The welfare state is going bust. Everywhere.

Another excellent article from Detlev Schlichter:

the markets are slowly waking up to the fact that the social-democratic welfare-state that dominated the West since the First World War is going bust. Everywhere. Faster in some places (Greece, the UK), more slowly in others (Germany), but the direction and the endpoint are the same. This is not a specifically European problem, or even one that is particularly linked to the single currency project, it is pretty much a global phenomenon, and it will shape politics for years to come. It is naïve, dangerous and even irresponsible to dress this up as a design-fault of the euro and thus imply that the problem would be smaller or more easily manageable, or even non-existent, if countries could only issue their own currencies, print money, keep running deficits and devalue to their hearts’ content.

How will Osborne's tinkering affect you?

BBC News is keen to stress the reduced tax burden that we'll enjoy thanks to Osborne's tinkering:

What's happened to taxes?
...people whose incomes put them on the border of the higher-rate 40% income tax bracket will benefit a bit.

The threshold for the 40% rate will rise by 1% in 2014 and again in 2015, from £41,450 to £41,865, and then to £42,285.

Investors will also see some benefit, with the annual exempt amount for capital gains tax rising by 1% to £11,100.

The inheritance tax nil-rate band will rise from £325,000 to £329,000 in 2015-16 [SP: i.e. 1.23%]

Does the BBC expect that tax bands should remain forever fixed? How else to explain their decision to spin 1% rises as a benefit, despite the fact that inflation is running higher than 1%?

Funnily enough, they remember about inflation later in the article:

How will my benefits change in April?
Millions of people claim state benefits of one sort or another, and many working age benefits will rise by 1% in April.

That is probably going to be a cut in real terms though, as it is below the current level of inflation, which is 2.7% under the Consumer Prices Index (CPI) measure.

It would be a lot more transparent, and thus harder for the BBC to spin, if the starting point for every budget was an across-the-board inflation adjustment.

Of course, what we really need is radically simplified tax and benefits system, with most taxes and benefits disappearing altogether.

Trouble across the pond

Jeff Randall has a good article in today's Telegraph on the debt situation in the US:

The White House website boldly claims: “President Obama has led the way on structuring the government to live within its means.” This is not even remotely true. By any measure, the US continues to spend way above its income and, as a result, its debt position is deteriorating apace.

These are the facts. George W Bush left behind a set of books that were not so much unbalanced as vertiginous. At the end of 2008, US debt was $9.9 trillion, or 69.7 per cent of GDP, and the ballooning deficit was $683 billion. Since then, all the key indicators have worsened markedly. By the end of this year, gross debt is forecast to reach $16.3 trillion ... more than 100 per cent of GDP, or a rise of two thirds under Obama. The annual deficit is close to $1.5 trillion, 10 per cent of GDP. Worse still, according to official forecasts, US debt is on course to hit $20 trillion by 2016. If this is a country living within its means, one dreads to think what would happen if Washington decided to throw a party.

Of course, $16.3 trillion is just the official figure. As here in the UK, and in every other developed nation, far greater liabilities hide 'off balance sheet'.

In an article for Mises.org, Gary North explains:

The expert here is Professor Lawrence Kotlikoff of Boston University. His most recent report says that total unfunded liabilities went from $211 trillion a year ago to $222 trillion this year.

The biggest source of future red ink will be Medicare. In second place is Social Security.

How can the government pay off these obligations? It can't. The possibility does not exist. The government needs a spare $222 trillion to invest in private companies. This investment must make a return of at least 5 percent to provide the money needed to pay meet the government's obligations. There is no $222 trillion available, and no capital markets large enough to absorb $222 trillion.

Conclusion: the US government will default.

In this context, 'default' doesn't just mean that 'investors' in government debt lose their money. It means that the government will renege on a wide range of welfare IOUs.

These IOUs were unsustainable long before Obamacare. As with our own National Insurance scheme, they made the mistake of paying out immediately - out of current contributions rather than past savings. There's a term for this sort of scheme:

The welfare state's Ponzi scheme economics will catch up with the politicians. It will catch up with everyone who is dependent on the welfare state. All over the Western world, this is statistically inevitable.

We wonder why people begin Ponzi schemes. The schemes always blow up. They cannot survive. The numbers tell us that. Why don't the initiators see what must inevitably hit them?

The financial world was amazed at Bernie Madoff. How did he fool smart rich people for so long, and for so much money?

Simple. He copied Congress.

Schlichter on the NHS

Detlev Schlichter has published an impressive essay on the correct size and proper function of the state. I will highlight further aspects of it in future posts, perhaps along with an explanation of why I am not yet prepared to make the leap to anarcho-capitalism.

For now, here is an excerpt that nicely complements the article by Jamie Whyte featured in my previous post:

Britain’s National Health Service will never deliver a satisfactory service. This is not because the people who work in it are incompetent or lazy. They could be the most motivated, devoted and well-meaning people on the planet and they could still only deliver suboptimal results and do so at considerable cost. Why? Because the NHS has to deliver health services for an entire nation without the help of true market prices and profit and loss accounting. These are the tools of capitalism that – day in and day out – allow the private sector to make informed decisions about best resource use – ‘informed’ because reflecting the preferences and wishes of the customers, the consumers.

