I'm smoking the truth, man

I started a comment over at neither indifferent nor sceptical enquiring of Ciarán what he was smoking, but as the comment lengthened I felt my thoughts warranted a blog post. Ciarán mentioned, approvingly, a bizarre piece in today's Guardian by Phillip Pullman suggesting a few "conservative" policies the Tory party might like to consider.

Here's Ciarán:

It's not precisely cogent argumentation, but Pullman is raising an important issue that has been around for a while. That is, that much of contemporary British conservatism is, well, not very conservative.

And my thoughts...

Ciaran, what are you smoking? I read Pullman's piece earlier and was trying to figure out if he was serious (in his satirical intent). There might not be much that's conservative about contemporary "conservatism", but there's absolutely nothing conservative in Pullman's grab bag of 1970s Labour policies. Since when are nationalised healthcare and education and punitive taxation* "conservative"?

An attachment to market, without much in the way of regard for the suitability of markets for certain activities or the effects of market forces on the less well off (who happen, for the most part, to be the children of the less well off too) involves a degree of disengagement that genuine conservatives could not have condoned.

Funny that, I could have sworn I noticed that countries with freer economies tend to have less poverty and greater employment. Am I disengaged from reality or are those on the left who are so wedded to the notion that free markets create unfair outcomes disengaged from the inconveniently obverse reality?

And as for the idea of a flat-tax: it may get Schroeder re-elected in Germany. Besides that, I can't believe any sane politician could flirt with it as a viable electoral winner. By which I mean, too many people will either see public services or their wages fall as a result of its introduction whilst simultaneously knowing that they're paying the same tax rate as the Queen...

I know it's sacrilege to even consider a flat tax but has it occurred to you that you might simply be wrong? For starters, there's really no reason why people ought to see their wages fall - most flat tax proposals envisage that the tax wouldn't kick in until a certain threshold. The big change people could see is not that their overall tax take would go up but that their marginal tax rate would go down - no more penalising overtime and encouraging people to opt for cash in hand or nixers instead. Secondly, one argument for flat taxes is that they could increase the overall tax take. Now this is not some nonsense argument about this tax spurring growth, but rather that a simplified tax rate would a) encourage greater compliance and make it easier to detect non-compliance, and b) remove all the various tax shelters, breaks and incentives which apart from the distortions they cause, typically mean that the super-rich pay much less tax than they would under a simple nonavoidable flat tax.

..See Will Hutton's demolition of it in last Sunday's Observer.

"Demolition" is rather flattering. Will Hutton's piece is nonsense (I expect no less - he's been wrong about almost everything else hitherto) and ripe for a bit of critical analysis which I promise to get right to...

* Pullman's exact words were: A genuinely conservative idea would be to restore the principle that the wealthiest people should bear more financial responsibility than they've been required to do under the filthy-rich system: so income tax for the rich should go up.

Comments

[Ciarán]

Well I forget what I was smoking, but it must have gotten in your eyes.

I could have sworn I noticed that countries with freer economies tend to have less poverty and greater employment.

There's two separate points here. I take it by freer you mean less government intervention (which doesn't quite follow but what the hell). Well, taking government in GDP measures in OECD countries (here), and poverty as having an income less than 50% of median income (OECD again, here) you find that HEY-PRESTO there's a negative correlation between the two. Who'd have thunk it??? On unemployment you're right, but a basic knowledge of 'freer' economies suggests that far more jobs fall at the more 'flexible' (another great word captured by the right) end of the market, That is low paid and/or part-time.

I know it's sacrilege to even consider a flat tax but has it occurred to you that you might simply be wrong

Here's how I figure it. We cut taxes for the better off under a flat tax, right? And, as you point out, the less well off benefit from a threshold below which they don't pay. But that, under current conditions means that there is a substantial shortfall in tax take. Which you don't deny.

Rather, you jump at the notion that a regressive taxation regime would magically encourage a greater tax rate because it would be so simple that all those taxation lawyers wouldn't get around it (by, for example, taking income offshore). And that the newly liberated freer population would suddenly develop a greater degree of honesty and would cough up. Now, even assuming that this would compensate for the shortfall in tax-take, have you any evidence that this might happen whatsoever? This is the rub of this post and your subsequent one: that there'll be a trickle-up of tax-take in response to these reforms. But that, to say the least, requires one hell of a leap of faith.

Finally, on Pullman and conservatism: I was trying to point out that he wasn't to be taken too seriously. However, not that I particularly approve of it, old-style conservatism did contain with it a sense of duty towards the less well off (patrician though it was). Contemporary conservatives seem either to think that the market will magically solve the problems of those who have never really had access to it or that poverty is a form of moral and character failure. And I'm with him on that. Markets are good for flogging some things but they are not designed to alleviate the effects of their own failures.

