Government failure versus market failure

A lot of economists in Australia like to talk about ‘market failure’ and ‘externalities’. But there is another side that needs to be weighed up and quantified, that of ‘government failure’. To justify government intervention, not only do policymakers need to show that there’s a market failure, they also need to show that government intervention would produce better results. This is indeed very difficult to show, and people tend to skip over this step.

The following is a classic exposition of government failure, taken from Milton Friedman’s Free to Choose. I have numbered the items serious economists should quantify under the heading ‘Possible costs of government failure’ when proposing policy:

Almost everything we do has some third-party effects, however small and however remote. In consequence, [this may] appear to justify almost any proposed government measure. But there is a fallacy. Government measures also have third-party effects. ‘Government failure’ no less than ‘market failure’ arises from ‘external’ or ‘neighbourhood’ effects. And if such effects are important for a market transaction, they are likely also to be important for government measures intended to correct the ‘market failure’…

[1.] If it is difficult for private parties to identify who imposes costs or benefits on whom, it is difficult for government to do so. As a result a government attempt to rectify the situation may very well end up making matters worse rather than better – imposing costs on innocent third parties or conferring benefits on lucky bystanders…[Would government intervention make matters worse?]

[2.] To finance its activities it must collect taxes, which themselves affect what the taxpayers do – still another third-party effect. [What would be the unintended consequences or deadweight costs of taxation to finance this government progam?]

[3.] In addition, every accretion of government power for whatever purpose increases the danger that government, instead of serving the great majority of its citizens, will become a means whereby some of its citizens can take advantage of others. [Would government agencies charged with implementing the programme get captured by vested interests?].

[4.] We should develop the practice of examining both the benefits and the costs of proposed government interventions and require a very clear balance of benefits over costs before adopting them. This course of action is recommended not only by the difficulty of assessing the hidden costs of government intervention but also by another consideration. Experience shows that once government undertakes an activity, it is seldom terminated. The activity may not live up to expectation but that is more likely to lead to its expansion, to its being granted a larger budget, than to its curtailment or abolition. [Is this the sort of program that is likely to be able to be terminated if it does not perform well? Or would it become too politicised?]

The lesson from this is ‘not that government intervention is never justified, but rather that the burden of proof should be on its proponents‘. This is commonsense. If you want the rest of the population to suffer higher taxes to pay for your grand public health schemes, public universities, etc you had better prove that it works, and that it works well. Unfortunately, the evidence points in the opposite direction. Most government programs never achieve their intended objectives. Even supporters of public health acknowledge it has poor outcomes. But their solution is usually to throw more money at the problem! We would be better off having lower tax, eliminating the churning, and paying for services ourselves.

178 thoughts on “Government failure versus market failure

  1. These four questions should be asked of any proponent of a government program (including overseas wars). It’s sort of like a cheat sheet:

    1. Would government intervention make matters worse?

    2. What would be the unintended consequences or deadweight costs of taxation to finance this government progam?

    3. Would government agencies charged with implementing the programme get captured by vested interests?

    4. Is this the sort of program that is likely to be able to be terminated if it does not perform well? Or would it become too politicised?

    These empirical questions would ensure some level of rigour in thinking or quickly expose the proponent of big government for having a soft head.

  2. That was sneaky Sukrit, getting me to watch a vidio while you slipped a post on, but its a bloody good relevant post.

    Someone used the term condescending the other day, and I feel that is the word to describe what is really behind a great deal of this type of regulation. It also describes the argument in favor of it, all you out there are too bloody dumb to know what is good for you.

  3. We have got to go further and to cast into grave doubt the very phrase “MARKET FAILURE”. An example of even alleged market failure escapes me right now. But the thing is if we have some sort of alleged market failure under the current system surely its not a failure of capitalism. Surely instead such a failure would have to be ascribed to the poxy system we currently have.

    We ought to call it a crony-socialist failure. Or an enfeebled-market failure. Or at least we want to find a better name for it.

    I mean no-one provides great amounts of water in a drought on the cheap. Because the behaviour of the government the rest of the time, and yet even during the drought, rules out a functioning market in piped water and also massive commercial private storage of water is also ruled out.

    So it would clearly be incorrect to call that “market failure”. But even in another example, if the market isn’t doing its job, we have to look out for decades of prior enfeebling of the business community via interventionism and crony-socialism. And not be incorrectly ascribing mistakes or failures to economic liberty.

  4. I wonder about this issue everyday.

    I generally consider myself to be on the right (as opposed to the left) side of this topic. But the following are some arguments, to which I have no meaningful response.

    1. An assumption underpinning the success of the free market is that the demand of agents is dependent on their willingness to pay. But it is clear that agent’s willingness to pay is often not aligned with their ability to pay.
    2. To oppose government is to oppose the very foundations of our society. Government, in it’s present form came about as a result of the natural course of history – and the free will of members of that history. It is human nature that some of us choose to lead, while others choose to follow. It is in our nature to form groups and come to decisions for the collective good of the group. This is the sentiment of a modern, democratic society.
    3. Given the 4th point mentioned above, is there really any reasonable possibility that government intervention will ever be meaningfully reduced? It is all well and good to discuss these matters in a normative sense, but is there really any forseeable case in which such ideas could ever be put into practice? Regardless of the public debate, I don’t see a meaningful reduction of government intervention ever happening, at least in my lifetime.
    4. And the most glaringly obvious point relates to the most important assumption of neoclassical economics – that economic agents are rationally self-interested. Do people really know what is good for them, and hence are they truly able to act rationally, in their own best interests? We draw a line between child- and adulthood, between sanity and insanity, but are things really this black and white? Given that an adult must act to protect the interests of their child, and a carer must act to protect the interests of those in their care, must collective society not act to protect the interests of those unable to advance their own interests? Is there not a duty of care?

    This is all I can think of at this time, and I realise that your argument is that while markets aren’t perfect, they are undoubtedly more perfect than an intervention by government. But I look outside and see all that has been achieved in a largely ‘socialist’ society, and I wonder – “Is it really that bad?”.

    Cheers

  5. “1. An assumption underpinning the success of the free market is that the demand of agents is dependent on their willingness to pay. But it is clear that agent’s willingness to pay is often not aligned with their ability to pay.”

    The real question is about how one obtains the means to pay in the first place. Hence why some people here don’t align with the anarcho-capitalists, but instead advocate a NIT, voucher system for education etc. I would suggest that equality of opportunity is more important than material equality.

    “2. To oppose government is to oppose the very foundations of our society. Government, in it’s present form came about as a result of the natural course of history – and the free will of members of that history. It is human nature that some of us choose to lead, while others choose to follow. It is in our nature to form groups and come to decisions for the collective good of the group. This is the sentiment of a modern, democratic society.”

    Leadership is still very much possible in a market economy!

    “3. Given the 4th point mentioned above, is there really any reasonable possibility that government intervention will ever be meaningfully reduced? It is all well and good to discuss these matters in a normative sense, but is there really any forseeable case in which such ideas could ever be put into practice? Regardless of the public debate, I don’t see a meaningful reduction of government intervention ever happening, at least in my lifetime.”

    This is simply a cop-out.

    “4. And the most glaringly obvious point relates to the most important assumption of neoclassical economics – that economic agents are rationally self-interested.”

    The problem is that planned economies often make even worse assumptions about the behaviour and interest of citizens due to (inherent) lack of input from those citizens.

  6. You’ll be familiar with the following quote:

    “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

    Have you ever heard/read the next sentence (which immediately follow the above in the same paragraph)?

    “That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed”

    What is it about that second sentence that you don’t understand? Governments are *not* about tax no matter how much Milton Friedman and his cohorts wish to narrow the argument. Tax is just an enabler.

    Lift your eyes and and your mind off your wallet. Governments secure the rights you enjoy in your pursuits.

    The argument expressed by Friedman and echoed by yourself is puerile.

  7. S D H; But it is clear that agent’s willingness to pay is often not aligned with their ability to pay.
    Even in a socialist society people have to budget, they can get more time to do this whilst standing in the
    line with their ration cards. Where the desired products are subsidized, they still pay more through the states extra taxing and the administration cost of doing so. In a free society you can buy what you can afford, in a statist one you can buy what the state feels is appropriate if you can afford it.

    It is human nature that some of us choose to lead, while others choose to follow. It is in our nature to form groups and come to decisions for the collective good of the group. This is the sentiment of a modern, democratic society.
    It is also human nature to have free will, people can form whatever associations they like in a free society by choice. Each of these groups has leaders and followers, and so they can lead or follow more directly at a local level.

    Someone said once (it may have been Ayn Rand) that America was a society of joiners, that is people over there tend to join all sorts of organizations and this may be answering an unfulfilled need in this area. Society benefits from this from the social interaction and from the fact that these are often involved in charitable works.

    I don’t see a meaningful reduction of government intervention ever happening, at least in my lifetime.
    A bit pessimistic, but all of us despair of this occasionally. I have been involved in this cause for 40 years and I am not ready to give up yet. We have to work towards getting some of the easier things accepted so people start thinking that other reductions are not silly, then it will start to happen.

    Given that an adult must act to protect the interests of their child, and a carer must act to protect the interests of those in their care, must collective society not act to protect the interests of those unable to advance their own interests? Is there not a duty of care?
    Sucrit posted this in a previous comment, and it will answer a large part of this question.

    Many of the perceived ‘Problems’ of society as it stands would be sorted out in a free market. Look at obesity for an example pulled out of the air. Obesity has health dangers associated with it. Would a free market health insurer give coverage to an obese person at the same price as one of a more healthy weight.

    In a free society dangerous lifestyles are costly, and that cost tends to be borne by the person involved. this can be the case now if the ‘dangerous aspect of the lifestyle is not trendy. I for example am either unacceptable or have a higher premium because I work at times with explosives. I would not have a problem with this if I wasn’t forking out so much for the state to look after every other bastard.

  8. SD Hamilton,

    When you look outside you see the fruits of open trade & foreign investment. Australia isn’t ‘largely socialist’… it’s a mixed economy with some socialist relics, e.g. remote Aboriginal communities, publicly owned water companies

    An important but neglected fact is that between 1850-1890 Australia had a higher per capita GDP than the US & UK. Why have our relative living standards declined since then? I think that could form the basis of a study. Has the increase in the size & scope of government during the 20th century contributed to our comparative decline?

    I saw a damning graph last week. ‘Tax freedom Day’ (the day of the year Australians start earning for themselves and not the government) now comes later than it did during world war II, when income tax was ridiculously high to finance the war effort! The amount of revenue collected by government just keeps going up and up. And most damning of all — Australians are getting richer and richer, but welfare spending keeps increasing. If welfare is supposed to be aimed at helping poor people, that seems counterintuitive, no? Ah well… a government which robs Peter to pay Paul can always depend on the support of Paul!

  9. HEY, JM, YOU ARE WRONG!
    You quote from the Declaration of Independence, but the DoI was part of the ongoing illegal usurpation (Parliament never authorised it!) by the American colonies- and they were complaining about TAXES! Have you heard the phrase “No taxation without representation”? Do you remember the Boston Tea Party? Weren’t those Tax revolts?
    Government is about taxation, amongst other things. The DoI was an instrument of propaganda, to explain their action to the world. No nasty word like taxes was mentioned- that was left to the actual Constitution.

  10. Err lets get real here. There is only one criterion used to judge whether government intervention gets the go ahead or not.

    ** Can it be sold succesfully and earn votes ? **

  11. Thank you all for your largely insightful responses to my comment. I’m a 4th year Economics student and I have delved deeply into these issues throughout my studies. I don’t think there’s any “1” answer to this problem – but it’s great to see people who care putting forward meaningful arguments. I see the merits of both sides of the debate, but as stated in my original post, there are a few deeply perplexing questions that I have had trouble reconciling.

    My issue raised in my 3rd point (confused by some people here) was kind of a Marxist-style “positivist” view in that I’m saying that regardless of whether we all think pure capitalism is wonderful, it’s unlikely to ever happen (just in the way that Marx suggested that whether communism is good or bad, it is inevitable). I think the transition from where we are now to where we all want to be may just be too painful and costly to ever be a reaosnable policy outcome. And as suggested by Jono, if you add to this the nature of the political process (in the forseeable political landscape, can you ever imagine a popular politican ever actively campaigning to have his or her span of control reduced?), and I just think this all just amounts to nothing more than a dream.

    Cheers

  12. I think the pursuit of equal opportunity is as futile and destructive as the pursuit of equal wealth or equal income. Opportunity is very, very important to social cohesion and we ignore it’s importance at grave risk. However any notion that we can all have opportunities that are the same or somehow comparable leads needlessly into darkness. What matters is that we are all equal before the law, that the law is mostly sane and predictable and that each has before them reasonable opportunities to improve their lives and to contribute. We should all have opportunities but trying to equalise them should not be the roll of government.

    One of the arguments that I frequently encounter in favour of government funded charity (welfare) is the “free rider” problem. We may all want to see the poor given a handout but some of us will hope to see others do the hard work whilst we avoid making any contributing. I think this argument has a degree of validity. However I note that government funded charity (welfare) has created a very large number of free riders of it’s own. And with welfare now including corporations, those that are able bodied and on above average incomes and people on high incomes with clever accountants one has to question whether the cure is worse than the disease.

  13. “HEY, JM, YOU ARE WRONG!”

    No Nicholas you are wrong, you were looking at the wrong comment which was posted by JM, You should know by now that I am never wrong.

    Infallibility is the major selling point on my resume.

  14. What is there to be sorry about? If you are infallible, it is others who will be sorry. If you were really perfect, your first name would be ‘Nobody’, because ‘Nobody is perfect’.

  15. I went on a bit of a mission and found an interview on YouTube where Friedman addresses my 2nd and 4th points.

    It’s an excellent interview if anyone wants to take a look:

    Apologies for taking this somewhat off topic – I will post in the general discussions area in future. Again, thank you all for your input.

    Cheers

  16. nicholas gray said:

    ‘HEY, JM, YOU ARE WRONG!’

    But I said:

    ” … Tax is just an enabler … Governments secure the rights you enjoy in your pursuits. ”

    I don’t think you understood me and I don’t think I’m wrong. I said tax was part – an enabler – of government not its purpose.

    Nicholas: ‘illegal usurpation (Parliament never authorised it!) by the American colonies’

    Each of the colonies authorized the Declaration of Independence. To expect the (British) Parliament to do so would be absurd, and to illegitimate (is that a word) it because Parliament did not do so is to deny it’s entire rationale.

    Nicholas: ‘No taxation without representation’

    There are many complaints and justifications in the DoI, but this phrase is not among them. It was first said by Reverend Jonathan Mayhew in a sermon in Boston in 1750.

    Notice that Reverend Mayhew uses taxation as a basis for representation. The DoI is about the rights of the colonies to form their representative bodies for purposes suitable to their lives and needs, not their right to freedom from tax.

    Government is not about tax, government is about the organization of a nation and its society. Don’t pretend otherwise.

  17. Even supporters of public health acknowledge it has poor outcomes.

    We talked about this on an earlier post. Universal health care in Canada and most of the EU gets as good an often better outcomes than does the private system in the US — and its supporters continually emphasize this fact.

  18. Trinifar,

    I have posted previously that the outcomes are actually far worse, one example is that waiting times leading to higher mortality of paitients etc.

    Why do you continue to ignore this?

  19. Trinifar, you do realise that American government spending on healthcare is among the highest in the world, right? Your socialist dreams have already come true. So do you think the US has good health outcomes by international standards, given the amount of money it spends? I’m expecting you to wholeheartedly say yes, even though you’ve criticised it in the past. Because otherwise you’d have to acknowledge that government wastage does occur, and I know you don’t like doing that. It would rankle with your ‘fundamentalist’ beliefs.

  20. Sukrit,

    Are you sure it is government spending that is higher in the USA or is it just total spending?

    Either way the amount spent (or not spent) is not the right way to make any comparison. It is only one of many factors.

    Regards,
    Terje.

  21. American government spending on healthcare is the highest in the world as a % of GDP. I know for a fact it is higher than Australia’s 10% of GDP, because I did some research on it for the LDP health policy.

    In absolute terms it would probably be the highest in the world. It is definitely higher than in Canada:

    http://en.wikipedia.org/wiki/Canadian_and_American_health_care_systems_compared

    The above article sources the WHO for the claim that: “Through all entities in its public-private system, the U.S. spends more per capita than any other nation in the world…”

    See also here:

    http://www.who.int/whosis/database/core/core_select_process.cfm?countries=all&indicators=nha

    In 2004, it spent 15% of GDP, which was higher than the UK’s socialised system. It would have increased by now, because the tendency is for government programs to expand.

