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Lord Layard on the cause of long-term unemployment

By Tom Papworth
November 24th, 2009 at 5:35 pm | 8 Comments | Posted in Economics, UK Politics, US Politics

Here is Labour peer and happiness economist Lord Layard on the cause of long-term unemployment in Europe:

Europe has a notorious unemployment problem. But if you break down unemployment into short-term (under a year) and long-term, you find that short-term unemployment is almost the same in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4% who have been out of work for over a year, compared with almost none in the United States. The most obvious explanation for this is that in the U.S. unemployment benefits run out after 6 months, while in most of Europe they continue for many years or indefinitely.

Hat tip to the Tim Worstall at the Adam Smith Institute.


Interesting Video on Libertarians in the Military

By Sara Scarlett
November 13th, 2009 at 2:15 pm | 3 Comments | Posted in US Politics


By Barry Stocker
November 5th, 2009 at 12:35 pm | 3 Comments | Posted in Culture, US Politics

tocquevilleTocqueville is a major figure in liberalism the United States and Britain as well as his home country of France.  In France he was a parliamentarian and government minister in the period up to 1851when there was genuine parliamentary politics.

His political career was greatly enhanced by the publication of Democracy in America, which established him as the man who understood the direction of politics and society in the modern world.  He had various links with Britain: his wife was English, he wrote an essay on the English Poor Law, he befriended liberal minded people in his visits including John Stuart Mill.

Mill wrote lengthy reviews of both parts of the Democracy, and Tocqueville’s influence is apparent in On Liberty, where Mill uses the idea of ‘tyranny of the majority’ developed by Tocqueville in the DemocracyThe Democracy is based on a trip Tocqueville made to the United States to observe prison conditions, and which gave him the chance to observe a new political phenomenon: democracy and republicanism in an expanding state.  It is a complex book reflecting the cultural and literary sensibilities of Tocqueville, and his personal and family status in between the aristocratic and democratic worlds.

The book is a fusion of political theory, political science, sociology, literature, and travelogue, and thus would be hard to write now.  The complexity of the United States is discussed with an aphoristic force, which expresses his own conflicting passions and the ambiguity of what he saw.  There is a underlying tension between: Tocqueville’s admiration for democracy as a social spirit of equality, which becomes expressed in political institutions; and his nostalgia for the aristocratic spirit of individual excellence and honour.  The complexity of his personality, and of the Democracy, creates particularly rich ground for differing interpretations of Tocqueville from across a broad political spectrum.  There is some ambiguity, as in any great book, but some interpretations are just wrong, seizing on passages in isolation.  Such mistakes include trying to link Tocqueville with the current religious right in the United States.  Tocqueville in the manner of the Enlightenment believed that religion, particularly Catholic Christianity, was a positive moral force in human history, which provided a basis for liberty in its ethics, but never suggested that theology should be at the basis of political thought; he was not even a Christian himself, but rather a Deist who believed in God, without believing in the truth of any religious text, and he certainly thought there should be a church-state separation.

Maybe the most common mistake is to confuse Tocqueville’s enthusiasm for local self-government in the United States with an uncritical attitude, and with a negative attitude towards the state above the most local level.  Tocqueville makes it clear that he thinks the ‘tyranny of the majority’ is most dangerous at the local level, since it is more likely that opinion will become very homogenised and intolerant within a small sphere.  Participation in the public sphere of a great nation provides some correction to local conformity, and this should be reinforced by a strong federal government.  Tocqueville quotes the Federalist Papers of 1788 by Alexander Hamilton, James Madison and John Jay, which advocated a stronger federal government through acceptance of the new Constitution; and he associates himself with the ‘Republican’ element in American politics which stood for a relatively centralised form of federalism.

Tocqueville also distinguished between political centralisation, which he supports, and administrative centralisation which he opposes.  He admires local self-government in the sense that everyone participates in administration of the locality through taking individual responsibility for local tasks.  For Tocqueville civic (referring to voluntary associations) and political participation are vital components of liberty, as for him liberty was not just being left alone by the state, but something we create through active participation in society at the political, voluntary and economic levels.

Economic prosperity and freedom are seen as resulting from a widespread interest in participation in economic ventures, which is continuous with the spirit of political and voluntary participation.  The economy should be freed from state interference, but the state should take some responsibility for the welfare of the poorest.  The poorest should be supported but not through a redistribution of wealth downwards.  Tocqueville admired the spirit of equality which is at the basis of democracy where it leads individuals to try to rise up economically, but feared its other tendency of pulling the richest down to the level of the poor.  He also feared that those who became rich through industry and commerce would be a harsh and unsympathetic replacement for the old aristocracy.  This is matched by the fear that democracy might lack an equivalent to the old aristocracy in guiding the state with a perspective beyond the immediate movements of popular passion; he identifies courts of justice and the legal profession as a possible replacement.

Tocqueville certainly did not think that pursuit of wealth is immoral, and admired the tendency he observed for Americans to both pursue wealth and to be generous with wealth.  He was anxious that this kind of good self-interest might turn into a very narrow individualism. In his typically ambiguous manner he thought equality and liberty reinforce each other through balanced and limited government, but also feared that a democratic and equal world might become despotic through the disappearance of individuality in a more uniform world, and in a passive attitude towards the central state.

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By Barry Stocker
October 22nd, 2009 at 12:29 pm | 14 Comments | Posted in Economics, US Politics

friedmanMilton Friedman was a Nobel Prize winning economist and economic historian, associated with the Department of Economics at the University of Chicago, and was most famous as a ‘Monetarist’.  That is someone who regards the control of the money supply at a very constant, and slow, rate of increase, as central to controlling inflation, and for establishing the best framework for economic growth. He put this in the context of limited government, which establishes a framework for the market, rather than intervening in the market.

