America needs a president who prioritises growth over redistribution

“1 million, 2 million…er…”

I’m not a Mitt Romney supporter. He’s certainly less objectionable than other Republican contenders like Rick Santorum or Newt Gingrich but it’s hard to get enthusiastic about a guy when, as the joke goes, he’s managed to be on both sides of every big issue in recent years.

Indeed, if I was asked to name the most impressive thing about Romney his luxuriant hair would be close to the top of the list. But the last week or so I’ve felt a little sorry for him. Yes, I’m feeling a little sorry for one of the richest 0.006 percent of Americans.

In the run up to the South Carolina primary a desperate Gingrich brought up the tax status of front runner Romney. Immediately the pressure was on for Romney to release his tax records. When he did the press screamed “Wealthy Romney reveals 14 percent taxes” What better example of greed?

Except it wasn’t actually true. Ever since billionaire investor Warren Buffett claimed that his tax rate was lower than that of his secretary there has been much debate about the ‘effective tax rate’ faced by the rich. But this ‘effective’ tax rate is made up of apples and oranges. As such it is a meaningless concept.

Romney, like Buffett, pays the top rate of income tax on his salary income, 35 percent. But, like Buffett, Romney derives much of his total income from capital gains, the profits made by investments, which are taxed at 15 percent.

The two types of income, wages for labour (yes, working for Bain Capital classes as labour for tax purposes) and income from investments, are very different. When you labour you are guaranteed your salary come what may. Even if your employer goes bust you are a preferential creditor; any wages owing to you will be paid out of whatever is raised by asset sales before other creditors see a penny.

Investment income is different; as the small print says, investments can go down as well as up. The risk of not receiving a return or income from your investment is much greater than for labour. It follows that if any investment is to be undertaken at all the reward must be high. Not only that, but the investment income that Romney pays 15 percent tax on comes from the profits of companies which have already paid 35 percent in Corporation Tax.

This is why income from labour and income from investment are taxed differently; they are different things. To lump them together and call it an ‘effective’ tax rate is useless.

But there is a deeper point here. From the dawn of man there have only been two ways to increase your wealth. One approach is to supply a good or service which someone else is willing to trade you for, and with both parties benefiting from the transaction everyone’s wealth increases. This is wealth as a positive sum game.

The other is simply to take the wealth generated by someone else; one only gets better off as another gets worse off. This is wealth as a zero sum game.

The obsession with Romney paying ‘only’ $6.2 million in taxes last year (more than 97 percent of Americans) shows that the second approach is gaining popularity. To some extent this is the predictable outcome of economic stagnation. When wealth is growing you don’t worry so much that guy next door is richer than you because you will be richer tomorrow anyway. But when your wealth is shrinking or stagnating, the difference between you and the guy next door becomes a yawning chasm.

Historically the belief, which grows in times of economic hardship, that wealth is a zero sum game and can only be obtained by taking it off somebody else, has led to disaster. In the last century the Germans, Soviets, and Ugandans, to name just a few, all came to think that the Jews, the Kulaks or the Asians had wealth that rightly belong to them and that they would become rich if only they could get their hands on it.

Comparing rich Americans like Romney to those persecuted groups will sound a little shrill, even distasteful to many. But if we become obsessed with who gets what sized slice of our shrinking wealth cake we might forget to just go and bake a bigger one. What America and other countries need is not destructive zero sum envy but growth. And they need real growth, not the unsustainable debt based fantasy of recent years.

There are many who will tell you that further growth is impossible, that the planet is ‘maxed out’. They have been making this prediction since at least Thomas Malthus wrote his Essay on Population in 1798. These people consistently underestimate the one truly inexhaustible resource at humanity’s disposal; its ingenuity.

President Obama said recently that “This is the defining issue of our time” He is right but he is on the wrong side of it. His recent State of the Union speech was heavy on plans to divide wealth up, but lighter on ideas of where this wealth might come from in the first place. And wealth has to be generated before it can be redistributed.