    The fact is the US spends more on healthcare than any country in the world.

    And yet Trinifar wants more of the same. I learnt in the other post that Trinifar doesn’t deal in facts but catch phrases such as ‘libertarian fundamentalist’, so I guess that’s to be expected.

  22. Sukrit,

    Terje tried to help you out. No one would deny that US healthcare spending is the highest in the world both in absolute terms and per capita. But you’ve made a quite different claim: “American government spending on healthcare is the highest in the world as a % of GDP.”

    I learnt in the other post that Trinifar doesn’t deal in facts but catch phrases such as ‘libertarian fundamentalist’, so I guess that’s to be expected.

    Well, we can let everyone judge for themselves who was more accurate on that other thread. I really do like to get the numbers right and ensure my claims are sound.

    No need to split hairs on this, however, since my argument is that despite the high total spending on healthcare, we Americans do worse on general outcomes than most developed countries — all of which spend less per capita. To the fundamentalist libertarians that’s not even an issue, because natural law take its course only private charity can mitigate it. Libertarian socialists, on the other hand, would be okay with publicly funded universal healthcare.

    (Just read an essay on mortality rates of mothers during childbirth. What’d’ya know? The US is 2nd worst amoung developed nations. So we can add that to infant mortality and life expectancy as healthcare measures for which the US gets failing grades — in spite of spending more per capita that any other nation in the world on healthcare.)

  23. I think it’s clear that some people have the perception that the effectiveness of government spending is purely dependent on the actual dollar value spent. I think it’s clear that spending more money on something won’t necessarily produce better outcomes. People often fail to make the point that two different governments who spend the same amount on healthcare will likely produce two completely different outcomes – it’s probable that one will produce significantly better outcomes than the other. Just because one policy has a bigger or smaller budget, doesn’t necessarily mean that it will be a more or less effective policy.

    While I take anything Michael Moore has to say with a grain of salt, some of the material presented in SiCKO was disturbing (as I’m sure was most certainly the intention). I have a feeling that the issues that plague the US healthcare system are related to the transitory problems that I mentioned in an earlier post. I don’t think it’s sufficient to suggest that reducing government expenditure at any cost is a good thing. There is undoubtedly going to be some serious collateral damage if significant levels of funding are pulled without a proper and proven plan for the transition to a more market-based system.

    And I think this is a big dilemma facing the shift towards pure capitalism. While the proposed system is extremely promising, achieving the transition would unquestionably create significant costs that may very well outweigh the potential benefits of such a move.

    Cheers

  24. Michael Moore has been exposed for repeated dishonesty. He splices footage together to create new incriminating scenes, invents facts and figures, lies about himself and more. There are websites that clearly show his dishonest editing tricks and there is a documentary made by lefties, ex-fans of his that expose his hyporcrisy.
    Personally, I’d double check the claims and context of anything said in Sicko.

    S D Hamilton, I think your fears of privitisation are based on popular belief in compromise not on logic and principle. There are many examples of sucessful privitisation and it stands to reason that if a better outcome is achievable it should be implimented quickly rather than slowly.

    In terms of morality, do we ask thieves and murderers to gradually cease commiting crimes and give them a transition period?
    Governments engaged in human rights violation, theft and indirect murder (ie: socialism) should be stopped ASAP.

  25. JM, not JIM.
    I never said that ‘Taxation without Representation’ was in the DoI, and I mentioned the Boston Tea Party in the same sentence- also not in the DoI. I did say that these were part of the general revolting situation, with taxes a major propaganda factor.
    As for legal versus illegal, that depends on which side you view things.
    As for whether governments are necessary, see the Mises Economic Blog article called, “The rule of law without the state.”, a look at how the Somali clans had laws but no state or Government. The current troubles stem from our attempts to impose our versions of Democracy on them.

  26. It should be noted that outside of hospitals most medical services in Australia are provided by the private sector. Those services are frequently paid for using public funds via Medicare but the actual provision is private and competitive. In essence the services are provided via a form of voucher scheme (private provision, public funding). It is this model that I would like to see expanded to cover the hospital sector. Whether Medicare can be replaced with a private insurance scheme is also interesting but in my view a somewhat separate issue.

  27. Not quite Terje. What might be ‘private and competitive’ is if doctors were allowed to set their own fee schedules. But as soon as they say they’re willing to accept public funding and opt into the Medicare system, they’re stuck with the government mandated prices. There are no top ups allowed to be put in by the consumer, even if they are willing to do so. That’s one reason more and more doctors are opting out of bulk billing.

    Your local bulk billing GP charges what the government thinks he’s worth, not what he thinks he’s worth. What the government thinks he’s worth is often less than what a GP thinks they are worth. That’s why there’s an incentive for them to see as many patients as they can, as quickly as they can.

    Private schools are a better example of a semi-voucher scheme. At least they can charge what they like and still get some government funding (although the funding goes to the school, not the student).

  28. From Sukrit’s original post:

    Most government programs never achieve their intended objectives.

    Where is the evidence for that claim? This is just the type of rhetoric that I find pernicious. I don’t know what it’s like in Australia, but in the US, yes, there are many government programs that don’t live up to their billing. However, it’s the squeaky wheel that gets the grease. It’s far too easy to point to failures and say “well, there you go, it’s the government screwing up again,” when in fact the government is a very large organization which, just like a very large corporation, has lots of failings one can point to. Do you think GE or Boeing or Rockwell (Fortune 50 companies) have no failures? I’ve worked for Rockwell and seen them first hand.

    Most government programs seem to be quite successful. In the US the roads are pretty damn good, the defense industry excels, the lights are on, the water is safe to drink, contracts are honored, the rule of law is a given, free speech abounds, etc., etc.

    What measures are you using?

  29. Sukrit – Private doctors and dentists and pharmacies and radiologists etc in Australia are free to set their price. Some of them choose to constrain their fees to match what the government will chip in. Some of them then complain that the government does not contribute more. However they are allowed to charge a higher price if they wish and many do.

  30. “Most Government programmes seem to be quite successful”

    Where is your evidence of this Trinifar?

    More importantly, do they do a better job than private transactions and institutions?

    Of course private firms screw up. Private firms however are not the economic system. A free market allows these mistakes to be exposed, learned from and avoided without further waste. It allows inefficient firms to exit the market and for their former capital to be better used by more efficient firms. This is the dynamic argument that the Austrians and institutionalists put forward as to why private economic action is nearly always better than coercive action. Creative destruction doesn’t occur in Government run firms or subsidised industries. The mistakes keep on getting subsidised or have little incentives to be rid or perverse incentives to be kept.

    Also, what is the span of control for Rockwell between it’s CEO and a shareholder? What is the span of control between GWB and the American voter?

  31. Trinifar – Your comment regarding government failure is in my view fair enough. Personally I don’t principly advocate private sector ownership on the basis that the public sector can’t do operational management. The public sector recruits from the same labour market for managers and is generally prepared to pay for competence at this tier (at least it is these days). I am more concerned with strategic management and political capture where by hospitals are built where they are least needed (or more commonly retained where they are no longer best situated) because of political pressures. In Sydney for instance the major hospitals are in the east even though the population centre has long ago moved westward. Closing hospitals in the east is so politically unpopular that they never seem to happen so the political alternative becomes duplication.

    To be sure it is possible that the cure for many of these problems is more “good government” rather than “smaller government” however there are many reasons in relation to governance to prefer the latter. Although obviously small and competent would be the ideal.

  32. Terje
    You’re right about the fees. In that sense it does operate as a voucher scheme.

    Trinifar
    I think government programs fail if one of the following occurs:
    (1) cost blowouts
    (2) time delays
    (3) unintended consequences

    By this standard, perhaps 99% of government programs fail. Social measures which exactly achieve their intended objectives are rare, and the cost to the taxpayer might be double what it would’ve been if it could have been done privately. Remember, government never goes out of business and ministers hardly ever get sacked if the defence department has lost track of millions of dollars (as is the case with US aid money spent in Iraq). Taxpayers simply subsidise the losses and life goes on.

    You mightn’t classify (1), (2) & (3) as constituting failure. But in a private company they would at least hurt the bottom line. But government can indefinitely pursue a program that is a complete waste of money and achieves the opposite of the intended effect, e.g. think of the money spent enforcing minimum wages and the increased unemployment generated.

  33. Trinifar,

    I think you’re completely ignoring an important issue. While it’s easy to point out the flaws in the government system, and more difficult to identify the good aspects, the case against government intervention is very similar. The costs of government intervention are often intrinsic, or implicit. You might think that the road system is wonderful, and it may very well be, but that’s not to say that it couldn’t be even better and cost significantly less if provided by the private sector. This is Milton Friedman’s most common defence of the market system. It is easy to go around and see the wonderful job the government may be doing – but that is never to say that the private sector couldn’t do an even better job and at a lower cost.

    I’ll use an excellent example that I discussed with a friend of mine this morning. He purchased a new iPod Touch from the online Apple Store. It shipped via TNT. On Sunday night he got an email from Apple, telling him that the unit had just been dispatched from the plant in Suzhou, China. We looked up the consignment number and tracked the delivery immediately. Overnight, the unit had arrived in Sydney and on Tuesday morning it arrived in Brisbane, then later that morning it was on his doorstep. I’ve never received service that astonishingly good from Australia Post – and similar Australia Post delivery services generally cost significantly more.

    Cheers

  34. Private rail in Japan might cost more than the government supported monopoly here in Melbourne. But I’d definitely prefer to travel by train there.

    I would prefer to buy rice in Australia, though. Despite being a staple food the government’s high tarrifs make imported rice extremely expensive. All because Japan wants its citizens to be forced into eating Japanese rice. It would be “un-Japanese” to let them buy cheaper, Chinese grown rice.

    The private sector often does a much better job. Though minorities (such as rural communities) can be left behind through denied service. I agree with Terje that smaller and more compentent government is the ideal.

  35. Shem: I agree with Terje that smaller and more compentent government is the ideal.

    Me too.

    Sukrit: But government can indefinitely pursue a program that is a complete waste of money and achieves the opposite of the intended effect, e.g. think of the money spent enforcing minimum wages and the increased unemployment generated.

    I’m not sure any significant amount of money is spent enforcing minimum wages any where in the States. As for the idea of it causing increased unemployment, the US has not suffered from that in decades and when it has it’s still arguable if the minimum wage is the cause.

    S D Hamilton: You might think that the road system is wonderful, and it may very well be, but that’s not to say that it couldn’t be even better and cost significantly less if provided by the private sector.

    You might want to reconsider roads as an example of something that may be better done by the private sector. Here in the US public funds are used to finance road building but private contractors bid for the work. Hard to imagine significant savings if the private sector did the financing too. Then there’s the whole problem of planning and land acquisition.

    But I take your point and agree that not everything is best done by the government. I am merely suggesting that all of government is not incompetent, and Ben’s claim — “Most government programs never achieve their intended objectives.” — is unsupported.

    Interestingly, mail delivery in the US is something that’s done superbly if measured by the number of items handled (650 millioin pieces per day), quickness of delivery, variety of services offered, and a very low error rate. I once read that the cost of mailing a first class letter in the US is the lowest in the world, but I’m not sure about that. Nor am I certain it should not be privatized.

    I don’t claim all government services are fantastic and the most efficient, just that most people are much more quick to notice things that are broken rather than those that work well. And on the flip side, private projects and entire businesses fail all the time and huge losses are not uncommon. Enron and WorldCom are easy examples, but pick up any issue of the Wall Street Journal and you’ll find many others. Those private failures are no reason to say everything should be done by the government any more than vice versa.

    What I see as the biggest problem is big bussiness influencing government more and more which has the effect of diluting democray, but that’s another issue.

  36. Trinifar,

    I agree that enforcing minimum wages probably costs very little in terms of government outlays. However I would dispute the notion that it creates no unemployment in the USA or Australia and it certainly has significant social costs. Given that the USA is somewhat richer than Australia and given that the US minimum is in most places lower than in Australia one would expect to see less unemployment as a result of the minimum wage in the USA. However the USA has a higher influx of low skill marginal workers than Australia so it probable needs a lower minimum wage to get the same aggragate unemployment result (from memory it gets a better result).

    However the problem with any such analysis is all about aggragates. Australias aggragate unemployment rate is around 4% and it’s minimum wage is around A$14. I think 4% unemployment is still too high but it is nothing compared to the 60-70% unemployment rate in some of Australias remote communities. In such places where the alternatives to a job are a subsistence existance off the land or a regular handout from the government it is outrageous in my view to criminalise employment below A$14 per hour. In so far as there is a legislated minimum it should be set according to market conditions at the local community level and not at the national level.

    Australia has a centralised minimum wage. We would be better off with Canadas decentralised approach. The USA has a centralised minimum wage (as well as state minimums). The USA would be better off following the EU where there is no central minimum wage set by the union and it is left to the individual (nation) states.

    Labour markets should be free to clear so that there is no unemployment of any significance either in aggragate or at the local community level. In so far as there is any argument for a minimum income it should be provided for from government revenue not labour market distortions via price regulation. The negative income tax policy of the LDP in Australia proposes exactly such a reform.

    Regards,
    Terje.

  37. Trinifar, arguing that private enterprise often fails and big businesses are wound up is a perfect example of why the capitalist system is superior to a command economy. The market punishes inefficiency, and reallocates that capital being used poorly to more efficient uses. The buildings and infrastructure once owned by Enron still exist, they have been onsold to new owners. The employees once employed by WorldCom are likely to be re-employed, even if that has required them to develop new skills.

    Where is the creative destruction in a command economy? Who informs the health service that an inner east Sydney hospital is no longer required due to demographic changes when there are votes in keeping inefficient hospitals open? Who subsidises urban sprawl by building expensive roads and rail networks into undeveloped land where there are new votes to be made? The state has no such method of correcting for mistakes, in fact, since the stakeholders (voters) have an interest in keeping or building new infrastructure, unsuccessful, uneconomic projects are likely to attract more capital, rather than less.

    No one tells Walmart where or when to open a new store, no one votes to keep open there local privately owned Ma & Pa store. Can you imagine if they did? Forcing people to use their private capital in an uneconomic way, when they could sell up and invest in Kmart? The trick about the state is that it has successfully manipulated the tragedy of the common to fool people into thinking that the only way to prevent a tragedy is to increase the size of the common, even if this means “donating” small parcel of their own resources to do so. All the electorate sees is that if they give up x%, they can covet the resources of the entire electorate. It is human nature to believe in the something for nothing fallacy, and one that government can’t but help to perpetuate.

  38. Terje,

    I agree that a national minimum in a large country does not make sense — unless it is low and subregions can bump it up. The US minimum was just increased to 5.85 USD (about 6.66 AUD); for the last 10 years it had been 5.15. Adjusting for inflation it is still lower than it was in 1950. Most large cities (some 130 of them) have higher minimums and many states have set their own as well. The State of California has a minimum wage of 7.50, San Francisco sets it at 9.14. Note too that the minimum wage doesn’t apply to all jobs and doesn’t come with benefits like healthcare or paid holidays.

    Seems like “the 60-70% unemployment rate in some of Australias remote communities” is a problem so severe that it well beyond being affected by the minimum wage one way or the other.

    Brendan,

    Trinifar, arguing that private enterprise often fails and big businesses are wound up is a perfect example of why the capitalist system is superior to a command economy.

    I’m not arguing that the economy should be all one way or the other but that a mix is both fair and has been shown to work. When the US phone system was effectively freed with the breakup of AT&T in 1984 (from a judgement 10 years earlier), that was demonstrably a good thing for everyone. My point is the private sector has failures too, so it’s not reasonable to point to government failures and claim they wouldn’t happen if those services were privatized.

  39. I don’t believe that those areas with 60-70% unemployment have anything to gain by maintaining the A$14 minimum. There are loads of low wage jobs being created in China and India and there is no reason to believe that remote Australian communities would not achieve similar results if the market was permitted to operate. In any case the current tax system actually ensures that people on $A14 per hour don’t even get to keep that money. They should be exempt from income tax or as the LDP suggests people earning at that level should be subject to a negative income tax.

  40. Well, for my money, Somalia should be renamed Friedmanland. It is the best example of applied friedmanian principles. Here you can see flat taxation at work, you can see user pays for everything at work, and you can even see freedom of choice of government at work. Militarily it is the strongest country on earth. Somalia.. Friedmanland dispatched the mighty United States in record time and that mighty country have been loathe to return ever since.

    Hell, when I think about it, all of Africa could become the United States of Friedman. My favourite is Zimbabwe. Here you can experience the end game of applied Friedmanian principles, when one man gets to own every thing (monopoly style).

    Hail Milton.

