Quotulatiousness

December 2, 2016

India’s bold experiment in self-inflicted economic wounds

Filed under: Economics, Government, India — Tags: , , , — Nicholas @ 02:00

Shikha Dalmia explains why Indian Prime Minister Narendra Modi suddenly decided to kneecap his country’s money supply and cause massive economic disruption:

Modi was elected in a landslide on the slogan of “Minimum Government, Maximum Governance.” He promised to end babu raj — the rule of corrupt, petty bureaucrats who torment ordinary citizens for bribes — and radically transform India’s economy. But rather than tackling government corruption, he has declared war on private citizens holding black money in the name of making all Indians pay their fair share.

Tax scofflaw behavior is indeed a problem in India. But it is almost always a result of tax rates that are way higher than what people think their government is worth. The enlightened response would be to lower these rates and improve governance. Instead, Modi is taking his country down what Nobel-winning political economist F.A. Hayek called the road to serfdom, where every failed round of coercive government intervention simply becomes an excuse for even more draconian rounds — exactly what was happening in pre-liberalized India.

[…]

About 600 million poor and uneducated Indians don’t have bank accounts. Roughly 300 million don’t have official identification. It’s not easy to swap their soon-to-be worthless cash, which is a catastrophe given that they live hand to mouth. It is heartbreaking to see these people lined up in long queues outside post offices and banks, missing days and days of work, pleading for funds from the very bureaucrats from whose clutches Modi had promised to release them.

Modi hatched his scheme in complete secrecy, without consulting his own economic advisers or the Parliament, lest rich hoarders catch wind and ditch their cash holdings for gold and other assets. Hence, he could not order enough new money printed in advance. This is a massive problem given that about 90 percent of India’s economic transactions are in cash. People need to be able to get money from their banks to meet basic needs. But the government has imposed strict limits on how much of their own money people can withdraw from their own accounts.

[…]

This is not boldness, but sheer conceit based on the misguided notion that people have to be accountable to the government, rather than vice versa. Over time, it will undermine the already low confidence of Indians in their institutions. If Modi could unilaterally and so suddenly re-engineer the currency used by 1.1 billion people, what will he do next? This is a recipe for capital flight and economic retrenchment.

The fear and uncertainty that Modi’s move will breed will turn India’s economic clock back to the dark times of pre-liberalized India — not usher in the good times (aache din) that Modi had promised.

October 19, 2016

Economics Made the World Great – and Can Make It Even Better

Filed under: Economics, History — Tags: , , — Nicholas @ 02:00

Published on Sep 23, 2016

A lot of doom and gloom types say we’re living in dark times. But they’re wrong.

While there are real problems, the world has never been healthier, wealthier, and happier than it is today. Over a billion people have been lifted from dire poverty in just the past few decades.

What has contributed to this improvement of our well-being? The answer can be found in the evolution of economic and policy ideas.

But we can still do better. How will we solve today’s challenges and what breakthroughs will spark change tomorrow?

October 18, 2016

QotD: “Smart Growth” regulations hurt the poor

Filed under: Economics, Government, Quotations, USA — Tags: , , , — Nicholas @ 01:00

In the 1970s, municipalities enacted new rules that were designed to protect farmland and to preserve green space surrounding rapidly growing cities by forbidding private development in those areas. By the late 1990s, this practice evolved into a land-use strategy called “smart growth.” (Here’s a video I did about smart growth.) While some of these initiatives may have preserved green space that can be seen, what is harder to see is the resulting supply restriction and higher cost of housing.

Again, the lower the supply of housing, other things equal, the higher real-estate prices will be. Those who now can’t afford to buy will often rent smaller apartments in less-desirable areas, which typically have less influence on the political process. Locally elected officials tend to be more responsive to the interests of current residents who own property, vote, and pay taxes, and less responsive to renters, who are more likely to be transients and nonvoters. That, in turn, makes it easier to implement policies that use regulation to discriminate against people living on low incomes.

Sandy Ikeda, “Shut Out: How Land-Use Regulations Hurt the Poor”, The Freeman, 2015-02-05.

October 1, 2016

Here’s some fantastic news you’re not seeing in the headlines

Filed under: Economics — Tags: , — Nicholas @ 02:00

The same world poverty data, presented as absolute or relative levels of poverty:

world-poverty-in-absolute-numbers

world-poverty-in-relative-numbers

H/T to Rob Fisher at Samizdata for the link.