Anyway, I know the lefty is supposed to befuddled by hippyish pot (man!), but I assure you that, presumably like you, I dull the pressure of reality with old cognac and the finest cigars!

[Frank McGahon]

Well, taking government in GDP measures in OECD countries (here), and poverty as having an income less than 50% of median income (OECD again, here) you find that HEY-PRESTO there's a negative correlation between the two

Hey presto indeed. Bravo on a nice conjuring trick. This "negative correlation" arises because you're using the wrong measures.

If you want to compare countries by the level of economic freedom, government in gdp is a crude measure. The economic freedom index though not perfect is more to the point.

Your method of calculating "poverty" measures in a rather circular way the level of inequality not poverty. Now I know it is an article of faith among the left that inequality is bad, but I would have thought most could see the difference between inequality and poverty.

On unemployment you're right, but a basic knowledge of 'freer' economies suggests that far more jobs fall at the more 'flexible' (another great word captured by the right) end of the market, That is low paid and/or part-time.

And the point is what? that it is better for people to be unemployed than do low-paid or part-time work?

Here's how I figure it. We cut taxes for the better off under a flat tax, right? And, as you point out, the less well off benefit from a threshold below which they don't pay. But that, under current conditions means that there is a substantial shortfall in tax take. Which you don't deny.

Not necessarily. The idea is to get rid of all exemptions and tax breaks. You surely must know that someone getting paid £500,000 does not pay £180,000 or so in tax or anything near it. Under a simplified system without any breaks or reliefs it is considerably more likely that the rich would pay more.

Rather, you jump at the notion that a regressive taxation regime would magically encourage a greater tax rate because it would be so simple that all those taxation lawyers wouldn't get around it (by, for example, taking income offshore)

You're not going to be able to stop people moving offshore, but I rather doubt that would be the effect. There would be no work for taxation lawyers at all to do if there was one simple threshold and one simple rate. Note that I don't think it's such a great idea for the tax take to go up, I'd rather the government collected considerably less than it does. But it is a pretty weak argument against the flat tax to say that the tax take would go down.

However, not that I particularly approve of it, old-style conservatism did contain with it a sense of duty towards the less well off (patrician though it was).

I think it was this mistaken premise which irritated me the most about Pullman's piece -the smugness of assuming that conservativism was characterised by the ruling upper class (not plucky little journalists pulling down mere six figure salaries) as opposed to the petit bourgeoisie which traditionally compose this constituency. Further, the notion that the only way to "oblige" the poor was to implement a particular set of 70s era policies (which by the way have failed them in the past) and that any alternative view was motivated by heartlessness or indifference.

Contemporary conservatives seem either to think that the market will magically solve the problems of those who have never really had access to it or that poverty is a form of moral and character failure. And I'm with him on that.

But you are both embracing the same strawman. The "conservative" arguments you refer to, right or wrong are about incentives and to the extent that any moral or character failure applies it is not just to the poor but everyone else. The idea is not to rely on the innate goodness of man, but to recognise that people (of all socioeconomic status) respond to incentives and if the rational reponse to the incentive is, say, not to take up employment that's what will happen. To look at how this works further up the socioeconomic scale, consider an argument against mandatory benefits or increased minimum wages - the "conservative" position is that an employer won't bother hiring a candidate (no matter how much she likes him and wants to give him the job) if the cost of hiring him exceeds the likely benefit he can produce. Indeed, increasing mandatory benefits for existing workers might incentivise, hitherto "nice" employers to sack their least productive employees.

Markets are good for flogging some things but they are not designed to alleviate the effects of their own failures.

The idea is that markets do generally work well and that many of the "failures" oft mentioned are nothing of the sort, or at least overstated, and most of the time the government attempts to correct these "failures" are worse than the failures themselves. The argument that markets can't deliver, say, education and healthcare must be demonstrated, it can't just be assumed to be true. In any case the argument is whether markets can do a better job than the government - the evidence, particularly of government failures in these very sectors, suggest that, generally, they do.

[Frank McGahon]

But I assure you that, presumably like you, I dull the pressure of reality with old cognac and the finest cigars!

Your presumption is unwarranted, sir! I like nothing better than to relax with a nice soothing pipe of organic bolivian crack and a decanter of fairtrade buckfast.

[ainelivia]

Pullman's exact words were: A genuinely conservative idea would be to restore the principle that the wealthiest people should bear more financial responsibility than they've been required to do under the filthy-rich system: so income tax for the rich should go up.

I sit here laughing out loud, and long. Phillip Pullman agrees with me!!??? And I don't feel the least bit c(C)onservative, that I'm aware of.

Well you could knock me over with an spliff..

[Frank McGahon]

Carol, that's the point. Philip Pullman isn't any kind of conservative at all, big or little 'c'. He's an admitted left winger writing for a left wing newspaper who has this deluded idea that if he just labels old-style 1970s era Labour policies "conservative", they magically become actually conservative.