  41. You are an ignorant imbecile dressing up stupidity as parody.

    Firstly some facts for you:

    1. Zimbabwe is ruled by a near communist Government.

    2. The anarchist stage of Somalian history didn’t last long, it was overthrown by the Islamofascist Union of Islamic Courts, which in turn has been overthrown by it’s neighbours and US support.

    The point about Ethiopia is that it had and still has better telephony etc. that most of the world. If only stable Governments would deregulate utilities we would see cheaper and better services. It is a disgrace that a basket case can have this and civilised society cannot because of prejudice against commerce.

    Go and watch free to choose. Hong Kong is what Friedman says a society should be like.

  42. Mark H,

    The point is that fully applied Friedman rapidly turns in to something else. His philosophy applied is unstable and can only ever exist in part in close proximity to other more authoritarian features, much as a nuclear reaction needs neutron absorbers to prevent nucleic anarchy. Friedman, himself being a nice guy, thinks that, given free self control, people will behave as he believes he would. All evidence to the contrary. If cheap phone calls are so important to your being, may I suggest voip.

    And thanks for the compliment.

  43. Are you for real bilb or taking the piss?

    My parents left Zimbabwe in 1978 because they had seen the destruction of Zambia previously. Both countries made health care, education etc “free” for all, completely the opposite of libertarian ideas. Mugabe’s government confiscated businesses and land. Not exacly libertarian, much more like communism. It demonstrates how socialist policies are equivalent to murder. Dictators that implement capitalist policies don’t have problems like this (not that I endorse any form of dictatorship eg/ Chile).
    Zimbabwe, once a fairly prosperous country, now destroyed. Most wildlife is now dead, the economy is a joke with mass inflation and there is mass starvation.

    It’s highly arguable that Somalia was ever anarchist, but they do have less government-type interference in some areas. And some areas practise customary law.
    Considering the continual violent attacks from Ethiopian Islamist warlords (who are so anti-freedom that when they do control an area they ban people attending soccer games) and considering the attrocious previous government in Somalia, they are doing quite well.
    The standard of living of their poor has risen considerably in contrast to the UN’s predictions of mass starvation.

  44. Milton Friedman is a man that had a massive positive influence on the world including bilb’s own standard of living. He influenced a move away from Keynesian economics.

    You clearly don’t understand Freidman and perhaps should do some research to save yourself further embarassment.
    You are implying that capitalist countries turn into dictatorships!?

  45. Trinifar, it is bleedingly simple: people do not employ workers if they have to pay more than what they think they are worth. They substitute capital or reorganise their firm.

    Similarly, consumers will not pay more than what they think a product is worth (say, after an excise tax has been applied to it).

    One cannot believe in the efficacy of a Pigouvian (externality-correcting) tax and price regulation at the same time.

    While not the same, Esso pulled out of Australia entirely because they had to pay too much in resource rent and profit taxes. Mandating artifically high wage rates for labour will stop many firms from even starting up.

    Aboriginal workers in remote areas of NT have similar skills and capital intensities as some third world countries. You are right they have a multitude of problems but mandating they are paid $14 per hour will just keep most of them unemployable as long as there is little capital investment in the region.

  46. I may be being a little liberal with reality but my point is dead serious. I mention Zimbabwe because although that disgusting human being, Mugabe, achieved his success via another path what he has achieved is the end game of applied flat taxation. The pyramidal property ownership now evident in Zimbabwe is entirely an advanced Friedman outcome. Africa is a great place to study elements of the applied Friedman. For instance, the British achieved a high standard of (conventional) education in its African colony states. The British public education system was fairly well developed and greatly aided the process of gaining independence for these states. Enter the world bank stage right and with them user pays education (every bit Friedman influenced). This appealed greatly to egotistical and corrupt African government elements who felt that the money spent on education could be better spent on security (weapons) and people really should fund their own education. After all they are the ones who were going to benefit by it. And that was the beginning of the end for Africa.

    Friedman would have been well served to have studied the life of Alfred the Great. One of histories few leaders who was able to turn chaos into order in a very short space of time. And he achieved it very much with inversed Friedman.

  47. So bilb you are afraid capitalism will result in one big monopoly. That’s a remarkable claim. Yet presumably you think this problem can be solved by a gun backed enforced government monopoly.
    Monopolies do emerge in free markets but they do so because they have performed the best, creating the best outcomes for the most people (service, price etc). And even when a monopoly they have to fight to stay at the top.
    Government monopolies don’t have to worry about good service or cheap prices, in fact they often get rewarded – more funding- if they stuff up. And they almost always outlaw their competitors.
    Our government with its water monopoly is currently running around fining people for using a relatively miniscule amount of water on their gardens!

    Trinifar, the last paragraph of your last comment not only doesn’t make sense, you have defeated your own argument. Firstly how are we suposed to judge government if we can’t say a failure is indeed a failure. With privatised services, more options are obviously available (competing companies) and this system encourages human ingenuity.

    In addition, you seem to think the world is doomed? (I gather this from your population obsessed website which incidentally is very unpopular for someone claiming libertarians don’t have popular support).
    You seem to think things can’t get much better.
    But empirical world wide evidence shows that gradual world wide increases in capitalism since the 1960s have conincided with reduced infant mortality and increased life expectancy. This suggests capitalism is a major player in increasing prosperity so why wouldn’t you want to accelerate this positive influence? What are you scared of? People? If people are so bad when they act freely, then it doesn’t make sense to think an organisation of people with gun backed authority (government) will be any better.

  48. Tim R,

    To sustain your image of Friedman you have to be cherry picking the bits that you like, rather than applying the entire philosophy.

  49. “I am being liberal with reality”

    Indeed you are.

    “Pyramidal property ownership is a Freidmaniste outcome”

    And the USSR had equality clauses like the US 14th amendment and UN charter on human rights. Clearly these are bolshevist goal, hence why the 14th amendment was used to elect neoconservative Bush.

    Of course if you are liberal with reality and logic, any old shit you come up with will make sense “in context”.

    How about we deal in facts? Hong Kong had the kind of economic system Freidman was pushing for. Relative poverty always exists, but absolute poverty has been successfully tackled.

  50. Yes indeed, Friedman was a staunch advocate of government imposed price regulations, taking land from people to provide it to others, a completely government run and regulated economy.

    That was to most genius comment I’ve ever seen on this site, you imbecile!

  51. Bilb your comment is a direct contradiction of reality.

    IN 1980 Mugabe increased government education spending from 4.4% recurrent public expenditures to 22.6% and they obviously suffered for it.

    Education spending was definitely a priority and was not sacrificed for weapons spending. School numbers doubled.

    What point are you trying to make about some 9th century tyrant, Alfred the Great?

    You also don’t seem to understand the libertarian perspective of the difference between government initiation of force and voluntary interaction.

  52. Tim R,

    If you care to think of me as a raving lunatic with a “population obsessed website”, why bother to converse? On the other hand, if you can find any errors in the posts on my low-traffic blog, please let me know. I am obsessed with accuracy and good data.

    Trinifar, the last paragraph of your last comment not only doesn’t make sense, you have defeated your own argument. Firstly how are we suposed to judge government if we can’t say a failure is indeed a failure. With privatised services, more options are obviously available (competing companies) and this system encourages human ingenuity..

    What’s odd about what I said? “My point is the private sector has failures too, so it’s not reasonable to point to government failures and claim they wouldn’t happen if those services were privatized.” All I’m asking for is sound thinking. As for what to do about government failures, vote the bums out when they fail. When the mayor of Buffalo, New York, failed to get roads clear after an extreme snowfall in 1970’s he lost the next election. Buffalo hasn’t had a problem with snow removal since. [Interestingly, snow removal appears (to me at least) to be a case of a service that can't be privatized. Who would make the capital investment and how would they charge for services?]

    In addition, you seem to think the world is doomed?

    Not doomed, but I do think only a fool would look at peak oil, global warming, and increasing population and not be a bit concerned. It’s quite interesting with respect to political philosophies since this confluence of problems is something the free market can not address. Hence my interest in blogs like this one — a chance to see what the “other side” is thinking about especially in Australia which has some unique issues. Given all the coal there, I wonder how much R&D is being done in OZ on carbon sequestration, and what it would be like, in land suffering drought conditions, to privatize the water supply?

    (I suspect readership here, however, is mostly in the Julian Simon camp and does not share my view.)

  53. King Alfred came in for some praise, but kings are hereditary dictators, aren’t they? And didn’t Zimbabwe disintegrate when Mugabe gave the white farms to hordes of his followers- using government-monopoly armed forces? I think your argument is very flawed.

  54. Well there, you see, Mark, you are being highly selective by adoring Hong Kong. Hong Kong had the benefits, again, of the British Empire along with all of the institutions that went with it. But uniquely, Hong Kong was the worlds portal to the 1 Billion strong Chinese work force, and all of the resources that went with that. For decades Hong Kong has prospered from the sweat of mainland China. That has now changed as the children of the millions of Chinese businessmen have learned English along with their university education and, now, through the internet, make their trade deals directly with the world, bypassing Hong Kong largely. Hong Kong for now prospers, mainly because the wealthy traders moved to the mainland and bought the businesses from which they had previously prospered through the trade in goods. So using Hong Kong to evaluate Friedman against other economic philosophies is like using Walmart to make judgements about corner stores. Hong Kong would have nothing of its strength if it were not the world portal to mainland China.

    Friedman is an anachronism. He looks longinly back at the US of the 1920s when tax rates were essentially flat and very low, and individuals who struggled out of the bog of poverty shone, and were held up as examples of an ideal to strive towards. The fact is that at that time 80% of the US population was rural and living off the land. Costs were low, education was patchey, but it was very workable because the rich land could support the population of the time. The second world war brought a massive shift to an urbanised, industrialised, uniformally educated, and better paid life for a majority of Americans. The industrialisation that had been progressively building received a massive boost from the war and although taxes increased hugely so did government services. Men returning from the war came with the experience of free education, free accommodation, free health care, and an expectation of better pay. This set the tone for a new America with a new standard of living supported by the dramatic improvement of automated industry. People are happy with free public education, they are happy with the social safety net (however thin), and there is a new expectation of government driven by the public. And this all frustrates the hell out dear uncle Milton.

  55. Nicholas G,

    Flat taxation accelerates wealth towards those at the top of the pyramid. Suitably manipulated a very small handful of people gain most of the wealth and are thereafter able to maintain that position without challenge as it becomes impossible for individuals to rise without favour from the elite. That is not how Zimbabwe of today came about but it is what the end result of flat tax, user pays for everything, chuck in some work choices, optional education, etc, looks like.

    You would do well to read up on Alfred of Wessex, as he is the creator of much of the government structure that we take for granted today.

  56. Free public education Bilb? So the teachers are all Volunteers and the Buildings and books are donated? It’s not free if you’re paying for it even if someone takes your money and spends it for you.

    If you don’t like Hong Kong prospering “from the sweat of mainland China” what about Taiwan, Singapore or perhaps Ireland?

  57. Trinifar, I never called you a “raving lunatic”. Stop trying to pretend I’m being harsh to you. Not that it’s logically relevant. But I suspect that you’re someone who
    thinks a person has to be nice to you for them to be correct, or that compromise is always necessary.

    Why do I converse with you? For my benefit to a large degree. I’m practising my arguments and learning from other bloggers. Why do you converse with us, if your mind is so made up?

    Sound thinking involves recognising failures as failures. The arguments presented on this and other discussions, are explaining why private initiative is more efficient, usually with examples. No one is assuming private is better than public just because public fails.
    Your attempt at a red herring displays intellectual dishonesty.

    The free market addresses your concerns much better than the state. There have been numerous examples on several posts given to you, but you still consider us the “other side” and have a closed mind to reason.

    Your last comment alleges that voting once every four years by an ignorant populace is an adequate form of accountability? Compare this to a free competitive market place.
    This assertion also ignores the problem of two party politics.

  58. So bilb, you agree that free markets in Hong Kong not only benefitted Hong Kong but also China.

    And World War II was not beneficial to the US except for in terms of security. Look at inflation rates and investor confidence in the US during the 1940s.
    The US prospered relative to other countries because it had a higher level of free market capitalism.

    bilb, you clearly haven’t made a case for Milton Friedman’s economic policies being detrimental.

  59. So bilb, why do you think “costs were low” in 1920s America?

    Flat taxes don’t allow redistribution. This is mostly true. They also allow for greater capital accumualtion and and an increase in labour supply for all levels of income. Hence the note that relative poverty always exists. It is pointless to discuss this unless you actually advocate bolshevism. However, importantly, absolute poverty has been vanquished where markets are allowed to exist.

    Freidman also notes that people were emigrating from China to HK.

    Nothing you have noted has actually spoken ill of Freidman’s recommendations.

    1. Rule of law (main benefit from British empire)

    2. Free trade (also from being in the empire)

    3. Non-intervention in the economy. This was unique. Hong Kong and India have followed fairly dissimilar development paths.

  60. What I am saying, Tim, is that an economy (Hong Kong) with income opportunities many times greater than the performance ability of its population will work sufficiently well for all of its population regardless of what system is used. Other examples, Kuwait, Nauru. Nauru is an example of what happens when the free income flow ends. Hong Kong neither proves nor disproves Friedman’s principles. I find the idea of free markets a little distorted when people are buying goods for 10 cents and selling them for ten dollars. But I will think about that.

    If I have failed to convince you then I will go and brood in the corner. Just google and me.

  61. Mark H, One word, greed. From every direction. It doesn’t take many greedy people with guns to stall all economic activity. What was in today’s news? Woodside giving up an African oil claim to the Chinese because of the difficult environment. Chinese business people are less concerned about the bad press that comes from shooting up obstacles.

  62. You are right. The Governemnt of Ethiopia was especially greedy. 85% income tax on incomes over 4000 USD for example. Imagine what that did the supply of skilled workers like engineers and doctors or even teachers or accountants. Don’t forget that Australia drove Esso out of the country with usurious resource rent taxes leaving consumers with higher petrol prices. But you can’t see how buying an item at 10c and selling it at $10 is compatible with a free market – so we’ll just kick these producers out until it costs 60c to produce, the price for consumers is $12 but the profit margin falls (this is what matters to you apparently).

    1. Please tell me of any company that has such high margins. I want in.

    2. This is a big flashing light to all other investors and entreprenurs to get into this industry or adopt this new production method. Either the price of a desperately needed good falls or the costs of producing all other goods falls. Society is better off.

  63. Mark H,

    The comment is about mutual sustainability. You can only properly test the success of an economic philosophy on a level field of opportunity. If a system is dependent upon disproportionate return then it cannot be considered to be a fair test. An example would be Belgium’s King Constantine’s parasitic plundering of the Congo rubber in the 1800’s cannot be considered as a balanced business arrangement. By the way return ratios of 100 to 1 are harder to find but 20 to 1 is very common in trade with China. But 100 to 1 is real. An example would be rose oil, of which China is the principle world supplier. It is impossible to buy pure rose oil as the oil passes through so many hands and is diluted at each transaction.

    To get those high margins you have to be a Woolworths or a WallMart, or you have to speek mandarine and be able to sell direct to the end user. Hat tip; many of the vendors at agricultural shows and garden shows, and the like, work this way. They buy directly from China and then sell direct to the public in an opportunistic environment. The other mechanism, as I can tell that you want to earn this sort of money from you desk without flexing any muscle, is to trade in penny shares. Good luck.

  64. I haven’t said that free markets are unconditionally bad. What I have said is that Milton Friedman’s full package, the one he brought to Australia in 1975, is a failure if applied in its entirety. What I have said about a global free market is that it is improbable as all countries are not on an equal opportunity footing.

  65. Trinifar,

    You are failing to see the point that when a private enterprise fails, they are punished and their capital is redistributed to be used again. When the state fails, it often attracts more capital, often with marginal or no effect, for political reasons. There is no creative destruction of capital, and why would the government bother? They can simply raise more capital by raising taxes, either presently or by buying debt for future tax payers to service.

    Good government services do exist, but bad ones aren’t punished. The good ones, ones that are self-funded, efficient, and leave happy consumers, could be privatised (and should be). The bad ones continue to get subsidised, crowding out alternate suppliers who can’t compete with “free” services.

  66. Bilb,

    I’m failing to understand your criticism of Milton Friedman. He advocated small government and capitalism, and yet you point to countires like Zimbabwe as being Friedman followers and examples of failure. Failure yes, but Zimbabwe as a haven of small government and capitalism? Just what is your evidence for this? The price controls? The forced seizure of land? Hyper-inflation? I must have missed the subtitle to Milton’s Free to Choose (Despotism).