September 6, 2016

QotD: Minimum lot size regulations hurt the poor

Filed under: Bureaucracy, Economics, Government, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Other things equal, the larger the lot, the more you’ll pay for it. Regulations that specify minimum lot sizes — that say you can’t build on land smaller than that minimum — increase prices. Regulations that forbid building more units on a given-size lot have the same effect: they restrict supply and make housing more expensive.

People who already live there may only want to preserve their lifestyle. But whether they intend to or not (and many certainly do so intend) the effect of these regulations is to exclude lower-income families. Where do they go? Where they aren’t excluded — usually poorer neighborhoods. But that increases the demand for housing in poorer neighborhoods, where prices will tend to be higher than they would have been.

And it’s not just middle-class families that do this. Very wealthy residents of exclusive neighborhoods and districts also have an incentive to support limits on construction in order to maintain their preferred lifestyle and to keep out the upper-middle-class hoi polloi. Again, the latter then go elsewhere, very often to lower-income neighborhoods — Williamsburg in Brooklyn is a recent example — where they buy more-affordable housing and drive up prices. Those who complain about well-off people moving into poor neighborhoods — a phenomenon known as “gentrification” — may very well have minimum-lot-size and maximum-density regulations to thank.

When government has the authority to restrict building and development, established residents of all income levels will use that power to protect their wealth.

Sandy Ikeda, “Shut Out: How Land-Use Regulations Hurt the Poor”, The Freeman, 2015-02-05.

August 21, 2016

QotD: Price controls and other forms of rationing

Filed under: Economics, Quotations — Tags: , , , , , — Nicholas @ 01:00

Of the numerous and occasionally contradictory techniques used to ration demand and supply [when monetary prices are not used], perhaps the most common is past behavior: persons already in apartments are given preference under rent control, or past acreage determines current allotments under agricultural price support programs. Another common technique is queuing or first come – first served: taxicabs, theater tickets, medical services, and many other goods and services are rationed in this way when their prices are controlled. Of course, discrimination and nepotism are also widely used; the best way to get a rent-controlled apartment is to have a (friendly) relative own a controlled building. Other criteria are productivity – the least productive workers are made unemployed by minimum wage laws;…. collateral – borrowers with little collateral cannot receive legal loans when effective ceilings are placed on interest rates.

Each rationing technique benefits certain groups at the expense of other groups relative to their situation in a free market. Price controls are almost always rationalized, at least in part, as a desire to help the poor, yet it is remarkable how frequently they harm the poor.

Gary Becker, Economic Theory, 1971.

July 15, 2016

QotD: The poverty of the past

Filed under: Economics, History, Quotations — Tags: — Nicholas @ 01:00

I would point you to one of the great economic resources of our times. The work of Angus Maddison. Download that database (it’s a simple Excel file). Play around with it. And then think about it.

While you think about it, ponder the point that Brad Delong likes to make (derived in part from Maddison and also from his own work). The one fact of economics that we need to explain is what the heck happened around 1700? Why did living standards flatline, roughly and around about, from the founding of Ur until someone worked out how to use a steam engine? That’s the one supreme puzzle. Now, we think we’ve found a lot of answers, Malthusian growth giving way to Smithian (and possibly, as Deepak Lal puts it, Promethean). We might want to ascribe it to capitalism, to markets, to the welfare state, to a step change in technology: and bits and pieces of all of those have obviously contributed to where we are now. But something the heck happened which was different from everything that preceded it.

And now back to Maddison’s numbers. To explain them a little bit (and this again draws on points I’ve lifted from Delong). They are in constant dollars. So, an adjustment has been made for inflation over the decades and centuries. We can’t say that sure, peoples’ incomes in the past were low but so were prices. These numbers are at modern prices (actually, the prices of 1992 if I recall correctly, so adjust by 20 odd years mentally). They are also PPP adjusted, another version of the same thing. So they really are (trying, this is more of an art than a science at this distance) trying to reflect different prices in different places as well as the inflation adjustment across time.

Finally, they are of GDP per capita. This isn’t the same as the average income, not at all. Some amount of GDP will flow to capital, there will be inequality of distribution and so on. However, the average living standard of a place and time cannot be more than that GDP per capita. And then look at the numbers again. Up until 1600 or so GDP per capita wandered around between $500 a year and $1,000 a year or so. All over the world. Up a bit, down a bit, the central years of the Roman Empire were better when the Romans were civilising my Celtic forbears than when the Saxons were slaughtering my Celtic forbears but no real breakout from that range.