We must hope that the politics of growth wins out over the politics of envy. With his background in community organising and politics, roles all about the spending of money generated by others, it is not surprising that Barack Obama prioritises redistribution. With his career turning round failing businesses Mitt Romney, however imperfectly, leans towards growth.

America needs a president who prioritises growth over redistribution so that the social balm of increasing wealth can work its magic; so that, as an earlier eloquent Democrat put it, a rising tide can lift all boats.

This article originally appeared at The Commentator

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A roundup

Snowed under

Its been a busy few weeks. Christmas and new year saw me in the States and since I got back I’ve been hard at work (round the job) on a project. Watch this space and all that…

Ive scribbled a couple of things though which have sort of fallen between the old blog and here. The Commentator, for which I’m Contributing Editor, has carried a couple of my articles this month. First was The economic reality of 2012, a look at the prospects for the global economy in the coming year. Its grim reading but then I think it will be a grim year.

Next up came an article on the coalition government’s attempts to cap the amount of benefits a family can receive to the level of the average national wage. This is such a no brainer in terms of fairness that you wonder how anyone has the gall to oppose it but there you are. I should add that The Commentator have changed the title of every item I have ever sent them. Not this time though, so read up on Why Britain is f*****

I also occasionally contribute to Global Politics and with the US Presidential race revving up I pondered the tricky question of the foreign policy of my favoured candidate, Congressman Ron Paul. Reading is most recent book I found myself wincing at times but I can put that to one side this election because the big question is not whether the US should bomb Iran but whether it will be able to afford to. Anyway, you can read all about it in the unimaginatively named Ron Paul and Foreign Policy

I enjoy writing for Middlebrow Magazine under a non political pseudonym. I try and steer clear of the sorts of topics I cover elsewhere and cover other interests like film, drama, music etc. But my article Animal spirits, Asymmetries and Austrians is a run down of some of the most popular of the spate of recent books on the economic crisis.

That’s all for now. More old rubbish is on the way so, in the words of Shaw Taylor, keep ’em peeled.

 

New year, new blog

Another belated New Year

Well, here I am. After more than five years as The Boy Phelan I decided it was time to grow up. Not too much, but I thought I could use something a little more descriptive. The new title was a little tricky. I solicited opinions and though My Struggle was a favourite of mine people seemed to like Child of Thatcher. While I can appreciate the thought it seemed a little restrictive. It would give people the idea that they knew what Id say on this or that simply by seeing what Maggie said about this or that. So I plumped for Manchester Liberal. How so?

The Manchester Liberals were a 19th century group inspired by the writings of David Hume and Adam Smith among others, members of the Scottish Enlightenment who extolled individual sovereignty. They were, in this sense, quite distinct from the contemporaneous school of thought based around Rousseau and later cranks like Hegel with their concepts of ‘General Will’ and the like which went on to inspire socialism, the biggest wrong turn made by humanity since it decided to give the dark ages a try.

Manchester was one of the thriving industrial centres of England in the early 19th century yet its people couldn’t afford to eat. The Corn Laws, enacted and maintained by the Tory land lords who benefited from them, made corn expensive and raised the price of food.

It was, thus, clearly seen that the free market in corn was in the interest of the average worker. The Anti Corn Law League was founded in Manchester in 1839 and, with figures such as Richard Cobden and John Bright, it made the case for free trade. When Peel’s Conservatives buckled and abolished tariffs in 1846 it ushered in more than half a century of rapid growth and rising wealth.

There was more to it than just this though. The Manchester Liberals were concerned with social issues of poverty and improvement. They saw the solutions not in the vast and largely useless hand of the state as increasingly did those who called themselves Liberals under the doleful influence of John Stuart Mill. They saw them in the spontaneous relations between free individuals which would be written about at length by Freidrich von Hayek, a thinker far more in tune with Enlightenment impulses than Mill.

So Manchester Liberalism is the belief that free markets and free people, the two are largely indivisible, is the optimal social arrangement. Making this cause the cause of the worker was the its great achievement.