Despite the widespread sentimental attachment to the NHS and its superficially appealing motto of delivering health care “free of charge” (obviously not true for the majority of citizens), the fundamental shortcomings of any service organized along socialist lines should be glaringly obvious to anyone: While the still fairly unrestricted private mobile phone industry in Britain delivers the latest advances in telecommunications technology to people across the entire social spectrum with remarkable speed and at constantly falling prices, the nationalized health service bureaucracy has people wait in line even for many routine and long-established procedures and provides such service at ever more staggering cost to the taxpayer.

That health service and education are too important to be left to the private market is a common prejudice that puts economic logic on its head: Because they are important they should be allowed to employ the tools of the private market.

Whyte on the NHS

Another superb article from Jamie Whyte:

A government that really cared about us would make us pay for healthcare. Services provided free to users are not gifts but burdens. They are compulsory purchases.

Take a simple example. How much are you willing to set aside to cover the cost of medical care in your old age? Personally, not much. I would rather spend the money now to enjoy life while still deluded that I am young and healthy. I will save only enough to cover my basic medical needs when old and clapped out: enough for false teeth and a year’s supply of morphine.

But wait. Like everyone else, I am entitled to comprehensive medical care when old, whether I can pay for it or not. So here is what I will do. I won’t save anything and then I will take all I can get free from the NHS, as will everyone else.

How will the government pay for all this “free” medical care? By taxing me, of course, along with my fellow entitlement holders. In the end, my “entitlement” simply obliges me to buy medical treatment that I do not think worth the cost. Which is a strange way for the government to show it cares about me.

As usual, I recommend the whole article.

Heating, eating, drinking, smoking and breeding

I was about to blog this extraordinary story from BBC News, but I see James Delingpole has beaten me to it:

this glorious piece of unintentional comedy from the BBC News website is too good to miss. (H/T Nicholas Jones)

It analyses what BBC reporter Julian Joyce seems to believe is the heartrending plight of a family in Wales struggling to get by on benefits.

Apparently – claims unemployed father-of-seven Raymond ("not his real name" – love that detail!) – if the Government manages to enact its heartless scheme to impose a £26,000 per annum cap on welfare benefits, then it could be a "choice between heating or eating."

Unfortunately, all sympathy for this family evaporates when Joyce goes into more detail about their budget. We learn, for example, that their weekly shopping bill includes "24 cans of lager, 200 cigarettes and a large pouch of tobacco." They also spend £32 a week on mobiles and £5 on their Sky TV subscription. But all this is now threatened by the heartless fascist Coalition government: why, if it gets its evil way, then this family's £30,284.80 annual benefit package will shrink by £82.40 a week!

The BBC article has a handy clickable graphic explaining the family's weekly income and spending.


Ray on entertainment:

'I go out once a week, on a Friday night. I meet up with my mates in the pub and have three or four pints.'

That's three or four pints courtesy of you and me, on top of the 24 cans of lager we buy him as part of his weekly shop.

Ray on communication:

'My wife and I have mobile phones, and so do all of the teenage children. You try telling teenagers they're going to have to do without their mobiles and there'll be hell to pay.'

Presumably Ray's teenagers share his sense of entitlement and aversion to work.

Ray on the weekly shop:

'Our biggest expense. We do all our shopping at Tesco or Morrisons in one big go. Mostly we buy the "value" range - tinned meatballs, baked beans etc. On the cigarettes, my wife tried to give up, but she missed one appointment on the course and they threw her off it.'

Poor woman.

Ray on library books and playing in the park:

'We get the Sky Movies package because we're stuck in the house all week - otherwise we wouldn't have any entertainment.'

It rains a lot in Wales, but usually not so much that people are "stuck in the house all week".

So far the article has attracted 1258 comments, which are worth skimming.

Delingpole concludes:

The whole piece is such a textbook case study of a) why Britain is completely screwed and b) the prevailing BBC-fomented left-liberal cultural assumptions which explain why we got into this mess and why it's going to be so hard to get out of it that you almost wonder whether Julian Joyce is in fact not a right wing plant parachuted into the BBC by the Conservative party's black ops department.

It's worth reading some of the 600 plus comments below to realise just how badly this sob-story jars with the national mood. Or at least the national mood among that part of the country which actually works for its living.

"They do not own a car or take a regular annual holiday"? I should ruddy well hope not if we're footing the bill.

"The market for my skills dried up 10 years ago"? Then retrain, you workshy sod.

"Father-of-seven?" Meanwhile in the private sector, hardworking couples think long and hard before having another child, recognising as they do that kids cost enormous amounts of money which they – as respectable people with a work ethic – fully expect to have to pay out of their own income, rather than as the feckless underclass do by spongeing off the state.

