The least worst tax

There is something distasteful about massive fortunes acquired by a mere accident of birth. I will happily defend inequality, when it comes about as a result of some people working harder, showing more initiative and taken more risks than others but when it is based solely on certain individuals being lucky enough to inherit money then it is indefensible. So I am rather bemused why anyone would be campaigning to abolish inheritance tax. It is without a doubt one of the best ways of taxing people: it does not reduce incentives to work and is only paid by a wealthy minority. There would be a real cost to scrapping it because you would have to increase other taxes to pay for it.

A market economy rests on a bargain. The rewards for our labour (our wage) depend on the value put on our work by the market, which in turn reflects the demands of other members of society expressed by what they are willing to spend money on. In this way we are given incentives for people to do the type of work that the other members of our society think is most valuable. This results in a wide divergence in incomes but we accept this because it is in our interest to do so. It may irk us that a doctor is richer than we are but if the alternative is not getting medical care, then it is a price most people are willing to pay.

Inherited wealth does not provide any such incentives since it is acquired by being born into the right family rather than by actually doing anything. For this reason, a tax on it is an ideal way to help fund government spending.

Abolishing inheritance tax would create a bizarre situation, where somebody who goes out and earns a fortune has to hand over almost 40% of it to the taxman but the Paris Hiltons of this world, would pay no tax at all on money they have acquired for doing nothing other than being born.

The arguments usually used to argue for the abolition of inheritance tax tend either to be logically incoherent or factually inaccurate. Take, for example, the claim that it means someone paying tax twice on the same money. The problem with this reasoning is that the money has changed hands, the income tax is paid by the person who bequeaths the wealth and inheritance tax by the inheritor.

The claim it is a tax on the middle class is only true due to the rather elastic way we English define the middle class. There is no way a middle income family is going to pay it. The inland revenue estimate that a mere 4% of estates are eligible for inheritance tax, which makes it one of the most progressive taxes out there. This has posed a bit of a problem for those who want to scrap the tax because it is hard to get people worked up about a tax they are not going to pay. But do not fear many of these enterprising campaigners have found a way around this problem: lying. In his book, lies and the lying liars who tell them, the liberal comedian and journalist Al Franken, shows how Republicans campaigning for the repeal of the estate tax in the US consistently misled voters about who paid the tax. The estate tax affects an even smaller portion of the population than its UK equivalent yet Republican TV adverts showed people who own small farms, fretting about having to pay 'the death tax.' Here in the UK the role of the Republican party has been taken n by the Daily express, which constantly talks of ordinary families facing, what they have started calling 'the death tax.'

It is true that the number of people paying inheritance tax has increased in recent years. But what this represents is how the property boom has created many more large estates and pushed up levels of inequality. In this context, inheritance tax is more important than ever.

This is not to say that inheritance tax is perfect and that it could not be made to work better. A recent paper from IPPR sets out the kind of changes that are needed. Notably closing loopholes to reduce evasion and basing the tax on accessions rather than legacies

The debate over inheritance tax is part of a wider debate about the kind of society we want to live in. Do we want a meritocracy or an aristocracy. Do we want social justice or social privilege. Do we want a society united by opportunity or a society divided by inequality. There is no reason to scrap inheritance tax and every reason to keep. It is time to make the case for the least worst tax.

The Banality of Evil

On the 11th April 1961, Adolf Eichmann went on trial in Jerusalem for crimes against humanity. It could legitimately be described as the trial of the century. The man who organised the holocaust being put on trial by the people he had tried to destroy. The New Yorker magazine asked the philosopher, Hannah Ardent, to cover the trial. What she found was not a fanatic or a sadist or a psychopath but an ordinary, almost boring person playing by the rules of the society in which he lived. He was so apparently normal, that Ardent subtitled her classic account of the trial: 'report on the banality of evil.'