  67. Bilb,

    So what you are saying is that the best way to help an impoverished nation is to, in order of preference:

    a) not trade with them
    b) raise tariffs on trade with them
    c) subsidise your own nation’s trade

    This is like helping a poor man by preventing them from working, raising the minimum wage so that people won’t employ them and making them pay taxes on the meager earnings.

    Which part of this programme is going to make the poor nation (or poor man) without equal opportunities better off?

    Maybe we should turn all poor nations into national(ised) parks and pay game keepers to look after the wildlife? Oh, we already do that with the United Nation(isation)s.

  68. Brendan, Friedman advocated user pays/tradeable education. This single item when foisted on many African nations by the world bank as a condition on borrowings led to the progressive collapse of education in these countries. No amount of supposed benefits from smaller government, free markets, capitalism has been able to compensate for the damage caused by this one failure. In most cases this sent populations into a spiral of poverty which left these countries suseptible to all of the worst effects of corruption, misuse of children as soldiers and slaves, and the weakening of governments. There are many other contributing causes for all of these things of course, but the failure of education amoungst the poor has played a devastating role.

  69. Mark,

    I believe the Ethiopian 85% tax on income over US$4000 was only applicable to agricultural income. Which is still pretty devastating in a nation with periodic starvation and a highly agrarian population. None the less I don’t believe it applied to professionals outside of agriculture.

    Regards,
    Terje.

  70. Bilb,

    So your indictment of Friedman is Africa’s education policy? YOu’re clutching at straws there, especially when you said that Zimbabwe was an example of taking Friedman’s model for the state to it’s logical conclusion, you weren’t restricting your critique to Zimbabwe’s education policy.

    Your argument is baseless, but if you think that lack of education is Africa’s main problem, then perhaps you should join or donate toTeachers Without Borders.

  71. This single item when foisted on many African nations by the world bank as a condition on borrowings led to the progressive collapse of education in these countries.

    I find it hard to believe that if education had of been forced on these nations through regulation and subsidy that they wouldn’t be in the condition that they are in. A society either values education and learning or it doesn’t. If it values it then it will pay for it. If it doesn’t value it, it doesn’t matter who pays for it.

  72. Nicolas (#27) “[... everything up to and inc.] with taxes a major propaganda factor.”

    Agree entirely, and glad you now describe the tax issue as a “propaganda factor” which I take to mean that you concede the revolution was based on fundamental governance issues rather than simply tax alone (which I took to be the original point here by someone earlier in the thread)

    As for legal versus illegal, that depends on which side you view things.
    As for whether governments are necessary, … a look at how the Somali clans had laws but no state or Government. The current troubles stem from our attempts to impose our versions of Democracy on them.

    I also agree with you here. No doubt you are familiar with DeSoto’s book “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else” where he argues exactly this point:- that third world countries are poor not because they lack capital, but that the externally imposed forms of capital (de jure) conflict with the informal capital forms created by and adopted by the locals.

    I think DeSoto would argue not that the Somali’s are “without a state” but rather that we have chosen not to recognise the defacto one that is actually there and operates quite effectively and in tune with local needs (whether every local benefits and it could be called equitable is another, separate question).

    When you look at the US in this light you can see that the difference between local practice (de facto law) and the externally posed de jure law was exactly what caused the colonies to seek their own de jure form more appropriate to their needs.

    Hence the phrase “to secure these rights, Governments are instituted among Men”. Pretty clear I think.

  73. Just a follow up to #83 for those not familiar with DeSoto’s little book (which is a fantastic read and I highly reccomend), he actually uses both the early US – not just the 13 colonies but more particularly the informal law outside the legal framework during the colonization of the west (particularly California and Washington) as prime examples of de facto law and the de facto state trumping the de jure.

    He also breifly touches on the Mafia in both Sicily and New York as examples of gangster/warlord structures that were successful because they provided certainty, protection and structure (albeit in extremely nasty forms) to the lives of people who were otherwise abandoned by the de jure state. These organisations only lose their power once the de jure state steps in and accomodates local needs.

  74. Tim: Cheers for the heads up on Julian Simon, Trinifar.

    You’re welcome, but before you get to excited about him note: “Prof. Simon’s ideas have been universally dismissed by environmental scientists as crackpot, and yet he was something of a hero among libertarians, neo-orthodox economists, and their political disciples.” [source]

  75. Tim: Your last comment alleges that voting once every four years by an ignorant populace is an adequate form of accountability? Compare this to a free competitive market place.

    I think this points to a serious problem: You say the populace is ignorant when voting while the basis of a truly free market is all about people making free and supposedly informed choices. If people are generally ignorant why would you trust their decisions in the market? Seems inconsistent.

  76. You make a good point trinifar. My opinion would be that government is potentially a better judge of value than the public. But not necessarily so. Several examples. In Christchurch NZ the council prides itself on its ability to get the best value for dollars spent. They work hard to avoid unecessary costs and routinely checks the value of services provided. A nearby council uses every spare piece of land that it has to maintain for a commercial tree planting programme. They plant higher value trees such as black walnut which is sold for veneering for $60,000 a log. As a consequence the council rates are 17% lower than they would be without the programme. On the other hand, in Australia, when the sewerage was put through in the Blue Mountains my parents were offered extensive landscaping to be of the value of $30,000 in return for allowing the plumbing to travers their lot (which was very large). An assessment of the work done suggested only $6000 dollars was spent and the contractor pocketed the difference at the council’s expense. There are glaring examples of inefficiency. But the public is even worse. If you are talking plastic products production costs to retail are routinely 1 to 10 and often 1 to 20. So the public regularly pays 10 to 20 times the production cost of the goods that they buy. Of course the higher the value of the goods then the lower the margins as a general rule. And governments deal in higher value products and services predominately.

    So I don’t think that it can be said automatically that governemnt is a bad deal. When the privatising of water supply was contemplated in new Zealand the potential corporates were horrified at how low the price of water was, they said that it should cost twice as much. So the private sector was appalled that the public were getting a good deal from government.

    Whereas elections are a focal point of accountability, it behoven upon us all to constantly challenge our representatives to explain their actions.

  77. Mark:

    Are you still going at it? Give up already. It’s like arguing with pig-headed children.

    ‘Pig headed’, because Trinifar knows absolutely zero economics and has to have basic logic spelled out in detail — and then still doesn’t get it in between preaching. I already established basic fact denialism in the other thread where Trinifar disputed well established dates: 1987 for South Korea’s first democratic election & 1996 for Taiwan. Apparently, no country becomes a democracy until power changes hands to the other party, even if that’s what the people want. So you’re dealing with people who are in a whole another world of their own, where facts don’t matter.

    A child because everyone here arguing that ‘government is potentially a better judge of value than the public’ trusts the government so very much and likes it to hold their hand in as many decisions as possible. Governments are made up of gods, not power hungry men. They rarely screw up, and even if they do, it’s because they are a ‘large’ organisation, so it’s excusable. They haven’t killed 262,000,000 people in the 20th century. Businesses are made up of greedy mongrels — ignore the fact that we rely on businesses for the majority of our daily needs, for example, this computer. Ignore the advances in quality of life driven by business-led improvements in technology. Ignore the fact that electronics get cheaper and of higher quality by the day. An economists work (Julian Simon) is easily dismissed by environmental scientists who know nothing about economics.

    Hooray! I love government! I trust them more than I trust myself to make my own decisions.

    So, yes, I recommend you don’t further waste your time. These guys want a free lunch and a free ride at the taxpayer’s expense. They absolutely crave it. They know so little about how the price system functions and how resources are allocated they think people who want the price of water higher are bufoons who are against the ‘public…getting a good deal from government’. As long as they’re on the receiving end of benefits at others’ expense, who cares about the broader impact?

    Who can blame them really? Though in actual fact there’s no such thing as a free lunch, I enjoy the illusion as much as anyone else. I like getting my government subsidised HECS loan for university education and then moving abroad so I don’t have to pay it back, for example :)

  78. they said that it should cost twice as much. So the private sector was appalled that the public were getting a good deal from government.

    The people were not getting a good deal, other revenue was used to subsidize the cost. This artificial costing would have led to a higher usage, thus providing a worse deal to the community.

    Water supply is a political issue and as such political decisions are made on it based on popularity. A classic example of this is the Traveston Dam where the Queensland government has declared that they will build it “whether it is feasible or not”.

  79. You make a good point trinifar. My opinion would be that government is potentially a better judge of value than the public.

    I agree. Look at the war in Iraq. The public of both the US and Australia seem to be foolishly turning against it, but at least our governments have the good sense to correctly judge the value of this endeavour and continue funding the war.

    I’m glad you agree with me bilb and Trinifar, government has correctly valued this endeavor as worth a few trillion dollars, 3000 American lives and 600,000 Iraqi ones. Who’d of thunk it, we’re all in agreeance!

  80. sukrit, you are looking at only one side of the balance sheet. Australia has been busily sucking off other country’s education programmes to staff our hospitals, and needing to because many of the places for local tertiary training needs are filled with full fee paying oversees students. That is a plus for Australia’s balance sheet. it cuts both ways.

    And I doubt that you have the awarenes that busines is full of dumb idiots who make stupid expensive mistakes. The difference between business and government is that everything stupi that government does hits the papers whereas businesses quietly hide their stupidity because it is commercially sensitive.

    That doesn’t mean roll over and let the government do everything, it means let government do what it is better suited to and do the things that are important to yourself, yourself.

    As for the argument that water should be made horrendously expensive so that people value it, is a total crock. You will be arguing that we should pay for clean air next so that people get the message that clean air is prescious. Please!!

  81. As for the argument that water should be made horrendously expensive so that people value it, is a total crock. You will be arguing that we should pay for clean air next so that people get the message that clean air is prescious. Please!!

    If it gets to the point that air needs to be rationed then this would be the most effective way to do it!

  82. bilb: That doesn’t mean roll over and let the government do everything, it means let government do what it is better suited to and do the things that are important to yourself, yourself.

    That’s what I’ve been arguing, but I don’t think the libertarian purists have the slightest interest in a reasonable position. You really can’t argue with their faith-based idea that government is always inept and free markets always self-correcting.

    Consider the case of privatizing water without any regulation. Do they have a plan for what to do with the people who couldn’t afford it? I assume their idea would be private charities would step in, but maybe they’d rather encourage the thirsty to be innovative about what they drink. First, however, you’d have to auction off the water resources to private investors. Wouldn’t that be fun to organize? Would I own the rights to the water under my own land? Darn, that’s an acquifer that’s under there and it extends under the land belonging to a bunch of other people. So do I have to write individual contracts with each of them to negotiate how much water I can pump? Do we try to privatize the rain too? Your joke about the air isn’t far off the mark, bilb.

    It is frustrating trying to talk with people who pay some of the lowest taxes on the planet and enjoy one of the highest standards of living (including government subsidized education apparently) and then complain they are being ripped off. Frustrating to me because there are far more important issues which can only be addressed collectively — by national governments.

    The NYT is running a series on China’s problems with pollution and water shortages — problems occuring because of China’s rapid economic growth. Wonder what advice Milton Friedman would offer that country?

  83. Well why don’t you piss off and talk to your own kind, you can engage in an orgy of self justification and congratulations on some body elses site so we don’t interrupt it.

  84. Trinifar & others who like government telling them what to do:

    Perhaps you’ll understand how reasonable I am by answering the following questions:

    1. Who bears the financial costs of government messing up — is it the taxpayer struggling to make ends meet, or is it the well paid people in government who have lots of job security and great pension plans?

    2. Do you think people, on average, spend someone else’s money more carefully than they spend their own?

    3. Do you believe in a presumption of freedom, or do you take the opposite approach, i.e. government should do everything unless proven otherwise?

    4. Would you agree that in a country where half of your income is appropriated by the government for its own spending and consumption choices, you are 50% free and 50% slave? What if the tax rate was 90% or above, (as I think it might’ve been during WWII in Australia) — would we be x% percentage less free to live for ourselves? Or do you equate the government with the people/society?

    5. What functions should the government be carrying out, in your opinion?

    6. What should it cease doing (if anything)?

  85. 1. Who bears the cost of business messing up? Everybody does. No different to government.

    2. I can’t answer that one because I have never been in the position of spending someone else’s money, but I take you point.

    3. Presumption of freedom of course. I have very rarely experienced a conflict with government. Government should do the things that I cannot do individually and which can be achieved more cost effectively with a community approach.

    4. If you are in a position where your income can be taxed at the 50% rate and that is what is happening then you need a better tax accountant. Also you should check to see if your glass is half empty, or half full.

    5. That is a good question, and one that I have not stopped to think about, largely because I have no conflict with the way things are run overall. Apart from this idiot Howard who likes collecting money then not spending it on what it is collected to do. But I will give it some thought.

    6. One of my pet hates of the consequences of government is safety fetishism which has now been elevated to a science with occupational health and safety. This, for me, is an area where government has stepped over the line to intrude on the way I run my life and business. I think that we should dispense with the federal government altogether. The handfull of benefits that arise from it could better be handled with a periodic meeting of state leaders. This would eliminate the dictatorial tendency apparent in the Howard governemnt. I like the EU’s rotating presidency. There are quite a few things that could be handled differently. What is on your list?

  86. Bilb,

    My list is not that important. We undoubtedly disagree on what government should be doing, and what it shouldn’t. But if we both agree that strong competitive federalism is desirable then we are effectively advocating the same thing: classical liberalism/libertarianism. Just as the federal government’s critics are constantly comparing it to the performance of other developed nations (federalist style competition on a global scale), so too if the states had real power over tax, health, education and other social policy areas then in the long run we will move closer to the libertarian society I advocate.

    No state wants to face outbound migration by taxing its citizens more than other states. No state wants poorly performing utilities. Those states that don’t perform will lose their residents. But with the federal government indirectly controlling areas of state responsibility, the buck-passing makes it easy to shirk responsibility for failure. I find it very expensive and difficult to leave the country and move to Hong Kong where I have more economic freedom. It’s much easier to leave a state.

    So if Trinifar and you agree with strong federalism then we are all basically in agreeance. We want the states to decide. We want to devolve more power to the people; I am more influential as a Victorian (among 5 million) than as an Australian (among 20 million).

    I find it encouraging that you don’t want one strong central government. I too want to abolish the federal government and have state leaders meet periodically. A more extreme version of the system I advocate was in effect under the Articles of Confederation, prior to the adoption of the US Constitution in 1787.

    It is necessary to present a united front to the world, so state leaders would meet every so often and formulate policy on national issues. The classical liberals (known as the Anti-Federalists) lost the debate against the US Constitution in the late 1700s, and the Federalists led by Madison & Hamilton won in their advocacy of stronger central government. The result was the American Constitution. But we should remember that before the Constitution, the Articles of Confederation was the more libertarian document.

  87. 1. Who bears the financial costs of government messing up — is it the taxpayer struggling to make ends meet, or is it the well paid people in government who have lots of job security and great pension plans?

    Same as bilb: no difference between large businesses in the private sector and the government in this case.

    2. Do you think people, on average, spend someone else’s money more carefully than they spend their own?

    Same as #1. Whose money are the execs at a large corporation spending? Look at what has happened with exec compensation in the last 10 years in the US. Even CEO’s that run their companies into the ground can make out extremely well.

    3. Do you believe in a presumption of freedom, or do you take the opposite approach, i.e. government should do everything unless proven otherwise?

    As I’ve said repeatedly, I’m for freedom and liberty which I think requires a government to regulate many aspects of the private sector. Otherwise you end up with a failing economy and maximum freedom and liberty for only a portion of the people.

    4. Would you agree that in a country where half of your income is appropriated by the government for its own spending and consumption choices, you are 50% free and 50% slave? What if the tax rate was 90% or above, (as I think it might’ve been during WWII in Australia) — would we be x% percentage less free to live for ourselves? Or do you equate the government with the people/society?

    I think the question is meaningless. During the years I made an obscene income, I felt perfectly free and was quite happy to give the government the 40+% I paid in taxes. I wanted to do my part to ensure the government continued to support a healthy economy by funding education, basic research, welfare services, the justice system, regulation, etc. I figured the more people who had the opportunity to excel, the easier it would be for me to hire quality employees. I also didn’t want to worry about a growing underclass of have-nots and the resulting social unrest. The 60% of my income that I got to keep was far more than what I needed; heck, it was enough for dozens of families to live on.

    5. What functions should the government be carrying out, in your opinion?

    The ones described above. I believe you need a social safety net in order to have a productive, stable economy. I believe that such a safety net is the only way to ensure everyone has an opportunity to excel. Businesses need an educated, healthy work force. All children should grow up in decent circumstances. People with disabilities and health issues should always get decent care — especially in a nation with a $13 trillion economy.