And remember: this is at 1992 prices. We really are saying that people had the standard of living that we would have if we had $500 or $1,000 a year to go spend in a 1992 Walmart. Now go look at 1890s America. That house on the prairies time. We really are saying that the average American in 1890 (less than in fact, that difference between incomes and GDP, distributional effects) was living on $3,900 a year. And no, not at some different price level. All housing, clothing, heating, food, everything, at the prices that we would see in a 1992 Walmart.

That’s poor.

In the year of my birth it was $12,200: better, certainly, but simply nowhere near as good as today.

It really is important to understand this point. The past was unimaginably poor by our current standards. As are parts of ther world today. Or, as the man said, the Good Old Days are right now.

Tim Worstall, “Joni Ernst, Bread Bags And The Poverty Of The Past”, Forbes, 2015-02-02.

June 27, 2016

Media fans of Chavez

Filed under: Americas, Economics, Media — Tags: , , — Nicholas @ 03:00

Theodore Dalrymple on the unfailing ability of some political pundits to not only be wrong, but to be proven wrong so completely and so quickly (and yet to seem unable to learn from the experience):

In 2000 [former literary editor of The Guardian, Richard Gott] wrote a book about Chavez that I thought startling in its adulatory idiocy. The Bourbons may have learnt nothing and forgotten nothing, but Gott was far worse than any Bourbon. Despite it being obvious that Chavez’s crude and demagogic economic notions were capable of producing a sand shortage in the Sahara, Gott saw in them a rainbow with a pot of social justice at the end of it. As late as 2012, Gott wrote an article in The Guardian with the title “Chavez’s economic lesson for Europe.” Its subtitle was “Hugo Chavez’s rejection of the neoliberal policies dragging Europe down sets a hopeful example.”

Chavez’s policy was simply to use Venezuela’s large oil revenues, in effect its unearned income, to subsidize the standard of living of millions of people, while at the same time antagonizing foreign and even domestic capital. Oddly enough, it did not occur to the learned author of the article that Greece, for example, had no revenues from a resource comparable to oil to distribute, though for a time borrowed money played the role of those oil revenues; nor that an economy utterly dependent on the price of oil was extremely fragile, and that to distribute largesse on the assumption that the price would remain high forever was improvident, to say the least.

The article ends as follows:

    Greece has a wonderful chance to change the history of Europe and to throw their caps of Bolívar into the air, as once the Italian carbonari did in Paris all those years ago. Lord Byron, who planned to settle in Bolívar’s Venezuela before sailing off to help liberate Greece, named his yacht Bolívar; he would certainly have been pleased with contemporary developments.

What this omits, apart from the chaos into which Venezuela has only too predictably fallen, is Bolívar’s own miserable end as a fugitive from what he himself had brought about, and his deeply despairing though splendidly lapidary last pronouncement: He who serves the revolution ploughs the sea.

It was never very difficult, even for persons such as I ungifted with foresight, to predict that Chavez’s so-called Bolivarian Revolution would end in tears, with shortages of practically everything and corruption on a Brobdingnagian scale. For any person possessed of the most minimal common sense, Gott’s own book about the Venezuelan mountebank provided enough evidence that this would happen. Gott’s economic utopia is a place in which everything for everybody is subsidized, and nothing has a real price. A cynic, said Oscar Wilde, is a person who knows the price of everything; a Gott is a person who thinks there should be no prices, and everything should be distributed according to everyone’s wishes.

But perhaps we should not be too hard on poor old Chavez and his Guardian acolyte, praise-singer, and sycophant. Chavez’s Bolivarian Revolution was only European social democracy writ large and loud, a tropical parrot to Europe’s more soberly plumaged crows. After all, what is most of Western politics about other than the size and distribution of subsidies, the state, as the great French economist of the 19th century, Frédéric Bastiat, put it (he is the only economist in the history of the world who makes you laugh on practically every page), the means by which everyone seeks to live at everyone else’s expense?

