Thursday, February 17, 2005

Setting the goal

Helen Clark wants us to be more like Sweden. It's an excellent goal, and finally provides a decent vision to back up Labour's electoral machine. Fully-funded universal healh and education, a welfare state that allows everyone to live a decent life and participate in society, a social infrastructure that provides people with real, practical (rather than merely formal) freedom, regardless of the circumstances of their birth or the vagaries of fortune - this is the goal Labour should have enunciated long ago. It will cost, of course, but I think it is a cost New Zealanders are willing to bear. People have repeatedly said they are willing to pay more to get decent health and education; what rankles so much now is that due to means testing, an increasing number of people are paying to insure others while not receiving any benefit themselves. If we want them to buy in to universal care, then that has to change.

But actually, I'd go further than Sweden. Rather than simply rebuilding the welfare state, we should replace it and implement a universal basic income system. This would pay an equal amount (ideally enough to live on) to every adult New Zealander, freeing us from (some of) the basic struggle to eat and giving us greater freedom to control our own lives. It would mean economic change, and some (shitty) industries would almost certainly be wiped out, while employers would have to get used to workers demanding greater flexibility - but it would be well worth it.


Well, it certainly doesn't seem to have done Sweden any harm. Sure, it's not as rich as the US - few places are - but it is certainly rich enough (I don't think there's anything to complain about being "merely" as rich as the average western european nation). And it consistently tops rankings for life expectancy, literacy, equality, and (most importantly) quality of life. And unlike economic growth, which is merely a means to an end, these things are actually important.

The underlying idea here is that rather than being the be-all and end-all of existence, economic growth is just one of a number of possible goods worth pursuing (and even then it is only of instrumental value). It's therefore perfectly appropriate to sacrifice some growth where this advances our values (it is also perfectly appropriate to oppose "pro-growth" policies which run counter to those values - policies such as those so admired in the US)

Posted by Idiot/Savant : 2/18/2005 12:44:00 AM

In regard to another of Brian S's comments, Sweden pretty consistently appears in the top few nations for lack of corruption.

For example, it was number six last year. The survey

Posted by Unknown : 2/18/2005 09:33:00 AM

My first reaction to this statement was “Well, that’s it for this blog. Clearly this guy is crazy.” But I realised that I’ve got some factual material relating to this debate and had a quick review. The Economist 3 April 2003 wrote about a study by Peter Lindert, published by Cambridge University Press, called “Growing Public: Social Spending and Economic Growth since the Eighteenth Century“, and contrasting taxation and social spending between OECD countries.

Curiously enough, those who spend the most (Sweden, Denmark, Finland) tax capital the least, and tax consumption rather than income. The positive incentive effects of this efficient taxation seem to outweigh any disincentives of income redistribution. In the 1980’s Swedish households enjoyed a negative tax rate on capital income after adjustments for inflation and other deductions.

America, on the other hand, has a very inefficient tax code, but its total tax burden is quite low.

“Two of Lindert’s major conclusions are that the spread of democracy has historically played a pivotal role in the rise of social expenditures; and that social spending has not gravely weakened economic incentives and long-term economic growth, despite the drumbeat of criticisms from free-market devotees. Indeed Lindert concludes that ‘the net national costs of social transfers, and of the taxes that finance them, are essentially zero’. This powerful book will be widely read and debated for many years to come.” Jeffrey D. Sachs, Director, The Earth Institute at Columbia University

Posted by PeeDee : 2/18/2005 11:03:00 AM

A common factor to most of the social democracies of NW Europe is a comparatively high level of social inclusion (e.g. a relatively small underclass).

This is to some extent "bought" with high taxes paying for decent benefits, but it also removes a lot of the costs of social exclusion - as well as making for a more cohesive society.

Also, these countries have never adopted the Muldoonist "strategy" of using industrial inefficiency as a tool of economic redistribution (for instance, running a vastly overstaffed national railway as a form of outdoor relief). They also pursue conservative and prudent financial policies - and did so long before these became popular in the English-speaking world.

I see these countries as having an unwritten "social contract" - where the wealthy are reasonably accepting of high taxes in return for a society conducive to generating, growing and enjoying their wealth.

Posted by Rich : 2/18/2005 11:26:00 AM

"it also sacrifices individual freedoms, one of the values we cherish dearly. In your society, everything is accomplished under the threat of force and violence by the government. That is morally unacceptable."
Total freedom is a false God. The nature of society is a constant tension between personal freedoms and restraints. The US system of minimal restraint has produced arguably some of the most polluting and exploiting employers in the western world. Clearly powerful government is needed to restrain economic self-interest. "Good old capitalism" demonstrably *hasn't* produced effective, equitable systems. Again, the US healthcare system is remarkably inefficient compared with more regulated systems, and produces a poor average level of care for $ spent. The efficiency of the market as global panacea is a long-dead idea in any rational analysis.

Posted by Anonymous : 2/18/2005 11:27:00 AM

Actually good government enables freedom.