    6. What should it cease doing (if anything)?

    The insane level of defense spending in the US needs to be radically cut back. Government needs to untangle itself from big business. I don’t understand why Chrysler needed to be bailed out in the 1980’s, why the mortgage lenders are being bailed out now after making what everyone agrees are stupid loans, why oil companies making record profits are getting huge tax breaks, why lumber companies get to destroy old growth forests on public land, why we aren’t doing more to control pollution and CO2 emissions (talk about a tragedy of the commons), or …. You get the picture.

  88. Bilb reckons that we can’t have free trade because states are not equal.

    Trade occurs because of differences. Not allowing trade reinforces these differences.

    Trinifar says a lot of sensible things but is dead wrong on economics – we don’t need regulation to stop the economy from imploding. Interventionist macroeconomic policy is a well known failure, theoretically and empirically, and regulation of microeconomic sectors needs to be shown it has a net benefit above all other alternatives, such as deregulation and common law liability. The decision then needs to be made on a sector by sector basis. Trinifar’s view implicitly excludes the role of insurance in an economy. Insurance is available for virtually any sector or contingency where it hasn’t been regulated out of existence.

    All the market needs to function as a process is the rule of law. The military and criminal justice system can be and have been funded through voluntary taxation in the past. If Trinifar wants to see a properly designed safety net, look no further than the LDP’s 30/30 plan which offers many advantages to all in society over the current ad-hoc system. The best welfare system is minimalist not for parsimony, but because a low rate of tax, a deregulated labour market and no means testing benefits recipients and society in general. Trinifar should also note that the rates of philanthropy when income taxes were not imposed in Australia and America were many times higher per capita, in this lower income era of the early 20th century, where it is also known as real incomes rise the level of philanthropy rises as well. What has Trinifar really got to fear?

    The unrest and have nots Trinifar fears exist in places like France with 30% unemployment and open riots, but Trinifar refuses to acknowledge facts like this.

  89. Part of me likes the idea of “robbing the rich to feed the poor” which is essentially what any kind of socialist advocates… But of course the rich have the money to avoid tax, so it ends up being the middle class that are robbed to feed the poor.

    Overall, I am a utilitarian above a libertarian. I value positive outcomes over freedom. I have joined the LDP because I feel that moderate libertarianism will provide positive short-medium term outcomes. But if government can be shown to provide a net positive outcome over the private sector, then I will sacrifice a portion of my freedom “for the greater good”.

    Blib mentioned government efficiency. I think that’s one of the most important mentalities that government, and the populace need to get. If there IS to be a government, and I think some level of government will always be needed, I believe that a Christchurch model is definitely the way to go.

    I don’t think government should tell me how to live my life. But I’d sure like to tell a whole bunch of idiots that buy into mainstream politics and mainstream consumerism how to live their lives. I guess there are two types of people, though and one type never wishes to be free. Whether they are slaves to government or slaves to corporations or slaves to religion or slaves to a feudal lord they will always be slaves. And they will believe they are safe in their slavery.

    A free mind and free soul has the ability to be largely free in almost any circumstance. To be free in a government dominated world you just need to know the loopholes and not let the government know.

    Outside of philosophy, I think the 30-30 plan is good policy. It will be effective, efficient and produce a net positive outcome.

    Things like fully private healthcare or education… Well, I’m not so sure there would be a net outcome there. I do support more competition and a greater private education and health sector. But I think total privatisation would see some people fall into a cycle where they basically become class-bound low-income slaves working in wage-slavery for larger corporations and richer people.

    The government has a role to protect us from breaches of our freedom by corporations, too. If fraud, slavery and manslaughter are to be protected against by the rule of law then fraud, slavery and manslaughter must be regulated against for companies, too.

    One of the key principles of capitalism and liberalism is that the fruits of a man’s labour should become his property. Yet in most corporations the pyramid does not speak this story. Obviously it is a complex picture, but most low-skilled workers are exploited, even if it is willing exploitation and they have signed a contract. Most people are willingly exploited by their governments, afterall….

    Just some late-night thoughtcandy…

  90. Mark: Trinifar says a lot of sensible things but is dead wrong on economics – we don’t need regulation to stop the economy from imploding.

    Thanks for the acknowledgement that I say a few “sensible things” now and then. ;-) But yet again in defense of my stance on economics, has there ever been anything like the performance of the US economy — with its mix of government intervention and free markets — in the history of the world?

    All the market needs to function as a process is the rule of law.

    However the question is which laws?

    Trinifar should also note that the rates of philanthropy when income taxes were not imposed in Australia and America were many times higher per capita, in this lower income era of the early 20th century, where it is also known as real incomes rise the level of philanthropy rises as well.

    And how well did that work in terms of outcomes?

    The unrest and have nots Trinifar fears exist in places like France with 30% unemployment and open riots, but Trinifar refuses to acknowledge facts like this.

    France is a great case to address since it is perhaps the most socialist of EU states. Let’s look at unemployment:

    “Government economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate through recovery-supportive policy has been a top priority. French unemployment dropped from a high of 12% to 8.7% in the late 1990s, and after hovering around 10% during the 2000s, unemployment slipped once again to 8.0% in July 2007.” [from http://www.state.gov/r/pa/ei/bgn/3842.htm the US Dept of State website]

    8% while too high is not horrible. Historically it’s been around 4 to 5% in the US. You must have picked up the 30% unemployment number from reports of the unemployment rate among young people (under 25), particularly young Muslim men for which it might be as high as 40%. That’s a problem the French need to address.

    Let’s not ignore the upside. Per capita GDP in France is $30,342 (same source as above). “France is the sixth-largest economy. It has substantial agricultural resources, a large industrial base, and a highly skilled work force. A dynamic services sector accounts for an increasingly large share of economic activity and is responsible for nearly all job creation in recent years. GDP growth was 1.1% in 2003, after two years of steady decline from 3.9% in 2000. GDP growth was 1.7% in 2005, down from 2.5% in 2004 (2000 price basis).”

    “Despite significant reform and privatization over the past 15 years, the government continues to control a large share of economic activity: Government spending, at 53.5% of GDP in 2006, is among the highest in the G-7.”

    “France has been very successful in developing dynamic telecommunications, aerospace, and weapons sectors. With virtually no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 80% of the country’s electricity production.”

    “France is the second-largest trading nation in Western Europe (after Germany).”

    “France is the European Union’s leading agricultural producer,… and the world’s second-largest agricultural producer, after the United States.”

    “France is a leader in Western Europe because of its size, location, and large economy, membership in European organizations, strong military posture, and energetic diplomacy.”

    All that from the same US State Department webpage as cited above. According to Wikipedia, “France’s income inequality (measured by the Gini coefficient) has remained low compared to other economies where it has increased considerably (most notably in the United Kingdom and the United States). Moreover, France’s poverty rate remains one of the lowest in the world, at 6% (compared to 15% in the UK and 18% in the US).”

    Of the French people I’ve worked with over the years, not one of them had any desire to leave their country. Not that it doesn’t have its problems, but it has a very high quality of life. In terms of full disclosure, the one startup I worked for that had amazing success was founded in the US by a French citizen and backed by UK money. The founder’s reasoning was that the US was much better at encouraging entrepreneurship. Much of the companies success was due to the relationships we built with French businesses. Apparently there is something the French could learn from the US and vice versa.

  91. Mark: Trinifar says a lot of sensible things but is dead wrong on economics – we don’t need regulation to stop the economy from imploding.

    Thanks for the acknowledgement that I say a few “sensible things” now and then. ;-) But yet again in defense of my stance on economics, has there ever been anything like the performance of the US economy — with its mix of government intervention and free markets — in the history of the world?

    All the market needs to function as a process is the rule of law.

    However the question is which laws?

    Trinifar should also note that the rates of philanthropy when income taxes were not imposed in Australia and America were many times higher per capita, in this lower income era of the early 20th century, where it is also known as real incomes rise the level of philanthropy rises as well.

    And how well did that work in terms of outcomes?

    The unrest and have nots Trinifar fears exist in places like France with 30% unemployment and open riots, but Trinifar refuses to acknowledge facts like this.

    France is a great case to address since it is perhaps the most socialist of EU states. Let’s look at unemployment:

    “Government economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate through recovery-supportive policy has been a top priority. French unemployment dropped from a high of 12% to 8.7% in the late 1990s, and after hovering around 10% during the 2000s, unemployment slipped once again to 8.0% in July 2007.” [from http://www.state.gov/r/pa/ei/bgn/3842.htm the US Dept of State website]

    8% while too high is not horrible. Historically it’s been around 4 to 5% in the US. You must have picked up the 30% unemployment number from reports of the unemployment rate among young people (under 25), particularly young Muslim men for which it might be as high as 40%. That’s a problem the French need to address.

    Let’s not ignore the upside. Per capita GDP in France is $30,342 (same source as above). “France is the sixth-largest economy. It has substantial agricultural resources, a large industrial base, and a highly skilled work force. A dynamic services sector accounts for an increasingly large share of economic activity and is responsible for nearly all job creation in recent years. GDP growth was 1.1% in 2003, after two years of steady decline from 3.9% in 2000. GDP growth was 1.7% in 2005, down from 2.5% in 2004 (2000 price basis).”

    “Despite significant reform and privatization over the past 15 years, the government continues to control a large share of economic activity: Government spending, at 53.5% of GDP in 2006, is among the highest in the G-7.”

    “France has been very successful in developing dynamic telecommunications, aerospace, and weapons sectors. With virtually no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 80% of the country’s electricity production.”

    “France is the second-largest trading nation in Western Europe (after Germany).”

    “France is the European Union’s leading agricultural producer,… and the world’s second-largest agricultural producer, after the United States.”

    “France is a leader in Western Europe because of its size, location, and large economy, membership in European organizations, strong military posture, and energetic diplomacy.”

    All that from the same US State Department webpage as cited above. According to Wikipedia, “France’s income inequality (measured by the Gini coefficient) has remained low compared to other economies where it has increased considerably (most notably in the United Kingdom and the United States). Moreover, France’s poverty rate remains one of the lowest in the world, at 6% (compared to 15% in the UK and 18% in the US).”

    Of the French people I’ve worked with over the years, not one of them had any desire to leave their country. Not that it doesn’t have its problems, but it has a very high quality of life. In terms of full disclosure, the one startup I worked for that had amazing success was founded in the US by a French citizen and backed by UK money. The founder’s reasoning was that the US was much better at encouraging entrepreneurship. Much of the companies success was due to the relationships we built with French businesses. Apparently there is something the French could learn from the US and vice versa.

  92. I really like the taste of Shem Bennett’s “late-night thoughtcandy” even though I don’t know about the LDP and the 30-30 plan, but the general sense of it fits for me.

  93. The LDP is the newly formed political party that a lot of members here belong to. The website can be found here- of particular interest is the tax/ welfare policies where the 30-30 plan is laid out, in detail.

    Despite the fundamentalist libertarians, the LDP strives to be electable, meaning our party policies are more moderate. I think this is a good thing. Despite what any ideology may say to the contrary, I support political conservatism. The rate of change should be gradual so that consequences can be seen in full. There are times when a total rewrite is needed, rather than an amendment. But in such cases it is best for a change to be implemented in isolation so its effects can be seen in full without being complicated by other changes.

    Australia will benefit from heading towards an increased private sector. But I doubt we’ll ever be able to totally abolish the public sector. Private charity is a nice replacement in theory, but it relies on the abolition of greed. Most people in our consumer driven society are too self-focused. As Trinifar says, it’s the outcomes that matter more than the ideology. I think sacrificing a small degree of freedom in order to minimise even relative poverty is a good thing.

  94. Trinifar, the French Prime Minister recently had a few things to say about French economic prosperity:

    France is bankrupt and can no longer afford to pay its workers generous salaries and subsidies, its prime minister has declared.

    Francois Fillon made the undiplomatic outburst during a trip to the French island of Corsica, where farmers were demanding more government money.

    “I am at the head of a state that is in a position of bankruptcy,” he said.

    “I am at the head of a state that for 15 years has been in chronic deficit. I am at the head of a state that has not once passed a balanced budget in 25 years. This can’t go on.”

    Mr Fillon’s government is due to announce the 2008 budget this week with a deficit of €41.5billion (£29billion).

    Full article here: http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/09/24/wfra124.xml

  95. Mick @ #106:

    From the link you provided:

    Mr Fillon’s government is due to announce the 2008 budget this week with a deficit of €41.5billion (£29billion).

    But his remarks drew immediate fire, both from within his own ranks and from the opposition.

    Francois Bayrou, the head of the centrist Modem party, said Mr Fillon seemed to forget that both he and Nicolas Sarkozy, who was finance minister before becoming president, had been in government since 2002 without improving the situation.

    He added that Mr Sarkozy’s decision to spend up to €15billion (£10.5billion) on a package of tax cuts had only made things worse. One deputy from Mr Fillon’s UMP party added: “This phrase was badly timed. The French are liable to ask why we committed all this spending on the fiscal package if we are in such a bad way.”

    It is the second time in two weeks that Mr Fillon has run into trouble over his tough-talking rhetoric.

  96. If I recall correctly, the USA has only balanced its budget in a couple of years during Clinton’s presidency. Both Reagan and GWB were into deficit spending in a very big way.

  97. What are you deriving from the rest of the article? The first part is the facts and the second part is the political back and forth. Of course, if the Prime Minister announces the place is an imminent disaster he will be criticised by his opposition. Of course, if he was in government previously he will be criticised for allowing the problem to happen. If you’re suggesting the tax cuts are bad and part of the problem then are you suggesting France tax it’s way back to prosperity?

    I’m saying the fact are the facts:

    “I am at the head of a state that for 15 years has been in chronic deficit. I am at the head of a state that has not once passed a balanced budget in 25 years.”

    Mr Fillon’s government is due to announce the 2008 budget this week with a deficit of €41.5billion (£29billion).

    What are you saying?

  98. If I recall correctly, the USA has only balanced its budget in a couple of years during Clinton’s presidency. Both Reagan and GWB were into deficit spending in a very big way.

    I’m not saying US budget keeping has been exemplary. I’m saying that the US can position itself to recover. Due its free market ideals the power of the US economy is huge. If you took out the War on Terror and the War on Drugs the US would be rolling in it. The fundamentals underpinning France’s recovery, I would argue, are nowhere near as strong. I’m not an economist, but personally I’d say they are pretty week and France’s decline will continue over time.

  99. Trinifar, just been doing a bit of quick research on homelessness. Statistics seem hard to find, but working from here:

    http://en.wikipedia.org/wiki/Homeless

    it would seem to me that homelessness in Europe is pretty much on par with homelessness in the USA depending on which statistics you use (there is a wide range for the US). Also, it would appear that unless you use the more extreme statistics the US appears to have less homelessness than the EU. (However, I suspect that in parts of Europe, like Sweden, that if you have to sit in a bus shelter for more than 15 minutes you’ll probably be picked up in their statistics.) What I deduce from this is that homelessness isn’t worse in the US than other socialistic countries.

    What I was trying to do was find some stats on the homeless in France. From my personal experience I have never seen so many homeless in a Western country as I have in France. In places like Italy and the US they are certainly very visible to the point of having their own sections of streets, but from my personal experience France takes the cake. Which even I found surprising considering their welfare policy.

    Accept it Trinfar, even your version of socialism (i.e. France) is doomed to failure.

  100. I do love the self-righteous attitude of those that advocate big government. Claiming that you don’t mind to pay massive amounts of tax when you’re on obscene income belies the principle argument that it isn’t the big end of town that libertarian philosophy is aimed at. It is the little guy that small government most benefits. Those on the least income benefit proportionally more from lower taxes. The crime is for working class people subsidising services to middle and upper class Australians. Arts funding, university funding, science funding, even health funding when you consider where the best hospitals and medical centres are located.

  101. Brendan,

    Taxes work very much like interest rates and property values. People always borrow to the maximum that their income allows when buying property. So when interest rates reduce people can borrow more because the interest component of the mortgage payment reduces. But as this happens for everybody in the property market at the same time, house prices quickly adjust to mop up the extra equity money available. Very few people gain from a downwards interest adjustment.

    The same applies to taxes. If taxes were halved peoples income, spending and prices would quickly adjust to mop up the the extra purchasing power. Very few people would benefit in real terms. The most important thing with taxes is to make the money provide the maximum utility for people overall. This is the real battle ground between the left and the right. If the libertarian wants to have nothing of either view then the only option is to buy an island.

    Looking at the things that you would drop off the parcel of services paid for from taxes, I wonder what sort of a life it is that you want to lead.

  102. Increasing taxes lowers propety values?

    Garbage. Increasing property taxes decreases labour mobility and makes prices more sticky downwards.

    We have had a near tripling of property prices yet the Federal Government has increased taxation (largely income, corporate and excise), adjusted for inflation and exlcusing the GST, by 34% in real terms since the election of JWH as PM.

