Debt: We don’t owe it to ourselves

Simply red

Rocketing global debt worries many people. Some, however, take a more sanguine view of it. For every debt, they say, there is a corresponding credit; for every liability a corresponding asset. So, to the extent that someone could be considered in economic peril because they have taken on excessive debt, others will hold an equal number of credits and be better off. And the beauty of it is, in the eyes of some, that, in the aggregate, these people are one and the same. In other words, ‘We owe it to ourselves’.

In one respect the argument makes no sense. Why would anyone borrow from themselves? Shifting money from your left hand pocket to your right hand pocket does not make you richer.

For us to begin to tackle the argument we must introduce an intertemporal aspect: the element of time. It might, for instance, make sense to borrow to get an education or a car that you drive to work. You have to pay this money back over time, so in a sense you are switching money from tomorrow’s pocket into today’s.

But, crucially, this only makes sense if the object for which you borrowed – the degree or the car – enhances your future earnings, hence your capacity to repay the loan. If these borrowings increase your future income you are still switching money from tomorrow’s pocket into today’s, but tomorrow’s pocket has a lot more money in it. This is investment.

The problem is that very little of the debt we are incurring is for this purpose. Most of it funds current consumption and does nothing to increase future income. It really is simply switching money from tomorrow’s pocket into today’s. That might feel fine today, but don’t be surprised if you’re skint tomorrow. That’s pretty much the position Britain and much of the west is in right now.

But one of the striking features about people who advocate higher government debt is that they rarely envision themselves being among those paying it back. This highlights another problem with the argument that ‘we owe it to ourselves’. Who is ‘we’? Who is ‘ourselves’?

‘We’ do not act, only individuals do. The Bridge Club does not book a room; someone from the Bridge Club makes the phone call. Collective identities like ‘we’ and ‘ourselves’ obscure the issue and we have to discard the aggregate to discover ‘Which individuals owe it to which other individuals’.

Opinion polls suggest that the number of people who think that government debt should be increased is somewhat greater than the number of people who would be willing to pay the higher taxes to cover it. Thus, when people say increased government debt is ok because ‘we’ owe it to ourselves, what they mean is that increased government debt is ok because ‘Someone else owes it to ourselves’. Or, as the 19th century French economist Frédéric Bastiat put it, “Government is the great fiction through which everybody endeavours to live at the expense of everybody else.”

But who is ‘ourselves’? In reality government debt is an asset of the holders of government bonds so unless you own some of those you are not owed anything. Thus, we can go further with our reformulation and say that ‘Someone else owes it to bondholders.

We see this with British government spending. Total government spending is down by only 1 percent in real terms since the coalition took office yet we have departmental budgets being cut. This is a result of the increased interest payments to bondholders which are offsetting departmental cuts. Government is reallocating spending away from welfare recipients and towards bondholders. But if you insist on running up debt what else do you expect?

But we can go even further with our reformulation. The average maturity for British government gilts is around 14 years (for the US government it is about five years, four months). That means, on average, that debt issued by the British government today will be due for repayment in 14 years. There are four year olds starting nursery this year for whom taxing and spending decisions have already been made. Advocates of increased government debt are, thus, arguing for appropriating more of the wealth of their children.

Again, if this debt is incurred to fund spending which will generate a return over time, investment like the degree or the car, then it is quite reasonable to spread the costs over time. But, to repeat, most of the debt being incurred now is financing current consumption. It represents a straight shifting of money from our kids’ pockets into ours. Of course, people are little happier for their children to assume this burden than they are to assume it themselves. But somebody’s kids are going to be on the hook for it. So we have another formulation: ‘Someone else’s children at some point in the future owes it to bondholders.

Let’s take a final step. We can also borrow money from foreigners by selling them bonds.  Currently about one third of British government debt is held overseas, the same proportion as the United States government. Any debt repayments on these gilts or Treasury bills will be shipped off abroad so we reach a final formulation: ‘Someone else’s children at some point in the future owes it to bondholders, about one third of whom are foreign.

Despite all this the idea that ‘We owe it to ourselves’ persists because it offers the Holy Grail of finance: the free lunch. We can just keep borrowing from ourselves and we never have to pay ourselves back. As Paul Krugman has written “the burden it imposes does not involve a real transfer of resources.”

But, as we’ve seen, Krugman is dead wrong. There are transfers among individuals, across generations, and between nations. There is no ‘we’ and ‘ourselves’ is not who we think they are. I’ve said before that printing money does not create wealth, it only redistributes it. The same goes for issuing debt.

This article originally appeared at The Commentator


Obama’s economic failure


For a man famed for his rhetoric the tweet was simplicity itself: “Four more years”. Indeed, I thought, four more years of high unemployment and economic stagnation.