Quite.

See also

• The Welfare State We're In
• Freedom to breed; freedom to starve
• Cash, food vouchers, or soup kitchens?

Bashing the bishops

The higher echelons of our established church seem to be infested with noisy socialists (at best, tragically misguided; at worst, cynical, hypocritical, and deeply immoral).

So it was quite a relief to read that one former Archbishop recognises the lunacy, and immorality, of opposing the government's proposed benefits cap:

five bishops, led by the Bishop of Ripon and Leeds, the Rt Rev John Packer, tabled an amendment to the Welfare Reform Bill, arguing that the cap discriminated against families with several children
...

But writing in the Daily Mail, Lord Carey - who was Archbishop of Canterbury between 1991 and 2002 - said the bishops "cannot lay claim to the moral high-ground".

"Considering that the system they are defending can mean some families are be able to claim a total £50,000 a year in welfare benefits, the bishops must have known that popular opinion was against them, including that of many hard-working, hard-pressed churchgoers," he wrote.

"The sheer scale of our public debt - which hit £1tn yesterday - is the greatest moral scandal facing Britain today. If we can't get the deficit under control and begin paying back this debt, we will be mortgaging the future of our children and grandchildren."

Lord Carey praised the efforts of Work and Pensions Secretary Iain Duncan Smith - whom he called a "committed Christian" - to overhaul a benefits system which, at its worst, "rewards fecklessness and irresponsibility".

He argued the cost of benefits was "increasingly stoking social division" among the "squeezed middle, who feel resentment at the 'handouts' given to the long-term unemployed".

And he said the welfare system, originally designed to tackle "want, disease, ignorance, squalor and idleness", had become an "industry of gargantuan proportions which is fuelling those very vices and impoverishing us all".

Quite.

Human rights

BBC News reports:

Basic care for the elderly in their own homes in England is so bad it breaches human rights at times, an inquiry says.

Around 10 years ago I saw a framed copy of the 1948 Universal Declaration of Human Rights on the wall at Oxford Town Hall. By then I was already sick to death of the term, and I expected to disagree with every word of the declaration.

Initially, I was pleasantly surprised.

Article 1.

• All human beings are born free and equal in dignity and rights.They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.

Article 2.

• Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Furthermore, no distinction shall be made on the basis of the political, jurisdictional or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self-governing or under any other limitation of sovereignty.

Article 3.

• Everyone has the right to life, liberty and security of person.

Article 4.

• No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.

Article 5.

• No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.

Article 6.

• Everyone has the right to recognition everywhere as a person before the law.

Article 7.

• All are equal before the law and are entitled without any discrimination to equal protection of the law. All are entitled to equal protection against any discrimination in violation of this Declaration and against any incitement to such discrimination.

Article 8.

• Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law.

Article 9.

• No one shall be subjected to arbitrary arrest, detention or exile.

Article 10.

• Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.

Article 11.

• (1) Everyone charged with a penal offence has the right to be presumed innocent until proved guilty according to law in a public trial at which he has had all the guarantees necessary for his defence.
• (2) No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence, under national or international law, at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the penal offence was committed.

Article 12.

• No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.

Article 13.

• (1) Everyone has the right to freedom of movement and residence within the borders of each state.
• (2) Everyone has the right to leave any country, including his own, and to return to his country.

Article 14.

• (1) Everyone has the right to seek and to enjoy in other countries asylum from persecution.
• (2) This right may not be invoked in the case of prosecutions genuinely arising from non-political crimes or from acts contrary to the purposes and principles of the United Nations.

Article 15.

• (1) Everyone has the right to a nationality.
• (2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.

Article 16.

• (1) Men and women of full age, without any limitation due to race, nationality or religion, have the right to marry and to found a family. They are entitled to equal rights as to marriage, during marriage and at its dissolution.
• (2) Marriage shall be entered into only with the free and full consent of the intending spouses.
• (3) The family is the natural and fundamental group unit of society and is entitled to protection by society and the State.

Article 17.

• (1) Everyone has the right to own property alone as well as in association with others.
• (2) No one shall be arbitrarily deprived of his property.

Article 18.

• Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance.

Article 19.

• Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.

Article 20.

• (1) Everyone has the right to freedom of peaceful assembly and association.
• (2) No one may be compelled to belong to an association.

Article 21.

• (1) Everyone has the right to take part in the government of his country, directly or through freely chosen representatives.
• (2) Everyone has the right of equal access to public service in his country.
• (3) The will of the people shall be the basis of the authority of government; this will shall be expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures.

So far the declaration is a bit vague in parts, and open to abuse. For example, people can be deprived of their property despite Article 17, through high and unfair 'progressive' taxes, so long as the confiscation is not 'arbitrary'. On asylum, there seems to be a tension between "to seek" and "to enjoy". Similarly, the right enshrined in Article 13 to "leave any country" must surely be constrained by the willingness of other countries to allow entry. On the other hand, Article 19 is unequivocal, and all 'hate speech' laws must surely be considered a violation of this right. A mixed bag, then, but broadly consistent with classical liberalism.

