Wednesday, 3 February 2010

Living with Leviathan

Thanks to a recent article from the Cobden Centre, I discovered a promising book by David Smith entitled Living with Leviathan.

Here's an excerpt from the foreword by Philip Booth:
should we be so obsessed by the economic growth that would come from reduced government spending? What about ‘general well-being’ – a phrase so beloved by politicians at the moment? If we measure general well-being by what people want, rather than by what politicians think people want, then surely that would improve even more dramatically than national income if the size of government were reduced. People would have more choice in health and education – they would not simply have to put up with what they were given. The poor would have some hope of escaping the mediocre education they are served up on a take-it-or-leave-it basis. Higher post-tax incomes would allow higher savings for old age and illness. Those who chose to do so, perhaps parents with children, could work fewer hours if individuals were not working over two days a week to pay their tax bills.

With rigorous and thorough economic analysis, encompassing both theory and empirical evidence, David Smith shows how damaging politicians’ addiction to spending other people’s money has been. Even when public spending comes at no cost to its ‘beneficiaries’ in terms of taxation it seems to damage its recipients. Much public spending for the people of Scotland, Wales, Northern Ireland and northern England is financed by the taxpayers of southern England. But it still harms the economic welfare of those on whom the money is spent. High levels of benefits, relative to the cost of living, price the less skilled out of
work, reduce employment and give rise to a socially debilitating dependency culture.

Why do politicians ignore the compelling evidence? Why do they end up systematically destroying the economic welfare of the people they wish to govern? The answer lies in public choice economics. Politicians cannot achieve anything unless they are elected. The interest groups that want more government spending are stronger than those that want lower taxes. The current pattern of government spending creates ‘clients’ who gain from further expansion. David Smith believes that it is time for politicians to appeal to principles once again. If politicians who wish to cut the size of the state are then elected, they should put in place mechanisms to ensure that those who vote for profligacy bear the cost. One way this can be achieved is by giving more fiscal responsibility to lower tiers of government, but this has to be done in ways that ensure that representation and taxation are clearly linked.

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