May 24, 2016

The Great Enrichment

Filed under: Economics, History, Liberty — Tags: , , — Nicholas @ 02:00

In the Wall Street Journal, economist Deirdre McCloskey pinpoints the launch point of the greatest increase in global human wealth ever seen:

In the 18th century, liberal thinkers such as Voltaire and Benjamin Franklin courageously advocated liberty in trade. By the 1830s and 1840s, a much enlarged intelligentsia, mostly the sons of bourgeois fathers, commenced sneering loftily at the liberties that had enriched their elders and made possible their own leisure. The sons advocated the vigorous use of the state’s monopoly of violence to achieve one or another utopia, soon.

Intellectuals on the political right, for instance, looked back with nostalgia to an imagined Middle Ages, free from the vulgarity of trade, a nonmarket golden age in which rents and hierarchy ruled. Such a conservative and Romantic vision of olden times fit well with the right’s perch in the ruling class. Later in the 19th century, under the influence of a version of science, the right seized upon social Darwinism and eugenics to devalue the liberty and dignity of ordinary people and to elevate the nation’s mission above the mere individual person, recommending colonialism and compulsory sterilization and the cleansing power of war.

On the left, meanwhile, a different cadre of intellectuals developed the illiberal idea that ideas don’t matter. What matters to progress, the left declared, was the unstoppable tide of history, aided by protest or strike or revolution directed at the evil bourgeoisie — such thrilling actions to be led, naturally, by themselves. Later, in European socialism and American Progressivism, the left proposed to defeat bourgeois monopolies in meat and sugar and steel by gathering under regulation or syndicalism or central planning or collectivization all the monopolies into one supreme monopoly called the state.

While all this deep thinking was roiling the intelligentsia of Europe, the commercial bourgeoisie — despised by the right and the left, and by many in the middle, too — created the Great Enrichment and the modern world. The Enrichment gigantically improved our lives. In doing so, it proved that both social Darwinism and economic Marxism were mistaken. The supposedly inferior races and classes and ethnicities proved not to be so. The exploited proletariat was not driven into misery; it was enriched. It turned out that ordinary men and women didn’t need to be directed from above, and when honored and left alone, became immensely creative.

The Great Enrichment is the most important secular event since human beings first domesticated wheat and horses. It has been and will continue to be more important historically than the rise and fall of empires or the class struggle in all hitherto existing societies. Empire did not enrich Britain. America’s success did not depend on slavery. Power did not lead to plenty, and exploitation was not plenty’s engine. Progress toward French-style equality of outcome was achieved not by taxation and redistribution but by the Scots’ very different notion of equality. The real engine was the expanding ideology of classical liberalism.

The Great Enrichment has restarted history. It will end poverty. For a good part of humankind, it already has. China and India, which have adopted some of economic liberalism, have exploded in growth. Brazil, Russia and South Africa, not to speak of the European Union — all of them fond of planning and protectionism and level playing fields — have stagnated.

February 16, 2016

How Sweden got rich

Filed under: Economics, Europe, History — Tags: , , , , — Nicholas @ 02:00

Johan Norberg talks about the economic state of Sweden 150 years ago:

Once upon a time I got interested in theories of economic development because I had studied a low-income country, poorer than Congo, with life expectancy half as long and infant mortality three times as high as the average developing country.

That country is my own country, Sweden — less than 150 years ago.

At that time Sweden was incredibly poor — and hungry. When there was a crop failure, my ancestors in northern Sweden, in Ångermanland, had to mix bark into the bread because they were short of flour. Life in towns and cities was no easier. Overcrowding and a lack of health services, sanitation, and refuse disposal claimed lives every day. Well into the twentieth century, an ordinary Swedish working-class family with five children might have to live in one room and a kitchen, which doubled as a dining room and bedroom. Many people lodged with other families. Housing statistics from Stockholm show that in 1900, as many as 1,400 people could live in a building consisting of 200 one-room flats. In conditions like these it is little wonder that disease was rife. People had large numbers of children not only for lack of contraception, but also because of the risk that not many would survive for long.

As Vilhelm Moberg, our greatest author, observed when he wrote a history of the Swedish people: “Of all the wondrous adventures of the Swedish people, none is more remarkable and wonderful than this: that it survived all of them.”1

But in one century, everything was changed. Sweden had the fastest economic and social development that its people had ever experienced, and one of the fastest the world had ever seen. Between 1850 and 1950 the average Swedish income multiplied eightfold, while population doubled. Infant mortality fell from 15 to 2 per cent, and average life expectancy rose an incredible 28 years. A poor peasant nation had become one of the world’s richest countries.

