Nathan: That was a very thought provoking post. I won't respond to all of it, because there are some things I either agree with or would need to think about more, so please don't think I'm being overly critical about what I will reply to.
Nathan wrote:
The biggest problem I see in post-industrial nations is structural unemployment. Yet the numbers of these people show no sign of declining, and in a densely-packed country as Britain, where it is hard to put distance between you and the underclass, simply cutting the unemployable off and letting them fend for themselves may turn out to do more harm, in the short term at least, than our current tactic of buying them off with welfare.
Yes, but I think there are deeper issues with why such people aren't employable (which you address later). My other issue though is that I think it's a bit like quitting anything. I strongly suspect that the only solution is going cold turkey. Any benefits system will simply return in full force like a weed unless it's violently removed, and permanently. Otherwise, I suspect you cut it back a bit, and five years later, it's back to where it was (particularly if there's a change of government or a looming election). I worry that once a certain line is crossed in terms of the percentage of people receiving welfare that it's electorally impossible to go back to how things were anyway. Many nations, including Britain, may have crossed that line and the only way back may be a massive and external financial shock to the system.
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Each government would be bound to increase the national debt by no more than 5 percentage points compared to GDP, unless there is a very good reason to do otherwise. Aside from being a form of intergenerational theft in how the burden is being passed from one generation to another, it simply violates the laws of nature that anybody, whether an individual or a government, can continue to spend money it doesn’t have over long periods of time.
Compounding 5% growth in debt though would see the national debt double in relative terms in approximately 14 years. That's still quite significant.
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People’s tax returns and welfare-derived income should be made available online as a public record. I believe this is already the case in some of the Scandinavian countries. It seems an effective way of reducing tax evasion and welfare fraud by reintroducing some form of social control in how the system works and a sense of government money ultimately being our money, as opposed to a possible sense of it being the little underdog common man getting one over against evil big government, which gets its revenue off the magic money tree.
My first point here is that I simply don't think it would work. Look at the table here (and the entire article) for instance. People do vote with their feet and move their money elsewhere. Well over 99% of my money is not in Australia (and not in Taiwan either), and I'm a small fry. If anyone thinks that governments are really going to change this anyway, the first thing they need to think about is to what extent places like the City of London are themselves tax havens, and secondly, to what extent people either in government or close to those in government would really approve of this. For instance, earlier this year, I believe, the French minister responsible for clamping down on tax evasion was found to have offshore accounts himself!
My second point is that "tax" is not the government's money. It is an individual's money, taken from him. Once people start thinking of it as the government's money handed out to people (through goods or services), government is likely to become bloated and unaccountable. If the government raked in more money, would it necessarily provide better services, or would it just waste it? In many countries, more is being spent per pupil in the education system than decades ago. Would anyone argue that the education system had improved in such places relative to the increased funding? The same is probably true of many other services.
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I would introduce high levels of tax for second or multiple home buyers. At present, people owning holiday homes in Britain get a 10% reduction in council tax when they are not living in the property full time. This is completely the wrong idea in my view. Not only does it cost local authorities money in lost tax revenue, it encourages property speculation, which just like our dependence on the financial industry enables small proportions of the population to make massive gains, in this case through by-to-let revenue and other unearned income, but does the rest of the population no good whatsoever as property prices reach unaffordable levels, particularly in more attractive locations where holiday homes have become up to half the housing stock, with the inevitable negative consequences on local communities.
Facilitating buy-to-let empires in the name of the free market has led to a situation where with house prices still standing at five to six times average income despite many years of stagnating incomes and with a shortage of social housing, those buy-to-let emperors are the only option for increasing numbers of people. Private-sector rents have increased so much that a third of Britain is now considered off-limits to low-income families – needless to say, the third with the highest concentration of job opportunities. The knock-on effects of housing unaffordability include longer commutes, with the impact they have on family life, and a reduction in disposable income which could be freed up to be spent on other, more productive things.