It's only from Article 22 that things start to go seriously wrong ...

Article 22.

• Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.

Article 23.

• (1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
• (2) Everyone, without any discrimination, has the right to equal pay for equal work.
• (3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
• (4) Everyone has the right to form and to join trade unions for the protection of his interests.

Article 24.

• Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.

Article 25.

• (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
• (2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

Article 26.

• (1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.
• (2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.
• (3) Parents have a prior right to choose the kind of education that shall be given to their children.

Article 27.

• (1) Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.
• (2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.

Article 28.

• Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized.

Article 29.

• (1) Everyone has duties to the community in which alone the free and full development of his personality is possible.
• (2) In the exercise of his rights and freedoms, everyone shall be subject only to such limitations as are determined by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others and of meeting the just requirements of morality, public order and the general welfare in a democratic society.
• (3) These rights and freedoms may in no case be exercised contrary to the purposes and principles of the United Nations.

Article 30.

• Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.

I'm sure the signatories to the declaration didn't imagine anything like as generous as our present welfare state, but it's dangerous and immoral to enshrine any rights that require compulsory redistribution of wealth.

When they say employees are entitled to "just and favourable remuneration" and "periodic holidays with pay", they mean that employment contracts should be unequal, with employers compelled to offer pay and benefits that meet some arbitrary standard, rather than allowing employer and employee to agree the terms they see fit.

When they say that "everyone has the right to work", they imply that someone should be forced to give them work. It's not clear what they mean by "protection against unemployment", but they imply that the cost of that protection will be borne not by employees, but by employers and taxpayers.

When they say that "motherhood and childhood are entitled to special care and assistance", they mean that employers and taxpayers should be forced to support those who choose to have children.

When they say "education shall be free", they mean that people should be forced to pay for the education of other people's children.

The idea that compulsorily funded education should "further the activities of the United Nations" is really quite ominous.

If only they had stuck to negative rights!

As Wikipedia puts it,

if Adrian has a negative right to life against Clay, then Clay is required to refrain from killing Adrian; while if Adrian has a positive right to life against Clay, then Clay is required to act as necessary to preserve the life of Adrian.

The Wikipedia article also includes a good quote from Bastiat

M. de Lamartine wrote me one day: "Your doctrine is only the half of my program; you have stopped at liberty; I go on to fraternity." I answered him: "The second half of your program will destroy the first half." And, in fact, it is quite impossible for me to separate the word "fraternity" from the word "voluntary." It is quite impossible for me to conceive of fraternity as legally enforced, without liberty being legally destroyed, and justice being legally trampled underfoot.

Of course, the BBC article mentioned at the top of this post appeals not to the Universal Declaration of Human Rights, but to the ECHR:

The commission said such problems could be said to be in breach of various parts of the European Convention on Human Rights.

My blogging time for today runs short, so I'll have to leave the ECHR for another day, but I expect it to be far worse than the UDHR.

The labour laws induce sloth, indolence

An interesting article by Ian Morris of Stanford University in BBC News Magazine:

In 2011, we are used to reading in the newspapers that China is a crass, corrupt, economic giant, manipulating its currency and rigging the markets to catch up with the West. Back in 1911, though, British newspapers levelled exactly the same charges against the USA. And they were right. Within 50 years, the US had conquered the world's markets and the European empires were gone.

A disaster for Europe - or was it? In 2011 the average European lives 30 years longer than the average in 1911 and earns five times as much. Europe is far freer than it was in 1911 and has not had a major war in 66 years. All things considered, losing its number one spot and becoming dependent on American capital was a good deal for 20th Century Europe.

Will dependency on Chinese capital in the 21st Century be equally good?

No one knows, but the signs are not promising. Just last week, Jin Liqun, the supervising chairman of China's sovereign wealth fund, told an al-Jazeera interviewer that Beijing should only lend to Europe if the EU turns itself upside down.

"If you look at the troubles which happened in European countries," said Jin. "This is purely because of the accumulated troubles of the worn out welfare society… The labour laws induce sloth, indolence, rather than hard working." Europe might find Chinese economic hegemony much harder to live with than an American one.

Jin is right, and though Europeans may find the transition difficult, our deeply immoral, unfunded welfare state must die. I'm sure the British at the turn of the last century would have looked on our modern society with the same contempt.

Absolute and relative poverty

Daniel Hannan writes:

Here's a bit of good news: we can look forward to a sharp decline in poverty over the next two years. No doubt Polly Toynbee is even now composing a paean of praise to David Cameron for achieving what Labour never could.

Oh, hang on. On closer inspection, it turns out that things aren't quite so straightforward. The reason fewer people will be poor is that poverty, these days, is defined as earning less than 60 per cent of median income. Although downturns are bad for everyone, including the destitute, wages are depreciating in real terms faster than state benefits. People dependent on welfare payments will be worse off in absolute terms, but their incomes will fall more slowly than those of working people. As the median wage drops, the poverty line drops with it.