Many people abroad think that this was the triumph of the Swedish Social Democratic Party, which somehow found the perfect middle way, managing to tax, spend, and regulate Sweden into a more equitable distribution of wealth — without hurting its productive capacity. And so Sweden — a small country of nine million inhabitants in the north of Europe — became a source of inspiration for people around the world who believe in government-led development and distribution.

But there is something wrong with this interpretation. In 1950, when Sweden was known worldwide as the great success story, taxes in Sweden were lower and the public sector smaller than in the rest of Europe and the United States. It was not until then that Swedish politicians started levying taxes and disbursing handouts on a large scale, that is, redistributing the wealth that businesses and workers had already created. Sweden’s biggest social and economic successes took place when Sweden had a laissez-faire economy, and widely distributed wealth preceded the welfare state.

This is the story about how that happened. It is a story that must be learned by countries that want to be where Sweden is today, because if they are to accomplish that feat, they must do what Sweden did back then, not what an already-rich Sweden does now.

February 11, 2016

QotD: Dissing Wal-Mart as a cultural signalling device

Filed under: Business, Economics, Politics, Quotations, USA — Tags: , , , — Nicholas @ 01:00

There’s no sign of it here in Magnolia, Ark., but the boycott season is upon us, and graduates of Princeton and Bryn Mawr are demanding “justice” from Wal-Mart, which is not in the justice business but in the groceries, clothes, and car-batteries business. It is easy to scoff, but I am ready to start taking the social-justice warriors’ insipid rhetoric seriously — as soon as two things happen: First, I want to hear from the Wal-Mart-protesting riffraff a definition of “justice” that is something that does not boil down to “I Get What I Want, Irrespective of Other Concerns.”

Second, I want to turn on the radio and hear Jay-Z boasting about his new Timex.

It is remarkable that Wal-Mart, a company that makes a modest profit margin (typically between 3 percent and 3.5 percent) selling ordinary people ordinary goods at low prices, is the great hate totem for the well-heeled Left, whose best-known celebrity spokesclowns would not be caught so much as downwind from a Supercenter, while at the same time, nobody is out with placards and illiterate slogans and generally risible moral posturing in front of boutiques dealing in Rolex, Prada, Hermès, et al. It’s almost as if there is a motive at work here other than that which is stated by our big-box-bashing friends on the left and their A-list human bullhorns.

What might that be?

Kevin D. Williamson, “Who Boycotts Wal-Mart? Social-justice warriors who are too enlightened to let their poor neighbors pay lower prices”, National Review, 2014-11-30.

January 24, 2016

QotD: There are no Veblen goods at Wal-Mart

Filed under: Economics, Quotations — Tags: , , , — Nicholas @ 01:00

People buy Rolex watches for reasons other than their timekeeping excellence, just as people buy Ferraris and horses for reasons other than going to the store to pick up a gallon of milk and a loaf of bread. Economists talk about “Veblen goods,” which are more valued because of their high prices rather than in spite of them, coveted not for their conventional utility but for their exclusivity. Owning a Rolls-Royce isn’t about the car — it’s about you. Which is why you see magazines such as The Robb Report — one of those glossies full of “bland advertisements for being wealthy,” as the novelist William Gibson put it — for sale in places such as Wal-Mart, where the typical customer is not actually in the market for a yacht or Kiton overcoat. If you’ve ever seen the heartbreaking sight of a young woman stopping a Wal-Mart checker three-fourths of the way through ringing up her purchases — because she does not have enough money to pay for what’s left in her cart — then you can be pretty sure that what’s going in her sack is more or less the opposite of Veblen goods.

Ironically, the anti-Wal-Mart crusaders want to make life worse for people who are literally counting pennies as they shop for necessities. Study after study has shown that Wal-Mart has meaningfully reduced prices: 3.1 percent overall, by one estimate — with a whopping 9.1 percent cut to the price of groceries. That comes to about $2,300 a year per household, savings that accrue overwhelmingly to people of modest incomes, not to celebrity activists and Ivy League social-justice crusaders.