That is why, though quite a partisan Conservative today, I am not a conservative. It is why half a dozen suggestions for Conservative or, worse, Tory themed blog names were rejected out of hand. Im a liberal.

So if you’re new to this blog that’s broadly what you can expect. If you’ve followed from the old blog it the same old rubbish.

Why Britain is f*****

Nice ‘work’ if you can get it

I left university in 2002 without a degree. I started working in a bar and, through a colleague there, I picked up some temp work in accounts. The following year, aged 23, I got my first proper full time job. I was paid £16,000 per year out of which I had to pay travel of £100 per month, Council Tax of £90 per month and rent of £520 per month. I didn’t qualify for Housing Benefit. Things were pretty tight but I remember how proud I was to be standing on my own two feet.

My career progressed. In 2005 I moved jobs and got a pay rise to £21,000 per year. I moved again in 2006 to a salary of £23,000 per year. The credit crunch hit and I was made redundant in 2008 but went straight to work at another role for £27,000 per year. I was finally earning the national average wage. It had taken me five years of hard work, study, and self-reliance.

It’s not like that for everyone though. Take Firuta Vasile. According to the Daily Mail this 27 year old Romanian single mother of three who arrived in the UK four years ago can now claim £2,600 per month in Housing Benefit. This is on top of the £25,547.60 per year she already gets in tax credits, child benefits, disability living allowance and carer’s allowance.

Ms Vasile, after just four years in this country during which time she has not had a job, now has an income it took me five years of full time work to achieve. If, like me, you stepped over the open money trench of Britain’s wildly generous welfare state and took the option of working for your money, you were a mug quite frankly.

Few people would oppose a welfare state which seeks to protect those who have fallen on hard times. We have a duty to look after those who cannot look after themselves. But we do not have a duty to look after those who won’t look after themselves. And we do not have a duty to pay them better than the people who pay for them.

Opponents of the coalition’s welfare reforms are defending a grossly unjust system. They defend a system so perverted that it pays Abu Qatada, described as “Osama bin Laden’s right hand man in Europe” and wanted abroad for a string of bombings, £400 per week in benefits.

They celebrated when the House of Lords voted against the government’s proposed measures to limit Housing Benefit. They either did not know or did not care that the cost of this defeat would be borne by hard pressed hard working people who will now have to keep paying taxes for others to live in places they couldn’t afford.

It is at times like this that you realise how disconnected much of the left has become from its traditions. A museum near where I live in east London has a display of the Ten Commandments of The Socialist Sunday School on display. Among the exhortations to “Honour good people” and “Make every day holy by good and useful deeds and kindly actions” are references to the value of work. “All the products of the earth are the result of labour; whoever enjoys them without working for them is stealing the bread of the worker” it says.

Somewhere along the way the left, or its leaders at any rate, forgot this. Instead they came to represent the non-worker. Whether it was those on benefits or underemployed workers in the public sector, the left sought to an ever greater degree to expropriate the wealth generated by workers in the private sector to lavish on those who weren’t working.

Opponents of welfare reform like to say that the welfare state initiated by William Beveridge is under attack. In fact the welfare state envisioned by Beveridge and other post war architects was killed decades ago when it was upgraded from the safety net described in the famous 1942 report to a luxurious hammock which currently holds nearly one in six households in the UK and two thirds more people on disability benefit than 20 years ago.

If Britain is to dig itself out of its economic hole it will need people to work. To encourage this it will need people to be rewarded for their work and not to see the fruits of their labour spirited away by the state and spent on the non-working section of the population.

But more than that, it is a matter of justice. Those who generate the wealth are entitled to keep it and, however imperfectly, the left used to have some understanding of this. If their rhetoric about social justice is to be anything other than a thin moral veneer for the maintenance of privilege they ought to rediscover it.