Employers do not generate wealth in a vaccuum. They use the infrastructure- roading, water supplies, legal system etc- that is provided through government. The workers employers employ are educated by the government, born in hospitals largely paid for by the government etc.

Of course, appropriate checks and balances are needed on government. I'm no friend to Stalinism. And buerocracy should never be allowed to become an end in itself. But Government in a democratic system has at least the ideal of being for the people and by the people. Its a mechanism for implementing the will of the people. It provides public goods we all agree we want so we can all have better lives and greater freedom of choice.

And I can't believe anyone really believes its sensible to trust employers more than the government. Of course many employers are good. But things like child labour and sweat shops aren't things I personally wish to see left unregulated.

As far as "the land of the free" goes the US is actually hugely and complexly regulated. Whatever the rhetoric it is very far from having a small government. If you don't believe me go and look in a law library and see how many shelves of regulations etc there are in the US section. And I could go on about the level of state welfarism to corporations in the US too, and the lack of civil liberties extended to some people- but it seems like anyone who pays any attention to the world should know all this already, so I won't.

Posted by Amanda : 2/18/2005 12:26:00 PM

It's my belief that economic freedom and individual freedom are not the same. In some hypothetical world of no money, personal freedoms would not be affected.

Posted by Anonymous : 2/18/2005 12:45:00 PM

Brian: not being a Libertarian, I do not believe that taxation is slavery.

Posted by Idiot/Savant : 2/18/2005 12:48:00 PM

taking money from people and giving it back to them it not that bad in itself.
for most people a universal benefit would be an effective tax rebate in exchange for the obligations society puts upon them (for example taking care of a child). This could easily be more efficient since there is no need to means test or do anything like that and actually improves the marginal work incentive (you can allocate the amount of the benefit to maximise the incentive for all evenly).
The system would be acompanied by a marginal tax increase (or a cut in expenditure) to keep the fiscal position neutral. there are various ways you can do that.

"workers who realize that working harder does not put more money in their pocket"
that is a problem with the current system and our sometimes in excess of 100% marginal tax rate. marginal tax rate would be at the nominal tax rate (eg 20-40% lets say) if benefits were universal. thus it solves rather than creates the problem.

"Would they not be tempted to hide their income"
UB would remove that incentive.

Im rather dubious about the capital gains tax issue particularly in the context of NZ which has a huge amount of assets tied up in houses as opposed to normal capital like in the US.

The only incentive of taxing houses is for people to not invest capital that would probably otherwise go to the sharemarket in houses. I dont se why you would want smart people making the housing market more competitive but not the share market.

An efficient market would presumably have capital gains taxes that are identical to normal taxes or any other form of income.

anyway thailand treats capital gains as income (as suggested above) and china taxes it at 20% flat and korea aparently taxes it at 30-50% (depending on the value of the property). taiwan taxed land value increaces at 40-60% much more than income (I note these are four of the best performing countries in the world).

Germany apparently has no capital gains taxes and neither does france (in fact the ones I found look rather like the economic hall of shame - sorry im too young to remember germany being any good economically). The nordic states I expect have low capital gains taxes and high growth as you said but I see the trend as far from convincing.
I think peopel may be doing the old "you can make statistics say anything you want" particularly if you want to lower a tax that focuses on you.

Posted by Genius : 2/18/2005 02:00:00 PM

btw taiwan decreased its taxation on capital gains to bring it in line with normal taxation recently.

Posted by Genius : 2/18/2005 02:04:00 PM


first Sweden was the only industrial economy not laid ruin in Europe after WW2 so had a head start - which it has largely squandered. Secondly it sat on oil and gas reserves, thirdly it sits equidistant from most of europe.

so it had huge natural advantages that we don't.

finally of course, it is going backwards economically and is having to think very hard about what to do next- but of course you don't expect the PM of Sweden to say this on a solidarity visit.

but thats ok, we don't share their culture, their location, their raw materials or have virtually anything in common - an ideal choice for an economic model. WHile the Australians and the US with whom we share a colonial heritage, language, institutions and trade are to be scorned. Mighty reasoning there idiot.

Posted by Anonymous : 2/19/2005 11:59:00 AM

This comment has been removed by a blog administrator. Posted by gazzadelsud : 2/19/2005 12:04:00 PM

> one of the (many) problems of the UB is that people would pretty soon demand a halt to immigration.

possible. I guess it depends on if you look at immigration as a social good or as an economic one. For example I agree with the leader of poland in regard to the boarderless world being the future butat the same time realise the pragmatic approach often does not agree with the idealistic one.

> did you know that the US level of home ownership is now actually higher than in NZ?

No I didn't, But this could still be consistant with the theory - the ease of investment in NZ may mean that investers with spare capital force young homeowners out of the buying market and into the renting market either by forcing the price up or by snapping up the good properties.

Posted by Genius : 2/19/2005 03:47:00 PM