Ultimately, these campaigns are exercises in tribal affiliation. The Rolex tribe, and those who aspire to be aligned with it, signal their status by sneering at the Timex tribe — or by condescending to it as they purport to act on its behalf, as though poor people were too stupid to know where to find the best deal on a can of beans. Or call it the Trader Joe’s tribe vs. the Wal-Mart tribe, the Prius tribe vs. the F-150 tribe.

Kevin D. Williamson, “Who Boycotts Wal-Mart? Social-justice warriors who are too enlightened to let their poor neighbors pay lower prices”, National Review, 2014-11-30.

January 15, 2016

Malthusian thinking

Filed under: Britain, History, India — Tags: , , , — Nicholas @ 03:00

Matt Ridley on how horrible implementations of the ideas of Thomas Malthus have made the world an even more cruel place:

For more than 200 years, a disturbingly vicious thread has run through Western history, based on biology and justifying cruelty on an almost unimaginable scale. It centres on the question of how to control human population growth and it answers that question by saying we must be cruel to be kind, that ends justify means. It is still around today; and it could not be more wrong. It is the continuing misuse of Malthus.

According to his epitaph in Bath Abbey, the Rev Thomas Robert Malthus, author of An Essay on the Principle of Population (1798), was noted for “his sweetness of temper, urbanity of manners and tenderness of heart, his benevolence and his piety”. Yet his ideas have justified some of the greatest crimes in history. By saying that, if people could not be persuaded to delay marriage, we would have to encourage famine and “reprobate specific remedies for ravaging diseases”, he inadvertently gave birth to a series of heartless policies — the poor laws, the British government’s approach to famine in Ireland and India, social Darwinism, eugenics, the Holocaust, India’s forced sterilisations and China’s one-child policy. All derived their logic more or less directly from a partial reading of Malthus.

To this day if you write or speak about falling child mortality in Africa, you can be sure of getting the following Malthusian response: but surely it’s a bad thing if you stop poor people’s babies dying? Better to be cruel to be kind. Yet actually we now know, this argument is wrong. The way to get population growth to slow, it turns out, is to keep babies alive so people plan smaller families: to bring health, prosperity and education to all.

Britain’s Poor Law of 1834, which attempted to ensure that the very poor were not helped except in workhouses, and that conditions in workhouses were not better than the worst in the outside world, was based explicitly on Malthusian ideas — that too much charity only encouraged breeding, especially illegitimacy, or “bastardy”. The Irish potato famine of the 1840s was made infinitely worse by Malthusian prejudice shared by the British politicians in positions of power. The Prime Minister, Lord John Russell, was motivated by “a Malthusian fear about the long-term effect of relief”, according to a biographer. The Assistant Secretary to the Treasury, Charles Trevelyan, had been a pupil of Malthus at the East India Company College: famine, he thought, was an “effective mechanism for reducing surplus population” and a “direct stroke of an all-wise and all-merciful Providence” sent to teach the “selfish, perverse and turbulent” Irish a lesson. Trevelyan added: “Supreme Wisdom has educed permanent good out of transient evil.”

In India in 1877, a famine killed ten million people. The viceroy, Lord Lytton, quoted almost directly from Malthus in explaining why he had halted several private attempts to bring relief to the starving: “The Indian population has a tendency to increase more rapidly than the food it raises from the soil.” His policy was to herd the hungry into camps where they were fed on — literally — starvation rations. Lytton thought he was being cruel to be kind.

December 1, 2015

Britain’s welfare system

Filed under: Britain, Government, Politics — Tags: , , — Nicholas @ 03:00

Brendan O’Neill says it’s time to smash the welfare system because it’s too badly broken to fix:

… however much the the apologists for the Byzantine system of welfarism might kick and shout, we need to get the facts out there, and we need to talk about them frankly.

The fact that more than half of Britain’s households, 13.7m, receive more in welfare benefits than they pay in taxes. The fact that this represents a rise from 45.9 per cent of households in 1997 to 51.5 per cent today. The fact that 20.3m families now receive some kind of state benefit. The fact that for 9.6m of these families, benefits account for more than half of their income. The fact that nearly five million people have their rent paid by the state. The fact that vast numbers of people, first through Incapacity Benefit and then through Employment Support Allowance, have been redefined by the state as ‘incapable’ — of work, of independence, of dignity, in effect — and have been put out to pasture. There are parts of Britain where a state-sanctioned culture of incapacity has deadened community spirit, destroyed its soul.