Thus we see the absurdity of the Joseph Rowntree/IFS measure of poverty – the measure uncritically accepted by the BBC and most other media. I've remarked before that, by these metrics, policies that shift people from dependency into productive jobs are defined as 'regressive'. Now we see that, by the same token, an absolute decline in Britain's living standards means a reduction in poverty.

Here's what the IFS report itself (PDF) has to say on the matter:

the living standards of low-income families are set to fall over the period - which will increase absolute poverty - but they are forecast to fall by less than the living standards of families at median income, and so relative poverty is forecast to have fallen in 2010-11. Indeed, at its low point, real median household income is forecast to be 7% lower in 2012-13 than it was in 2009-10, and to remain below its 2009-10 level until at least 2015-16. This unprecedented collapse in living standards is chiefly due to the (actual or forecast) high inflation and weak earnings growth over this period. As families in poverty get much of their income from state benefits and tax credits, which are typically increased in line with inflation, a fall in real earnings closes the gap between them and families around median income, who get much of their income from earnings.

But that doesn't quite capture the full absurdity of their definitions, because it turns out that "absolute poverty" is also relative:

The Child Poverty Act, passed with all-party support in 2010, commits successive governments to the eradication of child poverty by 2020. The Act lists four measures of child poverty, each with their own target which needs to be met for child poverty to be said to be eradicated, but this Commentary concentrates on relative and absolute poverty, as the other measures cannot yet be modelled. The Act defines an individual to be in relative poverty if his or her household’s equivalised income is below 60% of the median in that year; and he or she is in absolute poverty if the household’s equivalised income is below 60% of the 2010-11 median income, adjusted for inflation.

Wow.

I couldn't quite believe it, so I decided to look up the text of the Act:

The absolute low income target:

(1)The absolute low income target is that less than 5% of children who live in qualifying households live in households falling within the relevant income group.

(2)For the purposes of this section, a household falls within the relevant income group, in relation to a financial year, if its equivalised net income for the financial year is less than 60% of the adjusted base amount.

(3)“The adjusted base amount”, in relation to a financial year, is the base amount adjusted in a prescribed manner to take account of changes in the value of money since the base year.

(4)In this section—

• “the base amount” means the amount of median equivalised net household income for the base year;

• “the base year” means the financial year beginning with 1 April 2010.

I'm not sure whether the actual figure is available yet. The latest ONS report I was able to find, Social Trends 41 - Income and Wealth (PDF), has the data for 2008/09:

It shows a mean weekly household disposable income [1] of £507 per week (£26,364 p.a.) and median of £407 per week (£21,164 p.a.). That puts 60% of median at £244 per week (£12,688 p.a.; £1057 per month).

Now, that's not a huge amount of money to play with, but it's more than enough to cover the essentials — food, shelter, clothing, and housing. It's a far cry from a dollar a day! And the numbers already take into account the challenges of larger families [2].

To put this in context, let's look at the ONS figures for household income over the last 40 years:

There we are, then. Although 'relative poverty' will never disappear, all we need to do get rid of 'absolute poverty' is to drive median incomes back down to where they were in the mid 80s.

I'm sure Caroline Lucas could arrange that.

---

[1] "Disposable income is the amount of money that households have available for consumption expenditure or savings and is calculated by taking total income from all sources and deducting expenditure on taxes, social contributions and other expenses such as insurance premiums" — it all seems a bit arbitrary to me, and I'd prefer to have details of the "other expenses", but hey ho.

[2] Note that these are 'equivalised' values, assuming a childless couple as a baseline, with some arbitrary weights for spouses and children of different ages to fudge the values. Appendix 5 of Social Trends 39 (PDF) explains the details.

Regional development

In the comment section on a recent article by Daniel Hannan, Jedibeeftrix wrote:

A nation-state is effectively a collective agreement that a people are a family, who have sufficient trust in each other to accept indirect governance from representatives of the prevailing will of a majority, it is also a collective agreement to work together for the benefit of the whole rather than the individual. In short it is a marriage which results in a transfer union.

Inevitably there will be richer and poorer parts of the nation-states economy, and if that economy is not to tear itself apart from the strife resulting from a polarising divergence in wealth then there must be a compact agreed by the people that national taxation will be redistributed in a manner the assists less advantaged areas. In short
the rich pay for the poor.

This compact is seen in every developed country, by way of social benefits applied equally throughout the territory, by way of regional development funds to promote wealth creation in poor performing areas, and by concentrating public sector activity in areas of reduced economic potential. It is fundamental to the cohesion and harmony of the society.

I replied:

Though I agree that minimal benefits (hostels, soup kitchens, basic education, basic healthcare) should be available to all citizens, I don't think the government should treat different regions of the country differently.

It is folly to concentrate public sector activity in areas of "reduced economic potential".

Firstly, who determines that the economic potential is reduced? The private sector will do a much better job of this than the government, especially since the economic potential changes over time in response to technological advances.