For the second time Barack Obama had beaten an opponent who understood more about economics than he did. In 2008 John McCain admitted he didn’t “really understand economics” yet in June that year he said,

“We are borrowing from foreign lenders to buy oil from foreign producers. In the world’s capital markets, often we are even borrowing Saudi money for Saudi oil. For them, the happy result is that they are both supplier and creditor to the most productive economy on earth. For us, the result is both dependency and debt. Over time, in interest payments, we lose trillions of dollars that could have been better invested in American enterprises. And we lose value in the dollar itself, as our debt portfolio undermines confidence in the American economy”

Intuitively, McCain had grasped that America could not keep swapping devalued dollars for foreign goods and services.

Obama, meanwhile, gave a speech saying

“I’m not talking about a budget deficit. I’m not talking about a trade deficit. I’m not talking about a deficit of good ideas or new plans. I’m talking about a moral deficit. I’m talking about an empathy deficit”

So Obama had named five deficits, only three of which were real, and he was going to talk about the two that weren’t. This was typical of the sort of overripe guff soaring rhetoric which enraptures Obama’s supporters. It makes you feel good as long as you don’t try to figure out what it means.

And again, this year, Mitt Romney gave a speech saying

“I met with (former head of Goldman Sachs and the New York Federal Reserve John Whitehead), and he said as soon as the Fed stops buying all the debt that we’re issuing—which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues. He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up. We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.” It’s just made up money, and this does not augur well for our economic future.”

Romney was dead right about the parlous state of US finances but, in the same speech, he made his remark about ‘the 47 percent’ and this was drowned out.

Obama, meanwhile, released an ad saying

“Now Governor Romney believes that with even bigger tax cuts for the wealthy, and fewer regulations on Wall Street, all of us will prosper. In other words, he’d double down on the same trickle-down policies that led to the crisis in the first place

Obama thinks this despite the fact that Bush’s deficits were driven by spending increases and not tax rises. There is no mention of loose Federal Reserve monetary policy. There is no mention of political action which pushed banks to lend to marginal borrowers.

Obama’s faulty prognosis follows from his faulty diagnosis. America, he believes, can tax and spend its way back to prosperity.

Well, he tried the spending. In February 2009 the $831 billion American Recovery and Reinvestment Act came before Congress. If the ARRA was passed, President Obama promised, unemployment would peak at 8 percent in late 2009 and would fall to a little over 5.1 percent by October 2012. He painted a doomsday scenario if the ARRA wasn’t passed; unemployment would peak at 9 percent in 2009 and by October 2012 would still be at 5.5 percent.

The act was passed. Unemployment peaked at 10 percent in October 2009 and in October 2012 was 7.9 percent. In other words, even with Obama’s $831 billion package, unemployment peaked later, peaked higher, and remains higher than in the doomsday scenario he said would befall America if the ARRA wasn’t passed. Unemployment was wedged above 8 percent for 43 consecutive months, the longest period since the Great Depression. The American economy underperformed even Obama’s own worst case scenario.

But even these dreadful figures might not tell us the whole story. America’s unemployment figures are notorious for their unreliability. Those who just stop looking for work are not counted as unemployed. So many Americans lost hope of finding a job in Obama’s America that in September 2012 the Labor Force Participation Rate fell to its lowest since 1981. If the LFPR was the same as when Obama took office unemployment would be a staggering 10.6 percent.

And even this might understate matters. If unemployment was measured now the same way it was in the 1930s, today’s level would be higher than in any single year of the Great Depression. That is why Obama didn’t run on his record; it’s awful. Instead his pitch was ‘Give a guy a second chance’ like some desperate ex-boyfriend.

And now he’s going to try taxing. But here’s the problem: last year the Federal government’s unfunded liabilities, which includes Social Security, Medicare, and Medicaid, all programs Obama has no plans to reform, increased by $11 trillion to $222 trillion. To put this in context, the entire American economy is just $15 trillion. If you expropriated the entire wealth of the richest 400 Americans and left them on food stamps you would take $1.7 trillion – it wouldn’t make a dent. All Americans will face huge tax rises.

F. Scott Fitzgerald said that there are no second acts in American lives. Obama must hope he was wrong. As Jay Leno put it, “Economists say we’re heading for a fiscal cliff and we elected a guy whose campaign slogan is ‘Forward!’” Barack Obama: the Thelma and Louise President.