    People never spent up to 40% of their incomes on a mortgage during the 1970s and even in the deregulatd 1980s and early 1990s.

    Interest rates are not the problem, inflation is. Taxes do not make property prices fall. They only reduce disposable icnome available to pay off debts and reduce savings. Land is available but illegal to buy. There are too many restrictions on building on parkland and height restrictions on residential developments. These are just some of the reasons why property prices are so burdensome.

    You falsely associate reducing taxes with abolishing all taxes. This is the standard pap of someone who wants to increase taxes. utility isn’t maximised when the Governemnt allocates a maximised tax revenue efficiently, it is maximised when the minimum rate of tax is imposed indiscrimintaely to raise a balance budget to fund a spending which is justified on a cost-benefits basis.

    You also ignore historical incidences of taxes being voluntarily raised, and the fact that many “public services” are in fact poorly run and inefficient prublicly owned business enterprises. If I pay for roads and hospitals, I will probably be better off.

  103. Read it again Mark that is not what was said at all. I said that if taxes fall so will incomes in due course. Simply because for the bulk of people (2/3 of the population in the lower end of the income spectrum) all of the family income is spent on the total living package, ie house, food, car, clothing, consumer goods, entertainment, nil saving. Forty years ago all of that was achieved from 1 income. Today most families have 2 incomes but achieve more or less what was previously achieved on 1 income. As family incomes increased with the working wife prices and taxes adjusted to soak up the increased purchasing power.

    As for paying for roads and hospitals yourself, I think that you are in fairyland there. A friend lives in Rose Bay and he tells me that if he used the pay roads just to run his kids around to their various events (for the convenience) it would cost him $150 per week out of his family income. Now if you had to pay for all of your road useage….I doubt that you would be happy for long. You seem to be very forgiving of corporate greed. Read up on the Bolivian water crisis.

    I am told that it costs in the US $40,000 to give birth in a private hospital. I know New Zealanders living in the US who returned to NZ to give birth for that very reason, despite this requiring them to be away from the rest of their family for up to 4 months.

    You surely cannot be serious about those architectural comments. Property prices are burdensome because of Australia’s monumental failure at regional planning and development. Australian politicians opted for the quick fix market approach that you espouse and this horrendous mess is the result. Coupled with the abysmal state economic science, gives us the global warming that we are marching into at breakneck pace.

  104. Time for me to do my bit of Trinifar-baiting!
    France has a Socialist economy and 8% unemployment?
    Why is that worthy of praise?
    Here in Australia we have a supposedly-Free-Enterprize party in government, and less than 5% unemployed. And you said you know some French people, and they wouldn’t leave France for other countries. That is not because of the current socialist system- France has always been a great environment in which to live! One of the reasons the British were able to take Canada was because the number of French colonists was very small. Some people fantasize about the French colonising Australia, because some scientific vessels were exploring Australia when Captain Arthur Phillip was founding Sydney-town, but they would never have persuaded enough people to come to make it worthwhile. AND I read regularly about French citizens who DO emigrate now to London, because of the lower taxes in the British Capital. One of them was a actress who had posed for the ‘Joan of Arc’ image, so the french were very upset!

  105. If taxes fall, three things can happen with respect to wages:

    1. More labour is employed.

    2. Real disposable income increases of those who are employed.

    3. A combination of the above.

    Otherwise you are saying that in the long run there is an iron law of wages which permits unlimited taxation. Explain how this works.

    Buying a home isn’t “nil saving”, it is part of a savings bias towards housing – which in itself isn’t bad thing and forms the basis for retirement incomes and securitisation of business and other investment loans. Part of the reason for the savings bias can help explain skyrocketing property prices.

    We have much more than 40 years ago. We live an extra twenty years longer. All of our goods are of a better quality. People choose to have consumerist lifestyles, and many goods are getting cheaper. Abundant land isn’t, even though in nearly every other economy, as GDP grows, so does land prices, but affordability increases too. It hasn’t. Taking out a bias to bigger homes and a saving bias, the reasons I listed above contribute greatly to this. On top of this, people who need to commute need to pay more excise taxes to get to work. Your perfectly elastic taxes do not exist.

    If I had to pay for my road usage, a couple of things would happen. I would stop paying an excessive amount of taxes into separate, non earmarked pools. It is not an exaggeration to suppose the average road user pays at least $2000 in taxes every year for sub standard roads which take up a lot of time and waste resources in queuing. You’re telling me you know someone who uses tollways about thirty times a week, on top of commuting to work? I don’t think someone in Rose Bay particularly cares about a lazy $8000 a year, do they? The effect of having to pay prices is that you economise and use resources more efficiently – which makes everyone better off. Unless you are saying that wasting resources increases welfare. I can’t think I would have enough time to drive a family around 30 times a week on top of work.

    If you don’t have to pay for your use, other people are just paying for your use or the resource gets overused. $40 000 to have a baby in a private US hospital? Where is your source? This isn’t a typical cost. It can cost as little as $10 000 – $20 000 to treat life threatening cancer. Since when does it take 4 months to have a baby?

    Bolivia? The Mayor wanted people to pay for infrastructure charges so the town wouldn’t run out of water. People didn’t like this. They rioted. You can judge the accuracy of the pricing but not the concept. You face a choice: pay and have no water. Pay and have water. This is probably the best reason to privatise water supply in Australia – if there are large profits to be made, there will be an incentive for other suppliers to enter the market. Greed has its place.

    A lack of regional planning caused high property prices? What did regional planning do in the first place? It achieved very little at billions of dollars in costs. You cannot create entrepreneurs from a board of local dignitaries and professors appointed from Canberra. Please explain how regional planning kept property prices low. Why was it a good idea to artificially keep them low? What was given up to keep them low?

    The architectural rules are real and so are their impacts. Mutli story complexes effectively create more land. Having these rules just takes this ability to create a resource away.

  106. Bilb,

    If taxes were halved, people would have more income. This would give them more utility in what they can do with that money, be a foreign holiday, or an investment to delay consumption. Either way, they are better off. To say otherwise is sanctimonious, even the ALP doesn’t argue such claptrap about people not being better off with tax cuts.

    Your point seems to be that the government will always spend taxes to increase your utility better than you would. But exactly how does the government know what will increase your utility? If they spent it on eactly what you wanted, like a plasma screen TV, or put it into an investment fund for your pension, or spent it on current services or infreastructure. Just exactly how do they know what your particular preference is? Any deviation from your exact preference represents a decresae in your utility because you are not ausing your resources as you wish. You are worse off!

    Lower taxes minimises the ability of the state’s choices conflicting with your own, and therefore lowers the burden of the state.

  107. I think Bilb’s point (which I don’t particularly agree with) is that companies set prices in part with a knowledge of a particular group’s disposable income. So if taxes drop and people have more disposable income, then companies will raise prices to match and this will have a net negative outcome.

    If I’m wrong in my interpretation, Bilb, let me know. That’s how I read your comments, though.

    Part of his argument that I do agree with is that privatisation does not strictly speaking mean a drop in costs. Monopolies run by corrupt people to benefit themselves spring to mind. But it doesn’t even have to be a monopoly.

    Look at petrol price fixing for an easy example. Petrol prices have inflated dramatically in recent years and that’s only partially due to limited supply and increased demand, a large part of it is due to greedy CEOs at the top of the oil companies. And petrol stations colluding to create an artificial price monopoly.

    Capitalism doesn’t JUST reward the best products. It occasionally rewards the most sneaky and underhanded companies. It rewards worker exploitation. But in general it is the lesser of two evils when compared to the government. I grudgingly accept capitalism as necessary and better at producing positive outcomes.

  108. With reference to the above argument I found this in the .Times Online

    It is only beginning to dawn on France just how much Super-Sarko is modelling his administration and reform ideas on the methods of the last British Prime Minister and his New Labour team. Overtly borrowing from Britain is a big break from the old French view that the only acceptable “models” for France were socially worthy nations such as Sweden, Denmark, Germany, and Canada.

    Sarko, a radical rightist, has long been a big fan of Blair, the Third Way leftist, seeing him as a pragmatic action-man who solved unemployment and fostered new prosperity. He established a complicity with Blair after he became minister in 2002. In his campaign, he borrowed as his motto, Blair’s formula that “what counts is what works”.

    In his campaign book, Sarko said Britain’s rise to wealth after being the sick man of Europe in the 1970s was “the most dramatic” case of a national revival. (That was also a nod to Margaret Thatcher of course). “London ceaselessly sucks in thousands of young French people, as if it was easier to succeed there than at home,” Sarkozy wrote.

    It seems there are some French who do leave.

  109. Shem,

    Even if that is what Bilb is getting at (and I don’t think he is), price rises due to more money chasing the same (or only slow growing) amount of goods and services simply gives people an indicator that it might be better to delay consumption through saving or investment. They still benefit, whether they choose to pay higher prices for consumer goods now or save for future consumption.

    I’m not sure that there is really a problem with fuel pricing. It is expensive, but are there queues at petrol stations? Do people have alternatives to consuming fuel? My simple answer to this would be to lower the cost of opening petrol stations by lowering environemntal regulations and zoning regulations, or any other government imposed barriers to entry. If there are excess profits to be made, then new fuel suppliers will be attracted, and prices will lower.

    Underhanded operators will be found out in the long term, and the short term pain felt by some is the cost that they bear for not overcoming their information asymmetry. Regulations force everyone to pay more, even if they would have been smart consumers in the first place. It might be healthier for people to get burnt by unethical companies and learn from the process, than for them to have an unhealthy reliance on regulations and the law to protect them from their own naivety.

  110. Jim,

    I live in London and the place is crawling with aspirational Frenchies. South Kensington is almost Paris’ 21st arrondissement. I think the amount of business French banks do in the City is quite comparible to business they do in all of France.

  111. a large part of it is due to greedy CEOs at the top of the oil companies.

    Greed is totally subjective. What you regard as greed by oil company CEOs is not greed to me but legitimate reward for a difficult job that very few people are capable of doing.

    Some people say that women who prefer a career to children are greedy. Some say having a BMW instead of a Toyota is greedy, or having a four bedroom house when you only need two.

    Greed is also known as animal spirits, self interest, egoism, the survival instinct and aspiration. It’s present in us all, even impecunious students who long for a new pair of runners when their current pair is still OK.

  112. Brendan: It is the little guy that small government most benefits. Those on the least income benefit proportionally more from lower taxes. The crime is for working class people subsidising services to middle and upper class Australians.

    This seems confused. By definition the lower class has less income to tax and most countries have progressive taxes to some extent, so how can they be subsidizing the middle and upper classes? (I’m assuming that, since Australia has a modern economy, the lower economic class is not vast.)

    Mark: This is probably the best reason to privatise water supply in Australia – if there are large profits to be made, there will be an incentive for other suppliers to enter the market. Greed has its place.

    Actually this is a perfect example why purely free markets can’t work for everything. When you say “other suppliers” might enter the market, just where are you thinking they’ll get the water to supply? It’s not like anyone is going to discover “new” water. While people can try to argue about peak oil, there’s no denying that water shortages place a very serious limit on the planet’s carrying capacity, a limit that’s being hit in all sorts of places as different as China and the USA.

    Just the other day I learned what was, at least to me, a rather startling fact: In the US 40% of clean water is used for argiculture, 40% for industry, and just 1% by families in the home, and not water comes from renewable sources. A healthy amount is pumped from acquifers at a rate much higher than the rate of natural recharge. How do you put a free market price on that? Is it okay to steal from our children?

  113. In the US 40% of clean water is used for argiculture, 40% for industry, and just 1% by families in the home, and not water comes from renewable sources.

    All water is renewable Trinifar. It evaporates, forms vapour, clouds, precipitation, falls to earth, evaporates, etc.

    There is more than enough water on earth. It is simply a distributional issue. At some cost, water from the sea could be desalinated to irrigate the driest desert.

    The way in which water is allocated, and the money spend on distributing it, should not be matters for public servants and politicians. The market, in which water is sourced and distributed according to its value, is far more equitable and efficient.

  114. Shem 121
    That is pretty much it. It depends upon the demand for labour. If labour is plentyful then employers offer less for replacement labour and ther will always be people who will bid themselves down if they have the flexibility to do so. reducing taxes allows that to happen. Initially people will spend more to release pentup spending desires, then they may reduce some debt, or they may commit to more debt on the strength of their increased repayment abilities, but eventually prices will increase and/or wages will decrease.
    However, if labour is in short supply then wages will be more resilient but prices will progressively rise to erode the advantage. Often when taxes are reduced the money to achieve that reduction is availed from the reduction of government services. Where this happens there will usually be new costs passed to the public to source themselves directly, and this will reduce the effectiveness of the tax reduction. Another side effect is that a significant percentage of the spending will be on imported goods. This will impact on trade ballances.

    So in summary, in a competitive market people will progressively accept less return for their labour where there is flexibility to do so.

    Mark,
    Buying a home is indeed not nil saving. Generally it is the only real saving that most people engage in. Most dwellings, however, have the same comparative value and all rise in value at a similar rate. The value of a dwelling cannot be realised for as long as the dwelling is needed for occupancy by its owner.

    There are an ever increasing number of people facing motorway costs of $30 per day just for access to work. This is $7200 per year. Well above your what you imagine you are contributing in taxes to roading. And, fully twice what they pay in petrol. In 1998 oil was US$20 per barrel and petrol was 60 cents per litre. Today oil is US$80 per barrel and petrol is $1.30 per litre. I think that a lot of the profit has been squeezed out of petrol. Ethanol, on the other hand is around 70 cents per litre on the open market. Ethanol blends will be a huge part of our energy future, and with it will come significant savings. More significantly, this fuel is all home grown. Australia is currently producing 12,000 litres of ethanol per litre. This will go up to around 20,000 litres per hectare within a few years. All private enterprise and the savings on trade balances will put Australia back in the black.

    4 months. Heavily pregnant women are not able to fly, so to return to NZ to have a baby requires travel several months before term and then some time after birth. 4 months. This is the figure that I heard from several sources. I also heard the story from a father who had travelled with his family to California where the son developed appendicitis. The operation was performed and the bill came to $15,000. The hospital would not release the son until a the money had been paid. True story.

    Bolivia. The greedy american who bribed certain officials to pass the laws to give him the rights to all of the water in bolivia came unstuck when he tried to enforce his claim that even water that fell onto someones property and was collected had to be paid for. How does one person owning all of the water improve its value relative to everyone owning the water?

    Regional planning. More cities of smaller size improve the quality of life in those cities, reduces costs of operation, improves access, reduces travel times, and lowers land demand pressure by improving availability. Water access is an issue, though, I will grant.

    I get extremely agitated when brainless developers start to make designs on the parklands and green belts. I hear fewer people declaring what a wonderful sight the Gold Coast is. People now realise that it is an eyesore.

  115. Shem 121 and Mark I have posted a reply to some of your concerns but it was eaten by the electrons and spat out. It may be in the spam filter trash can.

  116. Bilb doesn’t investing in travel insurance offset medical costs when in America? Personal responsibility is one of the key principles of libertarianism and if people are irresponsibly traveling without insurance then surely that is their own fault?

    On the issue of water, as long as there is no government intervention then people should be able to install their own water tanks and collect their own water. Or they can pay for privately collected water. If water taken from rivers, etc becomes priced too highly then new, cheaper technologies will develop. I think the market based pricing of water would produce greater benefit.

  117. Trinifar: class etc is not determined purely by income, but by wealth as well. A progressive or even a burdensome proportional tax system and lower economic growth makes it difficult to build up wealth. The harder the work the less they benefit and their incomes rise less rapidly. In short they are forced to work harder for a meagre gain.

    Water supply works privately because water suppliers don’t push hydrogen and oxygen atoms together, they provide infrastrucutre for water harvesting, recycling, reticulation, filtration, desalination and purification. More naturally available water is useable and each average litre consumed can be reused many more times. The Govenrment too has an incentive to provide capital, but it isn’t as strong, nor do they have the same efficiency incentives.

    Bilb, your idea of perfectly elastic taxes but inelastic consumer prices determined by the lack of taxation is absurd. In real, inflation adjusted terms this never happens.

    Taxes have costs over and above the amount of revenue raised. “Services” can be provided more cheaply by the private sector. The minimal cost of each dollar spent by the Government costs society $1.20 in lost production (in Australia). The estimate of this cost typically varies between $1.30-$1.40 and gets as high as $1.69 for each dollar spent. Does Government spending have such a high rate of return?