A lot of these property developers are not even British: an ever-larger proportion of buy-to-let investment is from the Far East, whilst at the same time countries such as Singapore and Hong Kong have introduced taxes on foreign ownership of property designed specifically to discourage speculative booms. To make things even worse, rent values are so high that even many working people are having to rely on housing benefit to pay the rent, meaning that British taxpayers’ money is going to line the pockets of property developers on the other side of the world who the Evening Standard would have us believe are a massive boon to this country who we couldn’t manage without. If this is justified simply as “the free market”, then clearly the free market isn’t the answer. If I had my way, ownership of British property by non-British citizens or residents would be limited to one property per person.
I see what you're getting at here, and partially agree with you except for the unintended consequences of your proposals.
Asset bubbles exist regardless of government intervention, and have historically. That said, government can certainly place perverse sets of incentives in certain places. The trouble with changing legislation to curb an asset bubble is twofold. Firstly, it just shifts money into something else and creates a bubble there. Secondly, really rich people still manage to either work the loopholes (because they can pay professionals to find them for them) or they pay people to lobby against the legislation or to insert loopholes (which naturally favour them and not others). More government oversight will often lead to better opportunities for those who already have financial and political leverage. It seems like it was government policies that created the mess you have described in the first place. It's not even remotely a free market system. I'm not saying a free market system would necessarily work perfectly. There'd be winners and losers there, and people who accumulated wealth would use that to leverage more wealth out of others, but I'm not convinced governments -- which have got people in this mess to begin with -- are the solution either.
As for what other countries do, I think many countries in the West are suckers. They do need to tell Asian nations to stop playing the system. Yet having said that, Western nations fiddle things like agricultural subsidies, their own currencies, and so on which make it extremely difficult for countries in Africa to compete, even at cost. Everyone engages in it to some extent. The problem is that you don't want to get caught in a series of tit-for-tat responses between various nations. Mercantilism and protectionism have been tried before, and there are a number of negative effects associated with them, the chief one being war.
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I would subsidise university education for the most able students and the most practically useful courses. When I started university ten years ago, tuition fees were something like £1100 a year – we weren’t being given a grant and getting our education for free as would have been the case ten years earlier, but the fact that we were paying at least something made us (or me, at least) appreciate that it was an investment of time and money and not an indulgence. While I believe that a student should have to pay something unless they have earned the right not to, given how limited an 18-year-old’s life experience is when dealing with money, and how they lack the real-word knowledge of their future earning potential, the modern-day fees of £9000 a year are that high it seems grossly unfair to burden an 18-year-old with a major financial decision he or she is not adequately equipped to make.
A scholarship system would give extra encouragement for people to study the harder subjects, and knowing that the top 10 or 20% of any year group would get their follow year’s tuition partially or fully waived would serve as an extra incentive to study, and hopefully not discourage the able students from less well-off backgrounds from going to university. With any luck, seeing that they were having to pay much more than their more able peers might make some students realise that they were not, in fact, university material, and would be better suited following a different path in life.
You make many good points there, but I'd want to see a much more detailed policy and costing before I agreed or disagreed with it.
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I regularly read stories about qualified teachers and medical personnel being unable to find work in our state-run education and health systems because of a lack of posts. Surely we must know fairly accurately how many teachers and health professionals will be needed a few years down the line? Unless I am not taking something important into account, linking the number of places on courses in our state-run universities leading to employment in our state-run systems such as those to the number of predicted jobs available seems the only non-wasteful course of action, regardless of who is paying the bills.
That would probably make sense, but I still can't help thinking that it would blow out at some point in the future, probably for reasons of political expediency, and you'd end up right back where you started.