The growth of welfarism in recent decades, the replacement of economic vision and the creation of new wealth with a colossal system of state charity and therapy, has terrible consequences. It dents individual ambition, and corrodes social solidarity. When people are invited to rely for their every financial and psychic need on the distant, faceless state, then they’re less likely to rely on their own volition and on the support and kindness of neighbours and friends.

Welfarism is a classic good intention turned hellish: in the name of helping people it actually weakens both individual pluck and community zest. Of course, the loudest cheerleaders of welfarism — the comfortable, cushioned liberals who shout down anyone who criticises the welfare state — have no experience of this. They don’t even want to see it on their TV, as their lust to censor Benefits Streets demonstrated. Yet a few miles from the leafy suburbs in which they churn out their defences of welfarism there will be communities branded incapable and made divided by that welfarism.

Some people say, ‘But welfare benefits is not a huge part of government spending!’ This is true. It accounts for somewhere over 20 per cent. Or they say, ‘And old people get most of it!’ This is also true, and I think it is quite proper: the generational jihadists who moan about pension spending don’t seem to realise that old people who have worked or child-reared all their lives deserve society’s help in their twilight years, and that this is massively different to giving state largesse to fit, young 25-year-olds.

But my concern with welfarism is not how much it costs the government but the costs it has for community life, public spirit, the self-willed individual. Welfarism should be radically rethought not in order to save a few billion quid but in order to reverse the state’s spread into communities and to repair the self-belief and independence of working-class and poorer sections of society.

November 27, 2015

Wealth, inequality, and billionaires

Filed under: Economics, Government, Politics — Tags: , , , — Nicholas @ 04:00

Several months ago, the Washington Post reported on a new study of wealth and inequality that tracked how many billionaires got rich through competition in the market and how many got rich through political “connections”:

The researchers found that wealth inequality was growing over time: Wealth inequality increased in 17 of the 23 countries they measured between 1987 and 2002, and fell in only six, Bagchi says. They also found that their measure of wealth inequality corresponded with a negative effect on economic growth. In other words, the higher the proportion of billionaire wealth in a country, the slower that country’s growth. In contrast, they found that income inequality and poverty had little effect on growth.

The most fascinating finding came from the next step in their research, when they looked at the connection between wealth, growth and political connections.

The researchers argue that past studies have looked at the level of inequality in a country, but not why inequality occurs — whether it’s a product of structural inequality, like political power or racism, or simply a product of some people or companies faring better than others in the market. For example, Indonesia and the United Kingdom actually score similarly on a common measure of inequality called the Gini coefficient, say the authors. Yet clearly the political and business environments in those countries are very different.

So Bagchi and Svejnar carefully went through the lists of all the Forbes billionaires, and divided them into those who had acquired their wealth due to political connections, and those who had not. This is kind of a slippery slope — almost all billionaires have probably benefited from government connections at one time or another. But the researchers used a very conservative standard for classifying people as politically connected, only assigning billionaires to this group when it was clear that their wealth was a product of government connections. Just benefiting from a government that was pro-business, like those in Singapore and Hong Kong, wasn’t enough. Rather, the researchers were looking for a situation like Indonesia under Suharto, where political connections were usually needed to secure import licenses, or Russia in the mid-1990s, when some state employees made fortunes overnight as the state privatized assets.

The researchers found that some countries had a much higher proportion of billionaire wealth that was due to political connections than others did. As the graph below, which ranks only countries that appeared in all four of the Forbes billionaire lists they analyzed, shows, Colombia, India, Australia and Indonesia ranked high on the list, while the U.S. and U.K. ranked very low.

Wealth and political connections

Looking at all the data, the researchers found that Russia, Argentina, Colombia, Malaysia, India, Australia, Indonesia, Thailand, South Korea and Italy had relatively more politically connected wealth. Hong Kong, the Netherlands, Singapore, Sweden, Switzerland and the U.K. all had zero politically connected billionaires. The U.S. also had very low levels of politically connected wealth inequality, falling just outside the top 10 at number 11.

When the researchers compared these figures to economic growth, the findings were clear: These politically connected billionaires weighed on economic growth. In fact, wealth inequality that came from political connections was responsible for nearly all the negative effect on economic growth that the researchers had observed from wealth inequality overall. Wealth inequality that wasn’t due to political connections, income inequality and poverty all had little effect on growth.

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