Secondly, with free movement of people, there's no reason why job-seekers can't move to areas with more economic potential.

Thirdly, areas where there is a large public sector presence become dependent on that presence (in the same way that individuals get trapped on benefits). What happens when we want to vastly reduce the responsibilities of a government department, or eliminate it altogether? What happens if the government simply runs out of money? Far better that the residents are employed in the private sector, doing things that people are willing to voluntarily pay for. And just as living on handouts is bad for the soul, hundreds of government non-jobs are unlikely to boost the spirit of a community.

Finally, note that the government department in the depressed area will be competing with local private enterprises for employees. This will discourage wealth-generating activities, making it harder for the area to return to sustainable prosperity.

"Regional development funds" are a bad idea for similar reasons, but with added scope for corruption.

Tebbit: Why doesn't Rowan Williams speak out about illiteracy, immigration and the undemocratic rule of Brussels?

Another superb contribution from Lord Tebbit:

I have been thinking over the weekend of what the Archbishop of Canterbury has been saying. First of all – as I made clear last week – I would say that he has a right to consider in public such contentious political issues. Whether it was well judged for him to do so and whether he was right in his comments are very different matters. Indeed, he might recollect that when Archbishop Runcie made not dissimilar remarks in the 1980s, Margaret Thatcher was re-elected with a hugely increased majority not long afterwards.

It is not so much that I disagree with his criticisms of Gove’s educational reforms, or Duncan Smith’s welfare reforms, but that the Archbishop seems unaware of the rising tide of illiteracy and innumeracy, as spending on schools was increased over many years, and of the rise of welfare dependency which has been rotting society.

Of course he was right to be concerned at the very nature of coalition government. However to say that it is undemocratic without turning his attention to the far, far, greater loss of democracy to Our Unelected Masters in Brussels, and to NuLab decision to inflict uncontrolled, uncounted immigration and the so called multicultural society on the British people against their overwhelming opposition is a failure on the part of the Archbishop to have spoken out when he should have done.

Government meddling in private pensions

The Telegraph reports,

Millions of baby boomers now have just a 10-year period in which they can either make or break their retirement plans.

According to new research, seen exclusively by The Sunday Telegraph, only one in four fiftysomethings is financially prepared for retirement and one third have no retirement savings at all.
...
many have seen their pensions and savings squeezed from all sides: company pension schemes have cut back while the value of the state pension has fallen.

But it is private savings that have been hardest hit: those in this age group have suffered a toxic mix of poor investment returns, rock-bottom interest rates and ever-declining annuity rates, so even those who manage to build a decent pension fund find that it secures a smaller income in retirement. MetLife's survey showed that those in their fifties were on average hoping to retire on an income of £18,100 a year.

Things aren't likely to get better. According to research by The Independent in 2007,

Mr Brown's 1997 decision to tax dividends paid into pension funds will have far greater consequences than previously thought.
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The accountants also concluded that the 25-year-old would receive £6,000 less in annual pension payments on retirement, while the 35-year-old would see his pension reduced by £5,000 per year.

Even taking into account future inflation of 2 per cent per year, the reduction in the size of the two pension funds would be £60,000 for the 25-year-old and £57,000 for the 35-year-old.

Prior to 1997, for every £80 of dividends received by a pension fund, a further rebate of £20 would be received by the fund from the Inland Revenue.

When Labour came to power in 1997, pension funds rarely showed a deficit and looked ripe for taxation.

Mr Brown is set to retire on a guaranteed pension of at least £100,000 a year, thanks to the generous final-salary pension scheme enjoyed by MPs.

Relentless taxation, inflation, and interest rate manipulation has left pensioners reliant on a wide range of complicated benefits, such as free bus passes and winter fuel allowance. If these people had simply been allowed to keep more of their own hard earned wealth, they would be self sufficient. Instead, they rely on current taxpayers.

Gordon Kerr has a written a great article for the Cobden Centre opposing government intervention in the pensions system.

When will our new leaders stop following in the footsteps of the Old Labour belief that the Government can regulate and legislate to fix the economy? Does our Government believe that the best of all worlds is one in which a civil servant interferes in every limb of business?

End the 'National Insurance' pretence

Readers of my previous post may have wondered why I didn't provide any examples of how the deficit could be reduced by raising National Insurance contributions.

The answer is that NI is a sham. Employee's NI is a complicated form of Income Tax. Employer's NI is a complicated form of Corporation Tax that biases business decisions about employment vs capital purchases (it discourages job creation, and favours investment in machinery).

NI contributions are expected to bring in £97 billion for 2010/11 — almost twice the £50 billion held in reserve in the National Insurance Fund [1].

In this same period, £117.2 billion will be paid out in pensions alone. Pensions are paid not from previous savings, or returns on investments, but by current contributors. Most people would recognise this as a Ponzi scheme.

