data, at least let me know so I can choose not to use those companies. Disclosure won’t make any difference to terrorism, and it would help our world in so many ways. From my memory, 1984 does not have a particularly happy ending. 

Malthus and the Jobs Crisis

There is lots of talk of crisis these days, most of it exaggerated. Robert Malthus was an 18^th century Englishman who foresaw a food crisis. He thought that the population was growing so fast that the world would soon face mass starvation. He turned out to be wrong, as agricultural techniques succeeded in responding to the challenge.

 

There would be plenty of candidates for a modern Malthus to despair over. Top of his list might be the environmental crisis, with the growth of emissions and its consequences for climate, and little consensus for action. There is also a looming water crisis. These are certainly scary, but probably some technology will come to our aid just in time.

 

Malthus would certainly quote a population crisis as an environmental driver, and maybe even to rehash his food theory. Within the population issue, there is a social crisis in the wings as gender selection becomes more prevalent: history shows a male excess to be a good predictor of catastrophic war. He might look at other social changes, such as tolerance of homosexuality and female emancipation, as forerunners of a fertility crisis.

 

Despite massive advances in medicine, a health crisis is often predicted because of the decline of potency of antibiotics. We could have a nuclear crisis any time, there are many flash points and many weapons around.

 

What about economics? Well, the world lurches through depressions, mainly because we don’t seem to understand economics very well yet. Most recently we are recovering from a banking crisis. Despite all this, living standards for most of us seem to get better, albeit in fits and starts. Some countries, such as China, have seen tremendous progress at all levels.

 

But might the model behind this progress be breaking down before our eyes? The basic building block of the model has been employment, paid work. Ever since the end of feudalism and slavery, people have worked for pay for much of their life. Initially this was mainly men, and manual work on farms and later in mines or factories. Nowadays in many countries, women also work for money, and jobs have migrated into services.

 

This has been a splendid model for the world. Combining labour with capital and land, entrepreneurs have led innovative progress, and the benefits have been shared moderately well, with pay enabling social mobility and consumer benefits to a wide class of society, and enabling states to invest in infrastructure, health and education. Things have been far from perfect, but the overall story is wonderful.

 

But the model relies on jobs, and there are signs that these are drying up globally. There is no immutable rule that jobs are available at living wages. Before we have had cyclical depressions and stubborn shortages in some regions or countries. But then supply and demand has rebalanced, with help from government. What if this no longer is achievable?

 

Consider the trends which remove jobs. I don’t mean trends to shift work from country to country, though this has changed the landscape a lot. Other trends simply remove jobs. First, farming became mechanised. Then manufacturing created the production line. More recently, much accounting or research work has shifted to computers. We are on the verge of major advances in robotics, of driverless cars, of 3D printing, of online shopping, and of virtual teaching. Most major employing sectors are not just moving, they are vanishing. And quickly.

 

At the same time, the supply of labour is increasing. Women are now part of the workforce in most countries. People are living longer and many wish (or must) work longer too. Populations are still growing rapidly across the developing world.

 

So labour gets cheaper. First, jobs move to places with lower costs. Then, costs have to get lower in other places, and a negative spiral results. Countries attract companies via lower tax rates on business, but globally that only takes more of the pie from labour. Entrepreneurs create new jobs, but there are limits. In places with no living wage jobs, there can also be no demand, so no-one to buy the goods or services. Even if labour is nearly free, robots or websites can be even cheaper.

 

And labour, at least contracted, mid-term labour, is rarely free, even in a non-unionised world. At least in the developed world, recruitment costs are substantial, as are legal overheads. Most of all nowadays are accrued pension benefits – the reason most companies collapse these days – and, especially in the USA, healthcare benefits.

 

The result is that what jobs there are tend to be held long-term, or be temporary. With unions and inflexible laws, this is exacerbated, and younger people simply can’t find jobs, even at pitiful wages. Even when there are jobs, they are un-contracted piece work type of offers, or even unpaid “internships”.

 

The shortage appears to be becoming structural. Youth unemployment rates in Southern Europe are a disaster. Most developed countries have rust belts with little employment. As trends work their way around the globe, this will affect developing countries too before too long.

 

Unless something can be done, the prognosis of this is horrific. First, we already see a return of nineteenth century levels of inequality. As wages are driven down further and governments respond by incentivising companies, this will accelerate. Much of the economy will go underground to escape unaffordable taxes.

 

Then will come social tensions, as youth becomes increasingly disillusioned. When you have social riots in Stockholm, of all places, you know the world has problems. The social tensions will quickly focus negative attention on immigrants. Eventually we may even see resentment of pensioners. Finally, a generation growing up with no work will experience mental problems, and be compromised as parents.

 

The Economist has commendably raised the inequality issue, and recently also focused on long-term youth unemployment. But for me its classical remedies do not address the fundamental issues, indeed they may make it work. You can invest all you like in better education or vocational training or even back-to-work programmes, but there have to be jobs at the end of the tunnel or disillusion will only grow. Liberalising labour markets, working on “ease of doing business” and incentivising companies are all good, but will generally only succeed in shifting jobs from market to market, the overall growth of global jobs from this sort of policy will plateau quickly.

 

It is hard to envisage other remedies. Reducing retirement ages or female involvement in the labour force would be backward steps. Holding back technology in favour of labour seems to make little sense.

 

At a risk of sounding like a 21^st century Malthus, I wonder if we need nothing less than a fundamental rethink of the work model. After all, there are other fulfilling things to do in life than work, if funds are sufficient. It would surely be progress if we could create more free time?

 

As so often with global issues, this one really needs a global solution. France once tried a 30 hour week, but the result was a relative loss of competitiveness to other countries. Just like global warming, or Tobin taxes, or multinational taxation, oh for an effective global governance structure.

 

Governments could focus on sectors that find it hardest to replace labour. By accident or design, the US already does this with its spiralling healthcare costs. It is unaffordable, but at least it keeps people in jobs, and in an even profile across the country. Jails, police and military achieve the same, but are hardly recipes for competitiveness or harmony.

 

What about creating new jobs in sectors that help wellbeing but that need intervention to be viable? One such job could be a carer, of the old or very young. Pre-school and day care in most of the world relies on extended families, and the increasing army of very old people often live lonely and unfulfilling lives. It should be possible to create jobs from this via the right incentives.

 

Other opportunities come in local food production (glorified gardening or allotments), in community maintenance (litter removal, graffiti, beautification) or infrastructure improvement. Finally, work could be become more optional, to be earned by the lifetime rather than the week or month, with glorious sabbaticals. We would need some benefit money to help, of course.

 

At the moment, attitudes to taxation and pressures to compete crowd all these labour intensive sectors out. While there are, give or take, most of the time, enough jobs to go around, that can be tolerated. But I fear this age is finishing. If this is true, then current economic policies will be nothing short of disastrous for mankind.

 

Mr Malthus, where are you when we need you?