    Who spends $30 a day on motorway charges? How far do they drive each day? From Minchinbury into Chatswood and back two and a half times? How much time do they have left to drive their family around to incur roughly the same amount of charges for non work related use? (How do they have enough time to go to work?) Motorway charges have not been around for long and directly go towards the capital costs of roads. Road use taxes do not. Furthermore they have been around for a very long time and affect every single road user there is and affect every single trip. Why not rally against this?

    Right. Having a baby in the US costs so much so they give up paid work for up to four months. The median US wage for that time would be about $11 000. Maybe they should just buy insurance? Although maybe you can show that having a baby in the US routinely costs more than $11 000.

    “The hospital would not release the son until the money was paid”. That is totally illegal. That is not representative of the US system. Ever been detained in a mechanics if you refused to pay the bill immediately? Where is your source on this “true story”? $15 000 for appendicitis? The cost billed to the paitient in the US averages around $7 500. See here http://gateway.nlm.nih.gov/MeetingAbstracts/102271824.html

    Bolivia: what greedy American? What bribes? Where is your source? What you are describing is a total rejection of the importance of private property rights. You are saying the American guy bribed the officials into giving him rights over water falling on everyone else’s land, and he never actually paid them for this. How much did this bribe cost him? This is totally not what privatisation of a resource should look like, if your story is at all true.

    Regional planning is not justified by listing the alleged benefits. It has comprehensively failed.

    If you like the parklands, you should be able to buy it, competing against developers. The Gold Coast should have never of been developed because you think it is an eyesore? That is totally subjective. I bet everyone who lives there would prefer it not get demolished. Parklands and green belts artifically pump up property values because they make land more scarce.

    Your solution would be simple though – raise taxes until prices fall and provide more services. There is less marketable land, lower disposable incomes and more services which are more expensive then private suppliers doing the same job. How are we better off? According to you, perfectly elastic taxes and inelastic goods markets. Taxes don’t alter behaviour except that they make goods cheaper by reducing incomes and changing incentives to work and produce goods?

  118. Bolivian water, the guy was Riley Bechtel this link http://www.pbs.org/frontlineworld/stories/bolivia/links.html seems to have the most links and depth. He paid officials some small sum (I had 54 million dollars in mind but it may have been less) but he fully expected to reap hundreds of millions. Read the info. There is a comprehensive documentary (BBC I think) that delves further into the sleazey side of Bechtel.

    What do you ever mean by scarce land? This is a country of 760 million hectares. There are 38 hectares of Australia for every man woman and child. Scarce??

    I guess the good thing about the Gold Coast is that mess of concrete has destroyed just one part of Australia, leaving most of the rest relatively undamaged by beach front development.

    I’m no expert on motorways but if one goes from the Blue Mountains to the airport via theM6 and M2 then I think it is something like $6.5 to the M2, 3.50 for the M2, 3.50 for the Harbour tunnel and then 3.50 for the Eastern distributor plus parking. 2 of those are one charge for both directions so the return is cheaper. If people such as customs staff (my sister being one of those) want to catch the train then the link from the city to the airport costs $10 each way each day. That is on top of the fair to get to the city. All of this is before Clover Moore installs e tag tolling on all of the Eastern suburbs roads, a growing world trend. Journeys such as these are very common, and are a by product of inflated real estate prices. If you are a younger unmarried person as your comments suggest to me that you may be, then this sort of life yet awaits your discovery should family life catch you up. If you are older and have done the family thing then you have been very lucky to have missed out on modern city living family pressures.

  119. Trinifar,

    If the little guy has less income, then does it not then follow that the marginal utility of his income is higher than the marginal utility of a wealthier person? Without funding for middle class welfare, taxes could be lowered for all, in particular the low income earner, who most benefits from their marginal income.

    They are subsidising all government services, not just the ones they use. Even if they consume more services than they pay tax for, their taxes would be lower if services they don’t use weren’t provided by the state.

  120. Following on from your comments Brendan. One of my biggest complaints against government (and I have many) is the fact that governments come in “package” deals. You can’t pick and choose the government services that you want to fund.

    Even if you are against the Iraq War, you are still forced to pay for it by paying tax in Australia. Even if you prefer private education, you are forced to pay for public sector education. Even if you are against subsidies for certain foods or fuels, you are forced to pay them by living in a given country.

    And every country has undesirable tax expenditure for a given person. I don’t think a single person in the world could find a government that spends every cent according to their wishes. If you could pick and choose exactly where your tax dollars go it might be better- I wouldn’t mind paying tax to support welfare, health and education. But then it’s basically private charity and you’ve displaced the need for government services in the first place.

  121. Shem, that is why minimising the role of government is important. There is nothing stopping like minded individuals throwing their lot together to fund charitable or not for profit services. Voting in big spending and taxing governments because you don’t trust your fellow man to be charitable is a cop out. It all comes down to the statists believing that they know better than those they seek to rule.

    What would stop charities and employers asking employees directly if they would like to donate directly from their pay packet. Nothing, because that it what you can arrange with your employer right now. Charities would then compete for funding, and charity givers could budget their charitable contributions. That way you could start and stop funding programmes as you see fit. The best thing about charity is that is voluntary.

  122. Brendan: If the little guy has less income, then does it not then follow that the marginal utility of his income is higher than the marginal utility of a wealthier person? Without funding for middle class welfare, taxes could be lowered for all, in particular the low income earner, who most benefits from their marginal income.

    I can’t speak to how taxes are done in Australia, but in the States low income earners don’t pay much tax and can pay no tax at all. The middle class itself along with the rich fund what I think you mean by “middle class welfare” along with what I think it’s fair to call “corporate welfare.” If you didn’t fund that, of course taxes would be lower. Then you’d have spend on buying the services the government now provides, you’d have to figure out what to do with the people who couldn’t afford to do that, and IMO you’d end up with a very stratisfied set of economic classes with little economic mobility.

    It’s clear you have a different opinion in general, but we can probably agree that the corporate welfare part should go away.

  123. Bilb, Trinifar, and all others,
    Many of us on this blog are idealists. We have the ideal of a society without intrusive government, without taxes, and without intrusive regulations. When I advocate zero taxes, and owners being rulers of their domains, it’s not because there wouldn’t be some problems, but because such a society, sticking strictly to maximum libertarianism, hasn’t been tried!
    Even if it did turn out to have problems, we could solve them as we go, adhering to a framework of freedom.
    Your recital of facts and statistics from today’s world has some interest, but little relevance, to our ideal of pioneering the first fully-realised libertarian, micro-government society, hopefully here in Australia.

  124. Nicholas G,

    Point taken. I would suggest though that there is not total abolition of government possible. That would eliminate all coodination as well. So the discussion is really about how little. That would be my viewpoint. This forum has me satisfied that there is no further need for the Federal Government, and that should be real progress from your point of view. So I would hope that there was mutual value in the sharing of perspectives.

  125. Bilb, have you thought about the example of Switzerland? Their Federal system is called a Confederation, with strong parts, and a weak center. If we still end up with a government, I would advocate a voluntary citizenship, and a strong shire system (perhaps citizens could time-share in all government functions, thus reducing the chance of the government having a will of its’ own).

  126. Bilb: I no way would I defend Betchel if he did what you say he did. But that isn’t the way to privatise things. The land in Bolivia should have been made private with strong property rights, and the water boards corporatised and then distributed in equal allotments of shares to the citizens.

    What advantage could any nation have from not pricing resources, more so, not pricing resources at market rates?

    Land is scarce in Australia. All resources are scarce. One third of resources in this country are under lock and key, and various arbitrary caveats have been enforced over land in the past few decades. We can’t shop down a tree, we can’t build high rise and we can’t buy a block of land nearer where people are employed to build housing for them. This avoids the problem with commuting you take so much offence to.

    A “mess of concrete” is where people live and work. It makes stronger safer homes and workplaces. You criticise the concentration of building on hand and then urban sprawl on the other. It is more like you oppose building and progress generally.

    No one takes that way to the airport from anywhere west of Minchinbury. Furthermore, they would take the M4, M7 and M5 and it would be longer than using toll free roads by about five minutes. Such a trip would be very long, 200 km round trip each day. No one has to spend that much on fuel or live that far away from work unless they really want to because they can’t give some thing up like a sentimental value like never living east of the Nepean river. Such a person would pay up to $13 a day in excise taxes, excluding GST, registration taxes and the actual time (almost three hours a day in commuting, excluding bad traffic, getting ready to go to work in the morning) and total financial cost of buying fuel. What you are describing is a totally uncommon scenario. It is not an argument against privatising infrastructure. Furthermore, no one gets rebated for using private roads – is that private enterprise or the Government’s failing? But you are against building up areas and urban sprawl. There is no solution to your complaints.

    Trinifar – the US taxes the poor less and there is more upward mobility. You shouldn’t be surprised. The Australian system makes it very difficult to rise into the next class above your parents. The poor stay poor, the middle class stay middle class and the rich stay rich. You get punished severely for trying to advance and if you are wealthy and incompetent you can get subsidised or protected from competition.

    Private services are nearly always cheaper than the Government, with no hidden transfer payments or cross subsidisation. Why won’t people be able to afford this? It is always better to give them cash subsidies than to socialise the provision of a good if it is unaffordable (however unlikely).

    Why would mobility decrease if it is counter factual and prices fall?

  127. Hey Mark, you are talking to someone who lived in a city of 350,000 people for 17 years (similar to Adelaide), and the ease of movement was ideal. Running a business was a dream. I could do a circuit of suppliers and customers and easily do 10 stops in a day. Here in Sydney to do 2 visits in a day is difficult and totally draining. More Smaller cities work far better than megalithes such as Sydney, Melbourne and Brisbane.

    The Bolivian water thing put a bad taste on the whole idea of corporatised water supply. I think that the outcome was a cooperative ownership and management system. Which brings up the point of at what point do you call something that everybody owns and contibutes to not private but government?
    What is the difference?

    On the travel thing, my dad did that for 35 years. Four hours travel every day. It is very common. People get the jobs where they can, and the houses where they can afford them. They rarely ever make a convenient match. That is the problem that I have with totally free market driven development. It all becomes like an overdone painting, always brown all over. That is not to say that free markets don’t have their place.

  128. Bilb, Four hours commute is not a common thing. Just because you know 10 people who do it personally, does not make it widespread.

    You want drab? Look at government provided council flats in Perth and Melbourne. Nothing like stacking people up in ugly, depressing buildings, then feeding them on the welfare. That is what the state comes up with when they address housing shortages.

    Developing nations like Bolivia are probably not the best place to look for market capitalism. These places are hotbeds of crony-capitalism and corruption. The state simply abuses the property rights of its citizens. This is not the path that libertarians advocate.

  129. Trinifar,

    If the government didn’t provide middle class welfare like arts funding, tertiary education, etc, taxes would be lower, and individuals would have a choice on whether to consume such privately offered services, or not.

    Corporate welfare is a sham of the highest order, and my opposition to it is from the same view point that led me to oppose other types of welfare spending.

  130. Bilb – by your own admission commute times are lower now than in the past. Private roads are safer. A user pays system avoids taxing regions elsewhere to build up infrastrucutre in the cities. Which is what you would be trying to avoid with regional policy. A better idea might be to decentralise Government, lower and simplify taxation and privatise business entities.

    We have a kind of market socialism in Australia. Bureacratic planning dominates decision making.

    So why has free enterprise led to these unwanted outcomes? The finger points squarely at planning regulation and high taxation.

    If people still choose to have high commute times, is this because of the market or in spite of the clogs in its operation, people choose these preferences freely and are somewhat enabled by private provision of services (which are generally cheaper)?

  131. Mark, you keep asserting that private provision of services will be cheaper than public provision of the same. All evidence to the contrary by my experience. Please offer some examples.

  132. Brendan,

    Four hour commutes are common. You only have to look at the nightly traffic reports on the news to see the hundreds of thousands of people who are doing it.

    Fair point on Bolivia, but if you do a country count you will see that the Bolivias are in dominance, global corruption is rife. Australia is outnumbered 3 to 1 in the honest government stakes. Libertarians have a lot of work on their hands.

  133. Bilb,

    Please point to some evidence, not just hearsay, on your commute issue.

    Libertarians in Australia only have Australia to worry about, the Bolivians can look after themselves. If they choose to develop strong property rights and civil institutions to protect them, I would suggest that Bolivia would be on the path to success.

    Lots of socialists and statists like to point to Chile as an example of Libertarian philosophy gone wild. In Chile Pinochet put forward a lot of pro free market reforms, that much is true. But at the same time he abused civil liberties of the people who opposed his reform. Chile is an example of the inability of mixing the state with individual liberty, just as China today is.

  134. Although in Chile’s case, from Pinochets free market policies, they gained more social freedom as a result.

  135. When I lived in a big city, all the services were nearby and located in the suburbs.
    When I moved to a smaller city, I found myself travelling just as far for access to the same services in or around the city. And I was travelling on very noticibly lower quality roads.
    I actually preferred the bigger city and I’m sure there’re many others that also do.

  136. Brendan,
    Daily video footage of all of Sydneys main arteries choked solid every morning and afternoon carrying people from Woolongong, Camden, Blue Mountains, the Hills District and Gosford (and further north) into the city is not what I would call hearsay.

  137. Bilb, That only proves that people actually COMMUTE to and from work.

    This has absolutely NOTHING to do with the actual time spent communiting.

  138. I am not asserting anything bilb.

    Privatisation makes all things cheaper. You may pay a higher direct cost, but there are no longer subsidies towards the price. The cost of the resource to all users (direct resource cost) falls.

    Socialisation of assets is not a good way ameliorate poverty if there are concerns about affordability.

    Most of the time however, in real terms, prices to users fall. Airlines are a classic example, although further deregulation of airport routes would see a more open market.

  139. Bilb, it takes 1 hour 25 to get from the Blue Mountains NP to Mascot. Why is this “typical”? (Also the longest of these routes you talk about). You can also take this route for free, excluding taxes and petrol etc. Why did the market, not economic interventionism force people into doing this?

    If parks and reserves around St Ives chase could be developed, people could live there instead of Gosford and work in Surrey Hills. Maybe some of them also like working and living in Surrey Hills AND Gosford?

  140. Mark you are very wrong about the travel times. It can be done in 1h25m, it can be done in 1h.05m, but it usually takes 2h. I know enough people who do the commute in various directions and at variuos times to be clear about the times that it takes. On the parks thing you are forgetting recreation, people need a change of environment. You’re starting to sound like Trigiboff on that issue. Yes the aircraft industry is a good example of a dynamic market. And if you are interested in future trends then let me suggest that you explore the Cafe Foundation website. Talking about the cost of government money management (1.4 to 1.0) you have to really weigh that against private money management. If the private sector had to collect that money and do the same things and turn a profit what does that look like. I am not saying that one defeats the other, I am saying that one size does not fit all situations.

    I think that you will get to the stage where you will have to computer model your proposed new society. Do you think that a society can operate without planning, without coordination, without shared costs and shared (public) interest spending?

  141. When I lived in a big city, all the services were nearby and located in the suburbs.
    When I moved to a smaller city, I found myself travelling just as far for access to the same services in or around the city. And I was travelling on very noticeably lower quality roads.
    I actually preferred the bigger city and I’m sure there’re many others that also do.

    I definitely prefer larger cities. I lived in the Osaka-Kobe-Kyoto megalopolis- about 18 million people all told. I had anywhere from 30 minute to 1.5 hour commutes to work via privatised public transport, all of which was extremely efficient. And in my local “city” I had most of the services I needed with the option of even more if I chose to travel further. Compared to Launceston, my hometown, or even Melbourne there were so many options.

    Some people lived remotely- in their own suburban municipality of half a million, seldom leaving their community. Others used their suburb for a bed only, spending most of the time in the larger inner-city areas. Big cities give that choice, it’s one reason I dislike living in Australia- even Melbourne is too small.

  142. Bilb,

    Your friends travel a very long way. It is their choice. You haven’t shown why it is the fault of free enterprise and why further Governemnt intervention would make them better off.

    Hayek and von Mises showed that central planning cannot allocate resources, because the price system carries so much information.

    This is a classic academic paper by Hayek on the reason why central planning doesn’t work:

    http://www.econlib.org/library/Essays/hykKnw1.html

    Hayek, F. A., “The Use of Knowledge in Society”
    American Economic Review, XXXV, No. 4; September, 1945, pp. 519-30.

    Free enterprise and voluntary non-profit work does not overtly plan or coordinate – but society is still organised where there is little Government intervention because price and other signals (information) allows people to act independently with superior outcomes. A single decision maker cannot possibly account for all of the cponstantly changing, often localised knowledge.

    Society loses $1.30-$1.40 for every dollar spent by Government. The return on the stock market was 22% last year. Conservatively, Govenrment projects need a rate of return well over what most private money managers can achieve consistently. If the profit incentive is so high, why won’t the private sector be doing this? The scope for justified public spending is very limited and so thus is taxation.