According to the House of Commons Note [1],

The National Insurance Scheme was established on 5 July 1948 to provide unemployment benefits, sickness benefit, retirement pensions and other benefits in cases where individuals meet the contribution and other qualifying conditions

One year's pensions payments wipe out the NIF in its entirety, and leave £35bn of current contributions, which doesn't come close to covering the annual £119bn spent on healthcare or the £60.4bn spent on other welfare payments.

We should end the ridiculous pretence that National Insurance funds our Welfare State, and roll NI into Income Tax.


[1] National Insurance Fund: 1975-2010, House of Commons Library, Standard Note 797, Last updated 14 June 2010.

Hannan: A disproportionate number of jihadi extremists seem to be living on benefits

An excellent post from Daniel Hannan:

Can you guess what they do for a living, the appalling protestors gathered outside the Old Bailey to support Roshonara Choudhry, who was given a life sentence for trying to murder an MP? That’s right: they’re living on benefits, one claiming to suffer from chronic fatigue disorder. (Although he was evidently not too fatigued to spend his day bellowing “British troops must die!”)

I’ve blogged before, in the context of Gaza, about the way in which unconditional subventions help create an almost ideal terrorist habitat. I wonder whether the same thing might apply to our own country. A surprising number of radical preachers are supported by the state, and most of the second set of Tube bombers were living on handouts.

Perhaps, if that option had been closed, some of these alienated young men might have become successful entrepreneurs instead of working themselves into a rage against the hand that fed them.

A fair approach to child benefit

Earners over a certain threshold will soon have their child benefit removed.

The BBC presenters asked whether it's fair that a single-income household bringing in £50,000 should have their benefit withdrawn, while a household with two incomes of £25,000 will keep theirs. Clearly not.

Here's a fair solution: nobody should receive child benefit. I should not be forced to subsidise other people's lifestyle choices. Those who struggle to afford the inevitable expenses of parenthood should not have children.

And who is most likely to be affected by the removal of the natural financial disincentives? Are their children going to be the leaders of tomorrow? Or the next generation of welfare recipients?

If we want to help the poor, we should reduce their tax burden. Child benefit is social engineering of the most dangerous kind.

Is mortgage benefit justified?

This morning's Coalition Cuts story on the BBC was the planned reduction in mortgage support payments. Apparently there is a risk that some people won't be able to meet the shortfall, and will have to foreclose.

Though unfortunate for the people involved, this has to be good news for the housing market. More foreclosures should mean falling prices, and the market is currently ridiculously overpriced.

In any case, nobody should be forced to subsidise someone else's mortgage. It's especially galling for people like me, who are still renting, and unable to afford to buy. I'd prefer to keep my money, and put it towards my own mortgage, thank you very much.

Tellingly, the segment also featured a representative from a mortgage lenders association, who seemed quite concerned that the government might stop padding out their profits with taxpayers' money.

I'll post an update if the story shows up on news.bbc.co.uk.

Cash, food vouchers, or soup kitchens?

A good post yesterday from DK:

Shuggy is up in arms about Our New Coalition Overlords' proposal to pay benefits in the form of food vouchers.

The obvious solution to poverty, which is simply to give the poor more money, is unacceptable to our new 'progressive' coalition overlords. They understand that money gives people choices and in the case of the poor, this would never do because they would just make the 'wrong' choices.

Yeah, sure. And yet no.

The government has no money of its own: it only has what it takes from its people through tax.

As such, the government cannot simply "give the poor more money" without first taking it from other people; the people that they take it from then become poorer.
...
If there is a social contract, it is that those of us who work agree to be taxed to ensure that those who have no work are not lying about, starving in the streets. This is a cost of living in a society, and it also answers the demands of basic humanity.

But the money does not belong to the poor to do what they want with it, it is not provided to give them "choices": it is there for a specific purpose—to ensure that they can stay alive. If they want "choices" then they must go out and earn their own cash.

In other words, the government aren't proposing taking "choices" away from people because they are poor; they are proposing to do so because the money does not belong to those in receipt of it—it is not theirs to do as they will with.

Imagine if a friend of yours asked to borrow £50 off you because he was starving; it's £50 that you cannot really afford (and you're pretty sure that you won't get it back any time soon), but you give it to help him in extremis.

You'd be pretty annoyed if, a few hours later, you found him buying rounds for his mates in the pub, would you not?

Quite. But DK is not supportive of the voucher scheme: he reckons that cash is preferable, as long as it's at the subsistence level:

If, for instance, a family on benefits chooses to go without food so that they can afford the bus fare to send their child to the best school that they can, then that is a choice that I applaud. And, unless the bus driver takes food vouchers, then such instruments will, indeed, take away choice. It will even take away the choice of a dole claimant to travel to a job interview—and that is hardly desirable, is it?

Given that, I must also allow people the freedom to make choices that I would not condone too.

But, as a general rule, if the poor have enough money to have "choices" then we are giving them too much of other people's money; where is the morality in removing "choices" from a group of people who have earned them, so that you can give "choices" to another (who have not)?

