Rebooting Liberalism

The editors of The Economist, in celebration of the publication’s 175th anniversary, urge a revitalization of liberalism. The infographic at the top of this post is the editors’ depiction of world economic history over The Economist’s lifespan.

By a revitalization of liberalism they apparently mean a reconfirmation of the “Washington consensus”, a packet of policies they characterize as “individual freedom, free trade, and free markets”. They argue against the concentration of power in the hands of wealthy individuals or big companies, alluding to the past but failing to recognize how the steps taken in the past translate to the present, e.g. a 19th century land tax based on market value translates into a wealth tax today that taxes all of the assets held at present market values.

They continue by dipping their toe in the water of immigration control, arguing against it in principle but in favor of employer-based controls, e.g. E-Verify.

They argue against utopianism:

Unlike Marxists, liberals do not see progress in terms of some Utopian telos: their respect for individuals, with their inevitable conflicts, forbids it. But unlike conservatives, whose emphasis is on stability and tradition, they strive for progress, both in material terms and in terms of character and ethics. Thus liberals have typically been reformers, agitating for social change. Today liberalism needs to escape its identification with elites and the status quo and rekindle that reforming spirit.

a characterization that I think applies better to the rigidly statist “social democrats” of the present day United States. IMO their stated positions are purely instrumental, cf. the Mencken quote in my last post.

Although they argue for a “new social contract”, most of what they have to say sounds like a defense of the status quo, at least in the United Kingdom and the United States:

OTTO VON BISMARCK—no one’s idea of a liberal—started Germany down the road to a welfare state in the 19th century. Trade unionists across the world fought for them in the 20th. Benito Mussolini built a fascist one. And James Wilson would have hated the idea. But from Lloyd George’s People’s Budget of 1909 to FDR’s New Deal in the 1930s to Ludwig Erhard’s soziale Marktwirtschaft in post-war West Germany, there was a distinctive liberal cast to the creation of modern welfare states. William Beveridge, the architect of the post-war British welfare state, was a liberal and Liberal politician. (He was also a trustee of The Economist.)

Some liberals, as well as most conservatives, grudgingly accepted these reforms as the lesser of two evils. By sharing the benefits of free enterprise more evenly welfare states could stave off the more radical, and damaging, redistributive promises of fascism and, for rather longer, socialism. But their creation was more than just a way to maintain the conditions in which liberalism could flourish. At their best and most liberal, welfare states cushion people from the rougher edges of capitalism while still putting a distinctive liberal stress on individual responsibility. They enhance freedom, enable free enterprise and bring about a broader embrace of progress. Or at least that is what their liberal creators believed—and what today’s liberals need to make sure of.

Giving governments responsibility for the education of the young, pensions for the old, financial support for the indigent, disabled and jobless, and health care for at least some, and occasionally all, required massive reforms, the details and ambition of which varied in different places. Since their creation, though, welfare states have changed rather little. Some countries have added benefits. America, even before Obamacare, was incrementally expanding the government’s role in health. Others, especially in Europe, have trimmed them: less generous assistance for the unemployed, extra conditions for welfare. But Beveridge would recognise today’s NHS, and FDR would recognise America’s unemployment insurance.

I think they’re speaking too soon. The Nordic states have been trimming their generous welfare states as has France even as the U. S. has moved to expand its own. Whether we are converging to some happy medium or the U. S. is simply behind the curve is too early to tell. I’m skeptical that any European or North American welfare state can survive in a world where 14% of the world’s population (a billion people) want to move to Europe or the United States. That would double the present population of Europe and the United States.

I also fail to see how a society stratified between newcomers and natives promotes liberal values. As Milton Friedman pointed out a generation ago, you can’t have free immigration and a welfare state.

They argue against a universal basic income in favor of income subsidies:

Right-wing UBI supporters like it because an unconditional payment does not affect people’s incentives to work; an extra job, or an extra hour at work, does not reduce benefits. They also see it as removing various distortions in today’s welfare states, slashing bureaucracy and government snooping. Supporters on the left are keen because they see UBIs as redistributive, egalitarian, welfare enhancing and liberating. Enthusiasm for UBIs has spawned pressure groups, public campaigns and randomised trials.

Many of the idea’s attributes appeal to liberals too. A UBI would reduce the state’s interference in people’s lives. But from the liberal point of view such gains must be set against two big disadvantages, one a matter of principle, one of practicality. The principle is that the 20th-century social contract from which the welfare state was born was that the state would help people help themselves, rather than just give them stuff: it should provide a safety-net, not a platform scattered with silk divans. Liberals tend to believe that people will be happiest if they can achieve self-reliance. And, in practical terms, UBIs would mean either eye-popping increases in tax or cuts in support for the genuinely needy, particularly in countries where welfare spending is already relatively targeted on the poor. In America a UBI of $10,000 a year would require a tax take of at least 33% of GDP—less than the level in many countries, but some $1.5trn more than the current 26%.

A more modest, but still radical, alternative is to replace today’s welfare schemes with an expanded commitment to guaranteeing minimum income through negative income taxes. First championed by Milton Friedman, such taxes mean that the state tops up the income of anyone earning less than a guaranteed minimum. Both Britain and America have tax credits to top up wages along these lines.

Because they avoid transfers to the rich, such schemes are inherently cheaper than UBIs. A great deal could be achieved by simultaneously overhauling payroll taxes (the form of tax that has the greatest impact on low-income earners) so that the path from receiving a top-up to paying taxes is much smoother, and perhaps by broadening the eligibility criteria for the negative tax. There are various forms of currently unpaid labour, most notably in caring, that some societies might wish to support in such a way.

I don’t think either a UBI or income subsidies do much to counter the problems we actually have here in the United States at least. An increase in income inequality is inevitable when tens of millions of Mexicans move to the United States and you subsidize the wealthy. It’s like the old Henny Youngman joke. “Doctor, it hurts when I do this. Then don’t do that.”

They also have some advice about taxes:

Labour, particularly low-skilled labour, should be taxed less. Folding payroll and other employment taxes into the income-tax system would ease the squeeze for low-skilled workers. Shrinking the gap between taxes on capital and taxes on labour would counter the skew towards capital; and if capital investment were written off against corporation tax, this would not need to deter investment. Moderate inheritance taxes—a liberal invention, stemming in part from a healthy distrust of the concentration of wealth and power—should be maintained or reinstated, not least because they are fairly efficient. Loopholes used to avoid them should be tightened up. Property taxes should be reformed into land taxes. Taxes on carbon and other negative externalities, though not a universal panacea for the problems of climate change, would be a reform in the right direction, too.

I’m skeptical about a carbon tax because it’s regressive while carbon emissions are steeply progressive. In other words it’s an inefficient tax.

I endorse this proposal:

But when it comes to tech, something fresher and rooted in individual action and competitive markets would be best. One approach is to consider the data that users generate as a good they own or a service they provide for fees.

I don’t share the editors’ enthusiasm for the League of Nations or its successor the United Nations. World government requires a much greater degree of shared values than presently exists in the world. For liberal values, free trade, free movement of capital, free movement of people to prevail we must have a greater degree of shared values than presently exists. That’s why China is such a challenge. That is the lesson of the last 30 years and IMO the editors of The Economist haven ‘t learned it.

The modern world requires a different approach to the promotion of liberal values than was required for the 19th century. Advocates should deal more with empirical results than ideological purity. The gauge used for any particular measure should be will it actually promote freedom rather than would it theoretically promote freedom under perfect conditions.