  143. I think Mark that you into comparing apples with motorbikes. Your argumnts do not line up. When I think about your proposals a little more it occurs to me that the outcome of your liberalised world will ultimately be a simpler social and industrial outcome. Simpler in a many ways. And that simplicity may very well be what you seek, it may be what many people seek. The highly complex productive outcome of the western world requires integration and stability. That stability is maintained by our government structures. Removal of those structures would have the effect of removing certainty of performance and hence reduce the degree of integration of our industrial complex. Leading to a lowering of overall outcomes. In other words wereas there is a cost to achieving a more technologically advanced economic output there are benefits that flow fom that performance level. The argument really is about do the personal costs of that lifestyle justify the benefits. You are saying not. And that is fair enough. I am undecided.

  144. You seem to be indicating that the growing complexity of society requires a high degree of control by the state. The opposite is in fact the case. In a controlled or regulated society advancement is limited to the imagination or prejudices of the few in charge who then tend to hire tens of thousands of minions to ensure that their ‘will be done’.

    This has a multiplier effect in that not only is advancement held back by the need to obtain approval for any advance, but the cost of maintaining such a system drains the economy of funds which would otherwise go to productive uses. (Some would go to ‘unproductive’ enjoyment and fun stuff, however that in itself spreads it around and creates production.) The fact is that when you are in the pub drinking piss and talking shit you are giving someone a job.

    Why is there an unemployment factor in society apart from people moving from one job to another? Is it that there is nothing left to do?

    In a free society all that government would need to do would be to ensure that the lives, liberty, and property of the population were not violated.

    For an example of state intervention gone wrong look up theBirdsville amendment, which seems to have come as an inspiration to Barnaby Joyce in the bar of the Birdsville pub (his condition at the time was not mentioned}.

    Designed to protect small business it has effects such as blocking post Christmas sales, where businesses get rid of surplus stock to get back to normal, and may even stop supermarkets from selling perishable items cheap at the end of the day. This seems to be getting hailed as an advance, I wonder if the consumer will think so when its full effects become apparent.

  145. “The highly complex productive outcome of the western world requires integration and stability. That stability is maintained by our government structures. Removal of those structures would have the effect of removing certainty of performance and hence reduce the degree of integration of our industrial complex. Leading to a lowering of overall outcomes.”

    Stability is created by Government?

    1. Our trade deficit can be accounted for by high levels of Govenrment spending. Govenrment has created a persistent imbalance.

    2. The Banks of England and Scotland were private banks that actd as central banks before they were nationalised. Inflation was also lower. Byusiness cycles are largely attributed to generous industrial policy based money supply by mainstream and heterodox schools of economic inquiry. Private banks can’t do this.

    3. Private institutions cannot change the rules affecting all other institutions so arbitrarily. Government can create instability with the stroke of a pen.

    4. The RBA has a stated goal of providing prosperity (outcome based monetary policy, previously demand management). However they created massive instability by selling off gold reserves in the world market in 1997.

    5. A lack of mprivate property rights and bureacratic approval does not engender stability. Look at Sydney’s third runway kerfuffle. What is stable about this situation with regards to residents, businesses and landholders?

    6. The Australian wool industry was not dynamic, but had a policy of price supports ans stability. It was an unsutainable wreck at the end of the day. Artificial stability just creates ingrained unresponsiveness to changes in the environment of the person, firm or country.

    7. The Japanese Ministry of Trade and Industry is falsely credited with the post war boom. Wrong on transistors, cars, chemical production and many other business decisions. This is a good article exlaining the failings of planning for industrial output and technological advances.

    http://www.econlib.org/Library/Enc/JapanandtheMythofMITI.html

    “Early in the fifties, a small consumer-electronics company in Japan asked the Japanese government for permission to buy transistor-manufacturing rights from Western Electric. Permission was necessary because at the time foreign exchange was controlled by the tax and trade ministries. The Ministry of International Trade and Industry (MITI) refused, arguing that the technology wasn’t impressive enough to justify the expenditure. Two years later, the company persuaded MITI to reverse its decision and went on to fame and fortune with the transistor radio. The company’s name: Sony.”

    I could go on with more examples. Why is stability your goal anyway – a productive economy is dynamic anyway. So are productive social relationships. People with free consciences chnage their opinions and tastes over time.

  146. Mark, simply put enhanced performance requires stability, stability requires organisation, that organisation requires structure and resources, those costs are where your 1.30 to 1.40 lies. You want that to be 1.01, so you have to figure out at what level do you want your economy to perform.

  147. You’ve said this before. Economies with the best performance are unplanned. They are open and there is no business licensing and the least amount of Govenrment planned activity. Taxes are lowest. The economy is dynamic.

    The cost of each $1.00 spent by Govenrment is $1.30-$1.40.

    Therefore the Govenrment needs to make a rate of return of 30-40% just to break even. The cost of private funds for private activity is around 8%.

    I can’t reduce the productive losses of taxation to 1% of revenue raised. The level of economic performance is not and never will be dependent upon Govenrments creating stability. markets are not stable, and social relationships are not either. All we can do is reduce Govenrment spending, and jsutify each Government programme on a cost benefit analysis – not only should it have a net benefit, it should have anet benefit which is greater than alternative private activity. It needs a positive return and needs to be the most valued alternative.

  148. Alright, so you recognise that government of some sort is necessay. It comes down to what sort, how does it work, and how cost effective will it be. On the cost effective front there is a service called eGrants (www.egrants.com) which specialises in dispersing funds, for a broad range of purposes, at the minimum cost. Have a look, see what you think. There is an ever increasing amount of government money flowing through the service.

  149. Rcognising that an efficient economy requires an institution to enforce laws against violent crime, theft, fraud and enforcing cotnracts doesn’t necessitate in planned eocnomies, socialism or blaming private enterprise for affordability issues. It doesn’t even technically predicate “Government” as we know it.

    It isn’t cost effective to forcefully take $1.00, give it to charity, costing society $1.40 where it may be donated freely to a private charity for no cost at all to society.

  150. As an aside, I just read an article on Bush’s veto of a public health bill. The article points out that a visit to a doctor in the US costs $150. There goes the family income.

    I do not share your belief in absolute benevolence as a human trait. Certainly most people try, assuming that they have had a suitable upbringing, to do the right thing most of the time, but it is my observation that when there is any accumulation of money there are a big enough handfull of people who will attempt to seize it to make it theirs. You have just created a society management institution (I dare not call it a government) to make laws and you have added an enforcement body. Are you going to add a judiciary for dispute management, a defence structure of some sort, some people to manage the risk of import of debilitating diseases at air and sea ports, a prison or punishment structure for dangerous people, and some people to talk with other countries? If you are then we are starting to creap towards that $1.30 . You should notice that many of the things that your new management authority will have to do are not things that would concern, say, an insurance company for comparison. So the money handling cost for such an organsiation will be much lower than money handling costs would be for a management authority.

  151. Bilb,

    I don’t think you understand the concept of deadweight loss. The $1.30 I am talking about isn’t 30% or the proportion of GDP Government is in the economy. For each dollar of that 30-35% of our GDP, roughly $1.30-$1.40 is lost as markets cannot clear, incentives to work and invest shrink and consumer welfare is arbitrarily reduced.

    So 30% GDP as Government spending really creates of welfare loss of at least 9% of GDP. Governemnt spending needs to increase GDP by this difference just to be worthwhile at all, not considering what alternatives could deliver. If this difference cannot be made up by positive rates of return on Governemnt spending, society is better off without it. If Government is 35% of GDP, and deadweight loss of $1.4 for every dollar spent, the welfare loss increases to 19% of potential GDP.

    No matter what you spend each dollar on it costs somewhere between $1.19 and $1.69.

    The impact of taxation is seperate to the rate of return each Govenrnment department can return to taxpayers.

    This is why you have to be so frugal with what it is spent on. This is why what it is spent should be able to demonstrate a clear net benefit. For the lack of a better phrase, the cost of capital is high. To make up for this, projects need a very high rate of return – the administration of justice and defence pass this hurdle. Most Govenment spending does not.

    If it does, it should also give a greater benefit than would a reduction in taxation and private provision of the service, on top of having a positive rate of return.

    A trip to the doctors is expensive beacuse of market protections, cartels, licensing, regressive social security and medicare taxes and high rates of personal and consumption taxation. Why would more Govenrment intervention help?

    Competition is making a difference. But we have opposition to such plans in Australia:

    http://www.usatoday.com/money/industries/health/2006-08-24-walk-in-clinic-usat_x.htm

    Although figures I have seen say about $200 for an hour consultation. Such long consultations are actually very rare, and comparable to Australian prices.

  152. Even this one doctor is being more competitive:

    http://www.santacruzsentinel.com/archive/2006/July/23/biz/stories/01biz.htm

    “For an uncomplicated first-time office visit, she charges $45; elsewhere, people without insurance typically pay $90-$100.”

    I don’t kow what you are worried about. Most people in America are insured. More compeition there, and here will bring down prices. Don’t forget cutting personal income taxes will always make goods and services cheaper, paticularly insurance. That means deregulating licensing and where doctors can operate and what form their bsuiness can take – such as super clinics. I don’t understand how more regulation or Govenrment programmes will help reduce medical costs in Australia or America.

  153. I read somewhere recently that if Hilary becomes president she will try to introduce a compulsory insurance system.
    She will also regulate this system heavily and force companies not to charge certain disadvantaged people more for their insurance.
    Actually here’s an article I just found http://edition.cnn.com/2007/POLITICS/09/17/health.care/
    Reading that, her system is even worse that I thought.

    So I think it’s very possible we’ll soon see what will effectively be a universal public health system in the US.
    Hopefully when things go wrong, the insurance companies don’t get the blame.

  154. I was reading an article in ‘The Australian’ about hillary’s campaign, and her one attempt to write a policy for her husband (when he was President, I think) was a health-care package, which was not well received. Maybe this is her revenge?

  155. Mark, most people in America have health insurance because it is included in their employment package. Read taxation. It is no different to Australia’s Medicare levy, only it costs a lot more. Where employers (in America) require co contributions most employees opt not to take up the insurance because of the cost. Hence 16 percent of the population are not covered. I by far prefer the New Zealand system as it provides extensive freedom of activity with a more uniform benefit throughout the population at a reasonable cost.

    I think that the essential substance of our difference, Mark, is that I don’t think that you realise how much you benefit from the accumulated industrial structure of the western world, and how very frail the continuity of that structure is. Having said that, you can only judge the relevance by looking at the extremes of possibilities.

    Consider a man in a tent in the middle of nowhere and a man in an apartment surrounded by a complexity of modern appliances. The question is who is better off. That is not a very straight forward question. Is there a middle ground?

    If you expand the experiment to become a lot of people in tents and a lot of people in apartments then the relevence becomes a little clearer. Several examples that I like to think about are a South American shanty town where the very industrious inhabitants established a complete internal economy to improve their lives and a refugee city in south Asia where the occupants established internal order with a self determined management structure.

    I am going to have to do some research to find out what was the outcome in each case. How was money handled and what was the efficiency of common monies at the end of each model.

    Personally I do not think that the Libertarian model works competely. Is there a worked example? My expectation is that it works fine for a while, but rapidly separates rich from poor with an ever narrowing hierachy, takes on an authoritarian prevalence and then collapses in a mess of class struggle, a bit like Burma.

    I do think that the proposed Libertarian tax structure (30,000 threshhold with 30% tax above) is better than the original Friedman flat tax model. It allows for industrious people to accumulate a performance platform within the tax free zone, with which they can launch an income assault with the possiblity of breaking through the taxation drag zone into the high income performance zone above. And it provides a zone of recovery for failed attempts. It also allows for a group launch where a low income family (for instance) can launch their most promising member into the higher income zone with the combined support. A comparison is the New Zealand tax structure in which there is no threshhold at all so a kid working the milk cart pays 17% tax on his first dollar and then if he spends it, another 12.5% GST. So he effectively pays 29.5% percent tax from day one. Not much of an incentive to perform there. Australia at least has the $5000 threshold. Not enough to live on. If the Libertarian tax structure had some progressive drag within its tax zone then it would be more pallitable. I think that the New Zealand tax structure with a $15,000 threshold would be reasonably optimal.

  156. Health insurance is one of the greatest cost to employers in the auto industry. Employees and unions demand it as part of their wages. Co contributions are not part of the reason why people are uninsured. The majority of the uninsured are young, affluent males. Quite simply, they don’t need insurance.

    Of course I realise how much I benefit from our industrial structure. You are arguing it is arises because of socialist policies. This is patently untrue. Look at the growth rates of Hong Kong and China (now). Growth rates reflect growth in national income which is a function of the capital structure. Capital investment is what drives growth. High taxes and socialisation of production never engenders high growth rates or the accumulation of an industrial structure.

    Also look at how many supposed “public goods” are really just Government owned business entities which are simply more expensive than privately owned firms. The pure public goods left over have been provided voluntarily (for and not for profit) in the past. Roads, defence, lighthouses and even property rights have been provided for privately. It may or may not be optimal but it makes a mockery out of the idea that Western industrial society is because of socialism or central planning.

    You are implying that economic liberalism encourages some kind of Robinson Crusoe idea. This isn’t true. The appliances in an apartment building are made because some people want to make profits by providing consumer goods. What consumer goods did the Soviet Union produce? What of Soviet era cars? A free market encourages interdependence between people and institutions. The best apartment blocks are built privately. So are roads. If people want to handle funds in a common pool, they can form a corporation or join a mutual insurance pool. By looking at cost per unit, modern corporations are some of the most efficient organisations that ever existed. Their economies of scale and scope are phenomenal. No one else could produce so many goods,. distributed to so many people of varying income at such a little cost per unit. Or even at such a low final price. The financial markets in New York, the traders of Hong Kong and the people in more liberal countries like Austria and Switzerland are highly interdependent.

    Burma was taken over by the military after democratic elections. This has nothing to do really with a choice between free enterprise and mixed market economy. There are several examples of public goods being voluntarily provided, voluntary funding of the military and several states which were libertarian longer than any existing polity. The decentralised private law of The Icelandic Commonwealth, 930-1264, and so on. Here is a long list here:

    http://libertariannation.org/b/history.htm

    I suggest you read through them for your research.

    Friedman’s model and ours is essentially the same. Negative Income Taxes were his idea. Another alternative is a consumption tax with a non means tested universal benefit.

  157. Mark: The majority of the uninsured are young, affluent males.

    If you are going to keep saying this again and again, would you please back it up? It beggars belief. Every affluent male I’ve ever known — young or old — has great health insurance, usually from his big-business employer although some are professionals in private practice who simply buy insurance themselves. Not one of them is uninsured.

    On the other hand I do know lots of people like my aunt who lost her job in a layoff and is too young to be covered by Medicare is living without health insurance — as are many young women, some of them mothers, working in low end jobs.

    To me the way you repeat this claim as if it is somehow obvious detracts from your credibility.

  158. I still don’t “take kindly to it,” Mark. What you are offering is not evidence for your statement. Even following the link you provide, I don’t find supporting evidence for your claim.

    National Center for Policy Analysis found that from 1993 to 2002, the number of uninsured people in households with annual incomes above $75,000 increased by 114 percent, while the number of uninsured people in households with incomes under $25,000 fell by 17 percent.

    Analizing numbers like this is something I do for a living. You need to provide the percentage of the uninsured that are in households with annual incomes above $75,000 and the percentage below $25,000 for that statement to be useful to your argument.

    Perhaps it’s true that one half the 40 million uninsured are in transition between living with their parents (or college) and being on their own. Let’s assume that only 20 million are uninsured for a year or more. This fits with the information at the website you link to. For your statement “The majority of the uninsured are young, affluent males” to be true, you need to show that there are more than 10 million American males who are young, affluent, and uninsured.

    I don’t think you’ll find evidence of that. Like I said, it goes against common sense and I found no supporting evidence at the website. What I did find was a number of carefully couched statements that implied we are making a mountain out of a mole hill, but “carefully couched” is the operative term. Seemed to me, that rather than being a source of objective information, the website is that of an advocacy group intending to provide talking points to one side of the discussion.

    Yet, using their own data, I come up with at minimum of 20 million chronically uninsured people, nearly 7% of the population, in the wealthiest nation in the history of the planet.

    If I’ve missed something here, I’d appreciate being corrected. As you can tell, it’s an issue I’m passionate about. I’d like to part of a country that I can take great pride in, and to do that I need to know that we’re smart enough, and compassionate enough, to provide basic medical care to everyone. To me, it’s the only rational, defensible ethical position.

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