Fiscal Dark Matter

The United States is often portrayed by liberals, and for that matter by those who comment from the centre and right, as spending less on welfare and healthcare at a federal level than many 'comparable' states. The United Kingdom, equally, until recently trumpeted its low burden of public spending to GDP compared to other European economies.

I think that this is untrue. I think that, in the United Kingdom, the Private Finance Initiative's funny-money off-balance sheet deals have until recently hidden the true scale of spending.

What I didn't do, and what no-one seems to have known until Michael Lind pointed it out today, is look at tax credits. They are, effectively, subsidies. They effectively lower taxes on those who participate in government-approved schemes or do things that state and federal administrators like. They are a child of the Nixon administration, Russell Long and Ross Perot's EDS technology, because you need a 'modern' ideology of socialised incentives for individuals and business tied to technology and a no-strings set of political votes to make them work. Once you take them into account, America is in fact a big, inefficient, and wasteful spender.

It is becoming more and more clear to me that the US and UK live, in their public debates at least, in some sort of delusional fiscal wonderland in which nothing means what it says. It's almost enough to make me want a fiscal collapse and total, jubilee-reboot of the financial and monetary system. Could a small government, one flat tax, zero-budgeted spending and tax-free nonprofit welfare really be worse than this?


"Could a small government, one flat tax, zero-budgeted spending and tax-free nonprofit welfare really be worse than this?"


Now you've picked yourself up off the floor, I suppose I better offer something more substantive.

I saw a post somewhere today (and annoyingly I can't remember where) discussing the US stimulus. The argument is that the stimulus is only delaying more hardship that is yet to come. It cites FDR's stimulative projects that led to the recession within a recession in '37/'38. The crux of the argument is that we should be biting the bullet now and accepting the hardship so that we can start to move forward more quickly. Does that make sense?
Martin Meenagh said…

There is what is now a long tradition on the right of arguing that Hoover's America was on the right track monetarily but the wrong one in 'public' terms. What is usually meant by that is the unemployment and grinding poverty of the great depression.

I think half the problem is that the English speaking world tends to separate economics and politics, when we should really be weaning the economists away from calculus and pretend physics and onto the question of what sort of community and society is best.

That would require a little heart; so schemes that left millions unemployed and on the scrapheap, or diverted public money to corporate socialism, would be as bad as leftish schemes that limited freedom and community.

Capitalism isn't a conservative or a moral force--it is an amoral machine. Markets are natural things, but sometimes they do not work.

I would like a state that was small, but that contained co-ops and non-profit social enterprises to provide those things that the market can't provide. I'd like to see low, clear taxes that everyone pays and no-one dodges, and I'd like to see federalism in America and local devolution here. I think that there should be a proper NHS, social railways, more private roads, school vouchers, and a distributed national university, with the rest private.

I'd like the banks to compete with proper building societies and credit unions that couldn't be busted. I'd like governments to do as little as possible, and I would like People to keep most of what they earn and build and to have a degree of ownership of their job, however much their bosses would like to treat them as a marginal cost.

I also happen to think that the stimulus on both sides of the Atlantic is just postponing the inevitable; yet there are ways to avoid hardship and ways to avoid hardship. Nationalising commercial mortgages for small businesses and granting everyone a debt jubilee, or a tax-free allowance of £10000 or so would probably have done more than stuffing the mouths of bankers with gold. It would have left the banks and bankers to deal with the hardship they have caused, and punished only the ones with no sense or flexibility.

I asked the question 'would it be worse' because I think, like you, that it wouldn't. There are past posts on the blog, by the way, about the stimulus arguments--I'll find 'em for you.

Many thanks for your comment.
Martin Meenagh said…
There you go--

Interesting post about the depression.

I'll answer the question you asked firstly by stating what I wouldn't do:

1)Try to raise marginal taxes to 100%
2)Dramatically increase excise taxes
3) Be slow in aboloshing (or whittling down)tariffs
4) Install price controls

As for what I would do:

1) Make spending easier
2) Run effective re-training programs
3) Encourage people to start small-businesses
4) Make employing people cheaper

I'm a little surprised you think that the right are pro-Hoover. Any analysis of the Depression I've seen on the right puts the blame for the depression squarely at Hoover's door and Smoot-Hawley.

Capitalism isn't conservative, but belief in capitalism is precisely because it is a natural force, and society has become to un-Darwinistic. Let's take thee and me

You made the decision to go to University. You applied yourself and succeeded. You became a barrister (if I remember correctly). I on the other hand did not go to University, have failed to develop any definite career and have been stuck in a number of dead-end jobs for the last few years. I suspect that this gives you a better standard of living than I and that is the rightful order of things.

The way to reform society is not to prop people like me up, it is to make sure that more people can take your path.
Martin Meenagh said…
Personal prejudice intruded there, I think, CC--I think Hoover would have been a great president in 1920, when he should have got the nomination. I once went to Belgium and the place is covered with statues to him, because he was the saviour of that place--the trip made me rethink my view of him. That's despite the anticatholicism of the 1928 campaign.

People loved Al Smith, by the way, but I never really warmed to the idea of President Smith....

Many of the academic right are pro-Hoover, via Stanford; Smoot-Hawley, I might point out, was not what Hoover wanted. He asked for higher tariffs on agricultural goods to restore farm incomes because of a real ecological disaster in the plains and south, and lower industrial tariffs. Congress being the schmucks they usually are raised both. HH then got stitched up by bankers caught up, as Yeats would put it, in Money's rant, and a three-year descent into depression. FDR supported his main policies--in fact, any policies--in 32.

I like small businesses (I'm a bit of a distributist) and proper jobs. So, clear, low taxes, support for small business commercial mortgages, restraint of gouging property companies, and low taxes with insurance mandates rather than high taxes, subsidies and credits are the sort of policies I'd start with.

I also wouldn't offer retraining--I'd just regulate education providers and at most offer people vouchers that did not cover the full cost of training, plus I'd have part-time apprenticeships and encourage professional bodies to set their own membership rules. The state generally messes up education, as far as I can see.

I am a barrister, but non-practising. At the minute, debts are pressing and teaching, either on videolink, or through lectures, seminars and classes in London and Bath are more lucrative and, frankly, stimulating, and in a bad market I have more credibility. I'd point out that my brother is doing his degree with the OU and my sister doesn't have one but is fearsomely good at her business in the travel industry--I wouldn't pretend that what I did was done for anything other than love of books and teaching and sounding off and that it should be judged only as such!

As for dead-end jobs, bet I've done more than you, though my sojourns as a kitchen salesman, when I was 16, or in steelworks or factories in Corby were mostly vactation things.

I did do my first legal diploma on the back of a nightshift in a warehouse for a year, when I was living with my Grandad though. More people should meet more people like that.

"I did do my first legal diploma on the back of a nightshift in a warehouse for a year"

That's what I admire.

The O.U. is the type of government intervention I can get wholly behind.

As for personal prejudice, to what were you referring, FDR's method of coming out of depression? Not prejudice, just an acknowledgment that his prescription did little to alleviate unemployment over a long period of time.

In the words of Henry Morgenthau in 1939:

"We have tried spending money. We have spent more than we have ever spent before and it does not work....I say after eight years of this administration we have just as much unemployment as when we started...And an enormous debt to boot"

A lesson from history.
Martin Meenagh said…

no offence--my own prejudice! I like Hoover.
Martin Meenagh said…
Although, I should add the usual sentiments distingues that he was a git to black people and a sort of more competent version of Ted Heath. But there is no accounting for taste....