A similar feeling seems to have struck Observer columnist, Jasper Gerard while following the trial of Chris Langham. In todays Observer, he examines how it is possible that Langham 'is not the Child Catcher in Chitty Chitty Bang Bang of red-top demonisation' but a man 'into carbon offsetting and charity fun runs.' He concludes that we need to comprehend as well as condemn, if we are to prevent people from turning into abusers.

The need to look into what causes people to commit unspeakable acts was underlined by an experiment conducted a few months after Eichmann's trial. A psychologist named Stanley Millgram wanted to find out if men like Eichmann could really have committed mass murder simply because they were following orders. A volunteer is presented with a 'teacher' asking questions of a 'student' (apparently another volunteer but in reality a member of the research team.) Every time the 'student' gets one of the questions wrong, the 'teacher' orders the volunteer to administer a large electronic shock to the 'student.' The results were startling; rather than as might be expected disobeying an order to cause another human being considerable pain, it appears that if an authority figure tells us to do something that in most cases we will obey.

This fundamentally altered our view of the perpetrators of the holocaust. It suggested that many, perhaps most of us, would in certain circumstances be willing to participate in an atrocity. This is not for a minute to excuse anybody. Just because we choose not to say no does not mean that we shouldn't. What it does do is force us to consider more complicated and more ambiguous explanations of how the holocaust came about. It forces us to examine how a situation came about, where mass murder was not only considered socially acceptable but to be civic duty.

To dismiss people like Eichmann and Langham as monsters is an understandable impulse, it allows us to avoid the uncomfortable truth that they are humans just like us. It is, however, a mistake because it allows us to forget that monsters are made not born and that the only way we can unmake them is to understand them. As distasteful a process as that may be.

More Shark nonsense

JK Galbraith once joked that the 'economists exist to make astrologers look good.' I sometimes think that something similar goes on with Britain's trashier tabloids because there can be no reason for the Daily Star other than to make the Sun look good. Not to be outdone by the Sun's screw up over supposed sightings of a Great White Shark in Cornwall, the Star produces its own not terribly scary scare story.

Now you might think that in order to make the front page of a national newspaper it would have to have been spotted somewhere pretty unusual, like say the North Pole, the Falkland Islands or the River Thames. In fact, this sighting is in the Mediterranean, which is part of the Great Whites natural habitat.

The supposed danger posed to British tourists is also overplayed (I will overlook the Star's indifference to non-Brits being attacked). As the article admits the last shark attack in Spain occurred close to fifteen years ago and (they don't admit this) last year their were only sixty shark attacks across the entire world, of which a mere four were fatal. It is far more likely that a tourist will be killed by drowning than by a shark.

But you will be reassured to know that the Star still manages to blame Eastern Europeans for this.

Commander Crackpot for Mayor

It was an awfully nice idea. When Tony Blair created the office of mayor of London, he imagined that it would attract a new kind of politician, able to provide the city with visionary leadership. Instead the choice that Londoners will be presented with next year is between two distinctly unappealing examples of the old kind of politics. In the red corner, an apologist for Islamic extremism and in the blue, a reactionary buffoon who can barely read the autoque on have I got news for you.
I do not envy Londoners having to choose between them.

In these circumstances, the often asked question, what are the Liberal Democrats for? answers itself. The shear awfulness of the candidates from the major parties presents us with a unique opportunity to pull off a massive electoral upset. But this would require us to put forward a very strong candidate. This is something we have so far failed to do. We have already had to reopen to our selection once and the suggestions for candidates are getting odder and odder. So far only one candidate has been suggested who can really take on the gruesome twosome. That candidate is Deputy Assistant Commisioner Brian Paddick.

Paddick is one of Britain's most high profile police officers. As the Met's commander in the London Borough of Lambeth he oversaw a controversial but highly successful 'softly-softly' approach to possession of Cannabis, which paved the way for the reclassification of Cannabis as a Class C drug. He was a prominent figure in the response to the 21st July bombings. He is the most senior openly gay police officer. He is not a universally popular figure; the Daily Mail christened him Commander Crackpot for his comment that 'Anarchy held a certain appeal to him' and he was accused (and cleared) of taking drugs.