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Aside from the university sector, there would be much more government-led coordination between employers and training schemes or apprenticeships, which would receive an appropriate level of subsidy if this is not already the case. I didn’t go down this route myself, but the careers advice I remember being available to me at school was horribly insufficient. It seems such a waste of potential talent how inexperienced school leavers are expected to simply know by themselves exactly what skills the market is crying out for and exactly how to go about acquiring them without there being some kind of helping hand. To make it easier for jobseekers to find work, I would propose that all jobs available should be posted on a government-run website accessible to all. I don’t know if such a scheme has been put into place in Australia, but I do like this Australian government-run website providing detailed info all in one place on what must be a large proportion of the total jobs on offer in the country at present, right from the top end of the scale to the bottom, private sector and public.
Other countries seem to do this a lot better, and it's probably a fairly easy thing to implement, though there must be some vested interests (possibly unions, particularly in education) standing in the way currently.
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I would support a gradual reduction of the welfare state. With a society that has come to expect a safety net, any drastic action such as what some of us would perhaps like to see or would consider fair would be met with widespread social disorder and likely a large jump in the crime rate. While expectations remain high, dismantling the system would have to be gradual.
I addressed this above.
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One of the first things I would abolish is child benefit. Paying people to have children might work as a stimulus to increase the birth rate or increase the population, but we have no need to do either of those things, particularly at the lower end of the income scale, where child benefit may be a greater “push factor” in the decision to have children. The countries with no such financial incentive to have children do not have a problem with sub-replacement fertility, likewise the times in history where Western countries would never have dreamt of doing such a thing. If it is really necessary to encourage fertility in this way, given that the funding for child benefit ultimately comes from taxation, why not just introduce tax breaks for parents and take less money from them in the first place? At least this way there would be a contribution element to it and there would be fewer cases of children being brought into the world to dysfunctional families who can’t afford to raise them – if you don’t work or pay tax, you don’t feel the benefit of your tax break.
I would definitely make it a tax break rather than a benefit. People should be rewarded after they have proven themselves productive. Though that does beg the question about why there needs to be a middle man collecting tax and then handing it back to people or exempting them of it under certain conditions. Why not simply not collect the tax (which is different to an exemption) to begin with and let middle class or poor people sort this out for themselves without government interference? Another issue, which you didn't suggest, but which comes up, is that the tax breaks are often tied to some sort of credits for a service, but this usually creates a bubble of sorts within the relevant industry.
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Lastly, I would use tax breaks and targetted infrastructure spending to encourage investment in our regional cities at the expense of London, with powers over how to spend their money being devolved to local authorities. Having so much of our economic – and cultural – activity centred on London is draining the rest of the country of its best talent and contributing to massive overcrowding and unaffordable housing in the southeast of the country, a situation that benefits few.
One of the things I love about Germany is its federal system, and how each region and each city has its own focus, much like Britain managed until a few decades ago: Berlin the capital, Frankfurt the airport hub and financial centre, Munich the high-tech industries and the publishing industry, the Ruhr valley the chemical industry, Stuttgart the car manufacturing and Hamburg the media industry and the port. Although Germany is a more populated country than Britain, no German city even has half the population of London. Not only does a multipolar economic and cultural landscape make the country as a whole more interesting, the lower cost of housing and shorter commuting distances make German cities more liveable and more pleasant places all round.
It does seem like a much better system. That said, the U.S. has a much more devolved system and many of its cities and states are buried in debt, bankrupt, or complete drains on the other states through federal grants anyway. There is still a concentration of wealth in certain places anyway, and a requirement to live and work in a place for certain industries. I'd be more in favour of less centralisation than more, but it would really depend upon how it was managed.
Another issue is that infrastructure spending ends up creating either a lot of white elephants, or else holes being dug and filled in, simply because the money is there and needs to be spent. If there is going to be infrastructure spending, it needs to be very exact and there needs to be a good reason for it. The trouble is that any department that had a good idea last year, but not one this year, is going to lobby hard not to see its funding cut this year, and so the system becomes inefficient. There are whole ghost cities in China as a result of this right now.
Statistics : Posted by Caleb • on Today, 05:45 • Replies 7 • Views 253