He explained his political ideas and public policy suggestions in Capitalism and Freedom, a book advocating a liberalism based on markets, individualism and limited government.     Friedman was not just concerned with business interests, criticising businesses strongly for their activities in trying to rig markets and influence the political process.  As Friedman points out, income inequality is greatest in those countries where the state is most inclined toward economic privileges for powerful interests.    Even in better governed countries, many schemes to help the poorest, and redistribute income, are counter productive. High income tax rates on high earners blocks entry to higher income groups, because it reduces the incentives to  earn income at that level, so the effect is to keep the same people rich.

Similar effects have come from efforts to improve the conditions of the poorest through minimum wages.  These have the effect of improving the income of some low earners, but the overall effect is to keep lower earners out of work as it is less economically viable for employers to hire them.  Friedman warned of the tendencies to bad and counter-productive effects where interventionism goes beyond very modest goals, and very simple methods.  The basis for legitimate interventionism is explained with reference to ‘neighbourhood effects’, in a negative sense, as a label for the impact of individual actions on a locality (or any general group of individuals), where it is very difficult to work out how everyone affected could be individually compensated through the law courts.  There are ‘neighbourhood effects’ in a positive sense when public policy provides something which brings great benefits to most people, and where it would be difficult in practice to charge individuals.  Pollution is an obvious example for Friedman of negative ‘neighbourhood effects’, and city parks are an example of a positive ‘neighbourhood effect’ following from public policy.

Friedman thought that it was a legitimate state activity to alleviate poverty through funds collected by taxation, but that the these efforts should remain simple and direct rather than becoming an element in a variety of schemes, with more than one gaol.  An example of the latter approach is Social Security in the United States, which compels everyone to contribute to a state old age pension fund.  One defence of this program is that it ensures a minimum living standard for the poorest on retirement.  Friedman’s response was that alleviating the poverty of the poorest retired could be done without such a big bureaucratic scheme, which takes away individual responsibility and choice.  Social Security both forces individuals to contribute a certain amount to old age, and to contribute that money to a state fund only, when we should all be free to exercise individual choice on these matters.

Concerns with simplicity and limited gaols led Friedman to suggest a combined program of flat tax, and negative income tax, as a means of funding the state and alleviating poverty.  Flat tax means setting one rate of income tax only at a high threshold, and with very few tax deductions allowed.  He argues that this will raise as much money as a multi-rate tax system, if the flat rate is set at just above the minimum rate in the previous system and well above the income threshold in the previous system.  It will also reduce incentives to find ways to avoid taxation; and reduce the size, and expense, of government tax raising bureaucracies.  This can be combined with a ‘negative income tax’ in which the lowest earners, and those on no income, receive money from the state sufficient to guarantee a basic income. This is contrasted with rent controls and public housing as means of assisting the poorest.  Rent control reduces incentives to rent out homes, and build homes for rent.  It makes housing cheaper for some people, while reducing the amount and quality of housing, particularly for the poorest.  Public housing groups together the poorest, inevitably therefore grouping together that section of the poorest who are poor because of family and psychological problems, creating a concentration of dysfunctional people and a very negative environment, inadvertently creating a negative version of the ‘neighbourhood effect’.

The best way of improving the educational chances of the poorest is to give everyone vouchers for purchasing education, enabling everyone to have choice, and not just those rich enough to afford private education out of post-tax income.  In general, liberty and prosperity for everyone, including the poorest, increases in a society with clear property rights defined by the state; and which avoids measures of price or wage control, economic subsidies and tariffs, as these all harm overall economic efficiency, along with individual freedom.

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Americans without health insurance: young, rich and foreign

By Tom Papworth
August 19th, 2009 at 12:35 pm | 3 Comments | Posted in UK Politics, US Politics

doctorEverybody is shocked by the fact that over 15% of Americans do not have health insurance.  In a system that supposedly relies on private insurance as the only door to healthcare, that more than one in seven is uninsured is a disgrace.  Right?

But who are these uninsured? The poor? The old? American citizens? Don’t you believe it.

Hat-tip to Steve Bettison over at the Adam Smith Institute blog for analysing the US Census Bureau’s Income, Poverty and Health Insurance statistics.

Of the 45,667,000 people in the United States of America that do not have private health insurance:

• 9,737,000 are not US citizens. In addition,
• 32,118,000 live in households with an annual income of over $25,000, of whom
• 17,503,000 live in households with an annual income of over $50,000, of whom
• 9,115,000 live in households with an annual income of over $75,000.
• Only 686,000 are over the age of 65.
• 18,320,000 are aged between 18 and 35.

It is important to note that those six groups are not exclusive, of course.  It is possible to fall into five of the six categories.  But that still means that the number of poor old Americans who lack healthcare is significantly less than is often suggested.

Now I am not suggesting that foreigners do not deserve healthcare, but it does slightly cloud the picture of poor Americans being denied healthcare.  Neither am I suggesting that it is easy to find the money for health insurance from a household income of $25,000 a year, though it is not easy for taxpayers on low incomes in the UK to afford healthcare either.  It is the case that young people are notoriously bad at choosing to insure themselves and prepare for their futures.

The point is that the oft-cited raw figures about the uninsured in America mask a very heterogeneous group, many of whom are well able to afford insurance, and many more of whom are making rational choices not to.  Whatever the arguments for and against various healthcare systems in the US, it is worth bearing these facts in mind.