This background would help Paddick to overcome many of the problems that tend to afflict any Lib Dem. To the accusation that we are soft on crime, we could hit back with the fact that our candidate is a long serving and successful police officer. To the suggestion that we are a bunch of nice but woolly minded people who can't actually run anything, we could respond that our candidate had plenty of experience of management from his time in the police. Paddick's profile may not be as high as Ken and Boris's but it is still substantial and would go a long way to overcoming the perception that we can't win. He is certainly more recognisable than any of the other potential non-Lembit candidates.

The objections I would normally have to a police officer being a Lib Dem candidate, do not apply in Paddick's case. The stereotype of the authoritarian, socially conservative plod evidently does not apply to Paddick. I would also usually be concerned about how effective a communicator a police candidate would be but again this objection does not possibly apply. I do not think anyone could accuse Paddick of being camera shy and he has a reputation as a talented public speaker. A colleague said of him: "When he spoke at a meeting in the town hall in Brixton, it was the first time the community gave a senior police officer a standing ovation. He had them rolling around in peals of laughter with the borough commander rather than at the borough commander. He is a warm and friendly person, very human. He builds confidence, people trust him."

Paddick standing would pose serious problems for Boris Johnson because it would expose many of his weaknesses. I imagine that the targeted letter to Conservative supporters would have something like this: 'while Conservative candidate from Henley was being fired for lying by his own leader, Brian Paddick was working hard to make the streets safe for ordinary Londoners.' Boris's almost complete lack of management experience would be showed up by facing Paddick, who has held senior positions in the police force and Ken, who is already doing the job. Next to Paddick just how much of a featherweight Boris is would be painfully obvious.

Assuming they could get into second place, a Lib Dem candidate might find it easier to actually go on and win. Where as the second votes of Lib Dem supporters would be expected to split pretty evenly between the Tory and Labour candidates, the bulk of Tory second votes would probably to the Lib Dem. They would also take a much higher share of the transfers from Green and Respect voters than would a Conservative candidate.

Ken vs. Boris vs. DAC Paddick would certainly not be boring and at the end London might just have the mayor it deserves.

The Road from Serfdom

Cuba is a puzzle. How has Fidel Castro's regime survived, while other Communist governments have crumbled? Situated less than a hundred miles south of florida, it would appear to be uniquely vulnerable to American influence yet his hold on power is solid. By contrast communist rule has collapsed in the Soviet Union and has been shaken in China. The answer appears to be that Castro with the enthusiastic support of the US government has been able to keep Cuba in a state of economic isolation. This has insulated the Cuban people from outside influence which might encourage them to seek freedom.

In his best known work, the Road to Serfdom, the economist Frederich Hayek argued that the march of socialism posed a danger to the future of liberal democracy. Cuba demonstrates, how the opposite is also true: economic freedom is a danger to the rule of despots. If people win back the right to buy and sell as they wish then they are regaining control over an important part of their lives. If on the other hand the state retains control of the economy then that gives it enormous power over its people.

The most powerful tool available to a dictator is, as we've already seen, the ability to prevent your followers from trading with foreigners. This keeps outside influence to a minimum and limits reduces the flow of information from abroad that may challenge the regimes version of events. Trade with foreigners also helps to introduce technologies that can be exploited by opposition movements. For example, the Orange revolution in Ukraine was largely organised via mobile phones, which made it easier for the leaders of the protests to communicate and hence to co-ordinate their actions.

The free movement of people can also undermine one-party rule. The emergence of democracy in Taiwan can in part be attributed to the decision of the governing elite to send their children to American universities. This exposed them to life in a successful democracy, which encouraged them to demand the same for their own country.

It is not only by isolating people that dictators can use state intervention in the economy against their people. Nationalised industries provide them with an opportunity to dole out patronage to supporters and deny services to opponents.

This is a side to the argument about globalisation which we don't hear very much about and that has consequences. The anti-globalisation movement have been able to claim for themselves the mantle of the defenders of democracy, while opposing precisely the kind of changes that can do the most to promote political freedom.