This article originally appeared at The Commentator

Ron Paul and foreign policy

Peacemonger

I was in a Minnesota casino hotel room with a six pack watching the results and fallout of the Iowa Caucus. It was the closest I’ve ever come to fulfilling my teenage dream of being the next Hunter S Thompson.

Then Fox News cut away mid speech from Ron Paul, who came in third just 3% behind the nominal winner Mitt Romney, to hear what Newt Gingrich had to say. Newt had come fourth, 9% behind Congressman Paul.

Paul has been getting this sort of treatment all along. Perhaps Fox News believes, like Romney and Gingrich, that Ron Paul’s views on foreign policy place him outside the “mainstream”

The issue Romney and Gingrich were attacking him on was Paul’s opposition to the use of military force to prevent Iran getting a nuclear bomb. This is a hot button issue for the GOP candidates. Speaking after Iowa each of them, except Paul, made a point of mentioning the possibility of confrontation with Iran.

But while Paul’s stance may place him outside the mainstream of Republican presidential candidates it doesn’t place him outside the mainstream of the American public. Polling evidence indicates that opposition to action against Iran is not the sole preserve of half a dozen hippies and that support tumbles when diplomacy is given as an option.

How has Paul come to this position? He is neither opposed to war per se nor even to pre emptive war. He told an audience in Iowa that “You don’t have to wait until they have put their feet on our soil”

Paul’s opposition seems more specific than a simple pacifism. Quite simply, he doesn’t view Iran as a threat. He told the same Iowa audience that “there are no signs” that Tehran is building a bomb. Given that Secretary of Defence Leon Panetta said on CBS’s Meet the Press last night “Are they [Iran] trying to develop a nuclear weapon? Uh, no, but we know that they are trying to develop a nuclear capability,” then the hysteria directed at Paul by his neo-conservative and liberal interventionist critics seems overdone.

Paul has other reasons for not seeing Iran as a threat. He has claimed that the Iranians feel surrounded, with nuclear armed states like Israel and Pakistan on their doorsteps and US military bases in every neighbouring country. The Iranians are acting logically, Paul appears to believe, to actual threats. He spoke of his belief in a reasonable Iran again in Iowa when he said “What are the odds of [the Iranians] using [a nuclear weapon]? Probably zero. They just are not going to commit suicide. The Israelis have 300 of them.” Essentially then, Paul is expecting reasoned behaviour from Tehran.

This is more problematic. When the Iranian president says he wants to see Israel “wiped off the map” is he reacting rationally to perceived dangers or is he just a loon? Just as history shows that interventions can go badly wrong it also shows that some people are exactly as dangerous as they appear to be. Paul’s insistence on seeing unreasonable people as being as reasonable as he is could be a major weakness.

But does it matter? The fact is that with a trillion dollar deficit and a debt ceiling rising like a Fourth of July rocket, America cannot afford another war. To watch presidential candidates speculating on which country to bomb next is like watching a bunch of homeless guys peering through the window of a BMW dealership and wondering which i8 to buy.

The people up in arms about Paul’s foreign policy have got it back to front. America’s wealth was not based on its ability to project military power; its ability to project military power was based on America’s wealth.

America’s most pressing problems are not around foreign policy but the economy and Ron Paul is the only candidate who can really sort this out. Only then will the US regain the strength to consider fresh military exertions. Iran, Syria, whoever, frankly the country whose problems the next president ought to prioritise is America’s. It isn’t always the economy stupid, but in 2012 it certainly is.

This article originally appeared at Global Politics

The economic reality of 2012

We’re doomed!

Going into 2011 it was still possible to find economic optimists. The Office for Budget Responsibility predicted relatively perky growth of 2.1 percent for 2011 and why not? The OBR had just revised its growth figures for 2010 up to 1.8 percent from its previous estimate of 1.2 percent.

A year on this looks like an economic wonderland. In November 2011 the OBR forecast growth for 2012 of a paltry 0.7 percent following just 0.9 percent in 2011 compared to that 2.1 percent forecast a year earlier.