This seems like a reasonable balance of principles and pragmatism, but soup kitchens and hostels have always seemed to me to be the best way to ensure people aren't left to starve.

There would be no need for intrusive means testing, as only the genuinely needy would avail themselves of such basic facilities.

Unlike food vouchers, the services provided by the hostels and soup kitchens could not be resold.

There would be no benefit trap, as work would always pay - even the laziest scrounger would have the incentive to work, if only for booze and cigarettes.

Ideally the soup kitchens and hostels would be funded by private charity, but even if funded by taxation, it would be a massive improvement on the status quo.

There would be the risk that by spending other people's money on third parties, value-for-money would suffer, but with such a basic mandate, there's not much scope for profligacy.

Voluntary sterilisation for drug addicts

On BBC News this morning I learned of a US programme called "Project Prevention":

If you call Project Prevention's helpline it's likely that Barbara Harris, the founder of this US based organisation, will answer the phone. A warm and vivacious grandmother, her aim is to give $300 to as many drug and alcohol addicted women as possible.

The deal? That they receive long term contraception or sterilisation to prevent them having children she believes they are unable or unwilling to care for. Funded through private donations, her organisation is non-profit making.

Project Prevention, started in 1997, says it has paid money out to 3,242 addicts, or clients as it prefers to call them. Most of them were women and 1,226 were permanently sterilised. Thirty-five men have had vasectomies.

I would go further, and say that any adult — addict or not — who is willing to accept freely-given money in exchange for voluntary sterilisation, should be allowed to.

Welfare reform through Friendly Societies

Devil's Knife blogger and LPUK leader Chris Mounsey has produced an excellent article on the problems of our current welfare state, and how a resurrection of Friendly Societies can provide a solution.

He begins with a comparison of libertarian and socialist principles:

The first thing to be pointed out is that libertarianism is not about leaving people in the street to die. Libertarianism is, first and foremost, a philosophy based on personal liberty—the central crux of which is the non-aggression axiom.

This axiom is very simple — you shall not initiate force or fraud against another person's life, liberty or property.

As such, a libertarian government would not, for instance, stop people setting up a socialist enclave if they so desired—as long as every member of the socialist group was there voluntarily and not co-opted against their will.

(This, incidentally, is a fundamental difference between a libertarian and a socialist polity: you can live as a socialist under a libertarian government; you cannot live as a libertarian under a socialist government.)

Libertarians think that you ought to help your fellow man; socialists think you ought to be forced to help your fellow man. Libertarians favour direct human compassion and voluntary community structures. For socialists, government intervention is essential — they believe that there is no problem so great that it can't be solved by the state, if only the people would trust in it, and hand over the necessary resources.

As DK explains,

Generally speaking, libertarians recognise collectivism, when voluntary, as being A Good Thing; libertarians welcome people working together, as they can often achieve things that individuals cannot. However—and this is worth repeating ad nauseam—the stress must be on the voluntary aspect of this collectivism.
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This is the first hurdle at which the state's welfare provision falls down—it is compulsory, not voluntary.

As I have noted previously, compulsion undermines compassion. Welfare recipients develop a sense of entitlement, which is rightly resented by those who are forced to foot the bill.

DK identifies this corrosive effect of the welfare state:

when we see a homeless person in the street, we do not think "there is a fellow human in pain: how can I help?"; instead, we think "why hasn't the government sorted that out yet?"

A social safety net provides many benefits, but after decades of state provision, private charity is no longer up to the task. DK believes the voluntary collectivism of Friendly Societies can provide the answer:

Friendly Societies were voluntary co-operatives, usually based locally, which at one point covered about half of the country—but they were growing swiftly. Their potential was, alas, effectively killed by the National Insurance Act of 1911 and the onset of state welfare provision—for the compulsory contributions, obviously, crowded out the voluntary contributions to the Friendly Societies.

Being local and personal, they are better placed to address genuine needs and avoid fraud:

Most societies allowed their members to choose their level of pay-in; how much was paid out was determined by numerous factors, but criteria usually included how much you had paid in, how long you had been a member and your actual need.

This last is important, for our current Welfare State is not based on need—it is based on an inhuman, box-ticking system. Learn how to play the system and you can get more than a living wage; but this system is not based on need.
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Friendly Societies address the issue of self-reliance too; you are responsible for ensuring that you pay in and, should you fall on hard times, your pay-out is related to what you paid in.

Friendly Societies also address the issue of fraud. People are far less likely to steal from those whom they know personally; further, knowing you personally, those people will also be able to check whether you are, in fact, stealing from them. And this applies, of course, not only to benefit claimants but also to those running the Society.

DK goes on to explain how private charity can meet the needs of those who cannot afford membership in a Friendly Society.

With such obvious advantages to a local, voluntary safety net, we have to question our blinkered adherence to statist welfare provision.

The welfare state has survived for several decades, despite vast and growing costs — both financial and social — to the public at large. Its success as a meme is out of proportion to its beneficial effects on those it purports to help. We must ask ourselves, Cui Bono?