On ya Boat!

When I am asked, as all 'economic liberals' are occasionally: 'why don't you p*ss off and join the Tories?' My answer usually is 'immigration.' It makes a mockery of their claim to be the supporters of ambition, enterprise and the market.

To see just how badly a belief in the need for immigration controls fits with the values they are supposed to uphold consider the phrase that has come to sum up one of the Conservative parties most controversial politcians: 'On ya Bike.'

In the aftermath of the Brixton riots Norman Tebbit made a speech Legend has it that in this speech he told the unemployed to get on their bikes. This is actually a misrepresentation of what he said. He was not telling the unemployed to get lost but to look for work. The full quote is:

"I grew up in the 1930s with an unemployed father. He did not riot. He got on his bike and looked for work, and he went on looking until he found it."

The issue this raises for me, is why then does Tebbitt condemn those migrants who get on a boat or plane and come looking for work here in the UK. Surely these are exactly the kind of hard working, entrepreneurial people that Conservatives would want in this country.

I imagine that Lord Tebbitts response to this argument would probably be to claim that immigrants do not come here to work but to claim benefits. But this is simply not the case. Immigrants are generally speaking of working age and are excluded from claiming many benefits, so far from being a drain on British taxpayers they are infact net contributers to the treasury's coffers.

This is not the only way we gain from immigration. The newcomers are likely to bring with them new skills and new ideas that will enrich the nation they are arriving in. This is not just an economic phenomenon: there is a strong link between cultural diversity and cultural dynamism. If it were not for immigrants cities like London and New York would be far less interesting places.

Immigration controls reduce opportunities for migrants and their potential destinations are poorer for their absense. We should lament their existense not demand their stengthening. They are one of the great injustices of our time and they need to go.

Dispatches from the Crooked Timbers

"Why is politics like sadomasochism?" is not a question you hear very often. It sounds like the start of a bad joke. In fact, it is the question that David Aaronovitch tries to answer in a new series on radio 4.

Via interviews with a range of politicians, academics and therapists, Aaronovitch explains why he believes that 'the electorate is need of psychiatric help.' His argument is that far from making decisions about who to vote for in rational manner, voters are swayed by a range of subconscious neurosis's. Though I am usually skeptical of psychoanalysis, quite a lot of it rings true. Aaronovitch suggests that voters create unrealistic explanations of politicians, so that they can feel a sense of grievance when they are disappointed. If this is true then it would explain the 'Mr/Mrs Angrys' who bombard politicians with furious complaints.

Aaronovitch is certainly not the only person to be suggesting that voters are not as rational as is often assumed. In his new book, the economist Bryan Caplan identifies a number of logical errors that voters commonly make. For example, they tend to equate prosperity with employment rather than consumption. This leads them to support policies that create work rather than wealth. An often cited (and rather extreme) example is a law passed in the state of Oregon that bans self service petrol stations, in order to protect the jobs of petrol pump attendants.

Now at this point you may be asking, so what? You didn't need David Aaronavitch to tell you that voters can be a bit strange at times. You and anyone else with a modicum of common sense already knew that. Well, the reason this matters is because an increasingly influential school of thought ignores this obvious fact.

Over the past few years, a previously obscure subject known as behavioral economics has become fashionable. It uses insights from psychology to understand economic decisions that are otherwise inexplicable. Behavioral economists have time and again shown that consumers and producers are not the rational calculating machines that traditional economics has often assumed them to be. The conclusion that some policy makers have drawn from this is that since economic agents are irrational, there is a case for state intervention to protect people from the consequences of their irrational choices.

The fatal flaw with replacing individual choice with government control in the name of reason is that the governments decisions are not necessarily going to be any more rational. The same people who are making irrational decisions about buying and selling are also electing the government and as we have already seen not going about it in a particularly rational way.

We cannot legislate against bad decisions and we should not sacrifice our freedom in the vain attempt to do so. Afterall, as Immanuel Kant once said: "Out of the crooked timber of humanity no straight thing was ever made."