What does this teach us? One lesson we should take is to be wary of the forecasts of economic ‘experts’.

One lesson we shouldn’t take is that the answer is more Keynesian stimulus of the kind that generated those growth rates of nearly 2 percent in the halcyon days of 2010. For one thing, that growth came at the expense of a deficit of 11 percent of GDP, or a borrowed £147 billion.

And it didn’t work. Of course a vast infusion of borrowed cash will bump up GDP figures, they measure spending in an economy as a proxy for measuring real economic activity. But the thinking behind stimulus spending is that it stimulates the economy to get back on track. That the economy slumped when this stimulus was removed proves that it failed.

It failed because the problem is not the exogenous drop in aggregate demand of Keynesian folklore which must be compensated for by government spending. The problem is the thoroughly endogenous one of debt. It is because people are paying for yesterday’s consumption that they are cutting back on today’s. Simplistic non-solutions based on the Keynesian misdiagnosis will continue to fail.

So what can we expect for this year? If we accept that the problem is not simply a lack of “animal spirits” but one of debt both public and private (or private debt made public) a grim prospect emerges.

There are two ways of dealing with debt; you can pay it back or you can default and not pay it back. Within the default option are two sub options; you can default overtly and simply refuse to pay your debts, or you can default covertly and pay the debt with devalued currency.

Prospects in the eurozone, the current nexus of the financial crisis, depend on which of these paths is followed.

There are countries loaded with debt like Greece, Italy or Ireland, and those like Germany which aren’t. The choice will be, as elsewhere, whether the indebted countries repay or default. An overt default would mean an indebted country simply refusing to pay its debts leading to exit from the euro. A covert default would mean paying debtors back with a devalued euro, inflation, in other words. There is widespread opposition to the first and German opposition to the second and German opposition is all the opposition that counts.

That leaves repaying the debts in full. With Germany unwilling to help out in the form of eurobonds the full burden falls on taxing and spending measures in the debtor countries. The question for 2012 is whether these fragile economies can take the drastic fiscal tightening necessary. If they cannot and if Germany holds to its current position we go back to the option of overt default and break up of the euro.

Other countries are using a mix of fiscal and monetary policy, or repayment and default, to deal with their debt burdens. Britain’s spending cuts are more imaginary than real and much of the reduction in British debt is being done by inflation which has been above the Bank of England’s target since December 2009.

Between these scissor blades household incomes will fall or, at best, stagnate in Britain in 2012. GDP will do likewise providing the eurozone does not collapse. But given Britain’s debts it would be folly to think that any other government with any other program could produce a better result. As bad as it is, it’s as good as it gets.

Another country which has been using the printing press to ease its debt burden has been the United States. With its combination of eye watering deficits and low interest rates the US been held up by Keynesians as proof that deficit spending can be sustained.

In truth its unique position as issuer of the world’s reserve currency gives the US the ability to produce vast quantities of dollar denominated securities without seeing its borrowing costs rise.

But problems deferred are not problems avoided. In the long term the US deficit will have to be brought down. This will become more of an issue through the year as November’s election approaches.

In the shorter term the danger is of a dollar dump. The continuing decline in the dollar’s value will continue to trouble investors in China, the Gulf and elsewhere who are holding dollar denominated debt. This is behind the intermittent skirmishes which have become known as ‘Currency Wars’. Will these erupt into full scale war in 2012 as investors dump their dollars and inflation results?

It’s unlikely. This is not because of any strength in the US economy or policymaking but simply because everywhere else is worse. Adam Smith said that there is much ruin in a nation and there is a little more ruin left in the United States.

This is a very western-centric analysis and thus incomplete. The problems China faces as it tries to reign in the effects of its credit boom require a separate article. But increasingly global economic issues will be framed by the likes of India and Brazil. Countries such as this face problems and are less homogeneous than the famed BRIC acronym suggests. But as the west struggles under its crushing debts the continuing rise of economies elsewhere could be the real story of 2012.

This article originally appeared at The Commentator