This article originally appeared at The Commentator

Wealth redistribution: Who takes the biscuit?

here’s a popular joke with the anti-cuts brigade which goes like this:

A banker, a Daily Mail reader, and a benefit claimant are sitting around a table. There are 12 biscuits in the middle of the table. The banker takes 11 and then says to the Daily Mail reader, “Watch out for that bloke, he’s after your biscuit!

Amusing enough but there is one question: who put the biscuits there in the first place?

This, the question of wealth creation, is one that few on the left ever seriously address. They have no difficulty telling you how they would spend money but are less clear on where it would come from.

The usual answer is ‘the rich’. It is supposed that if you raise taxes on the rich they will simply hand over proportionately more of their wealth. The possibility that they may just stop generating wealth that is only going to be taken from them is either discounted or greeted with hysteria about ‘tax avoidance’.

This thinking rests on the notion that the creation of wealth and the distribution of wealth are different things occurring at different times bearing no relationship with each other. The proto-socialist John Stuart Mill wrote:

The laws and conditions of the production of wealth partake of the character of physical truths…This is not so with the Distribution of Wealth. That is a matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like

But Mill was wrong as is the modern left. Production and distribution are not only linked but occur at the same time. Distribution and production are part of the same process.

Consider a wealth creator like James Dyson or Philip Green. Both take factors of production and mix them together to produce either fancy vacuum cleaners or retail outlets.

Both pay money out before they take in a penny in sales. Dyson has to pay his designers, manufacturers, and sales staff before he has sold a single hoover. Green has to build or lease a shop, stock it, and train staff before the first blouse is sold.

When Dyson or Green disburses this capital between the various factors of production they will do so according to each one’s marginal productivity. If buying a capital good, a machine for example, will add £10,000 to turnover then it will make sense to buy that machine at any price up to £10,000. Likewise with labour. If hiring a worker adds £30,000 to turnover then the worker will be hired at any price up to £30,000.

These inputs are subject to diminishing returns. The first till purchased by a Chinese take away might increase its turnover by £1,000. If the till costs £800 it will make sense to buy one. However, a second till might not be utilized so intensively and, as a result, it might not add as much to turnover, possibly only £900. The marginal product of the two tills ((£1,000 + £900) ÷ 2) will be £950 each and it would make sense to buy the second till. But a third till might spend much of its time idle. As a result it might only add £400 to turnover. The marginal product of the three tills ((£1,000 + £900 + £400) ÷ 3) would now be £766.66. The third till would not be bought. The result is that capital will be paid to the value of its marginal product.

The same applies to labour. As I wrote recently

If hiring a first barman generates £100 a week extra profit for a pub landlord that barman will be paid up to £100. If, however, hiring a second barman adds only £80 a week the marginal product of bar staff has fallen to £80 a week and so will the wage even of the first. If hiring a third barman adds just £50 a week and no one will take the job at that wage no one else will be hired and £80 a week will be the wage

Again, the result is that labour will be paid to the value of its marginal product.

Investors are sometimes able to substitute factors of production for each other. If an ASDA checkout worker adds £300 to turnover but a mechanized till adds £600 to turnover then the investor will replace the checkout worker with the machine when that machines price falls to less than twice what it costs to employ the checkout worker. The same will happen if the checkout worker’s wage rises sufficiently. Capital will be substituted for labour.

Investment outlays are risky. There is the chance that no one will buy your hoover or come to your shop. In that case the investors’ money is lost. They will only be incentivized to invest with a sufficiently high potential payoff to match the risk.

So it is not the case that we can redistribute wealth without regard to its generation. Any argument to raise wages above the marginal product of labour will simply lead to less hiring. Taxes on wealth creation lower the return and reduce the incentive to invest. Attempts to redistribute wealth arbitrarily will lead to less wealth to redistribute.

Milton Friedman observed that “Most economic fallacies derive from the tendency to assume that there is a fixed pie; that one party can gain only at the expense of another.” And as for those biscuits, surely whoever put them there should get first dibs?

This article originally appeared at The Commentator

A conversation between a libertarian and a statist

In the interest of greater interaction between ideologically opposed people below is a conversation I had recently with a statist acquaintance of mine along with some interjections by an open-minded observer. As Bob Hoskins said in those BT ads, its good to talk.

Statist – Tax is the subscription you pay for living in a complex society like ours.

Libertarian – Can I unsubscribe?

Statist – If you go and live somewhere else, yes.

Libertarian – No, I want to stay here, it’s where I’m from after all.

Statist – Well then you’re choosing to belong to this particular club and thus have to pay he subscription decided by the majority of the club.

Libertarian – That’s what I was looking for, the majoritarianism, our way or the highway. It’s not a subscription, it’s a forced levy.

Tell you what, why don’t you slash my taxes and I’ll sort my own pension and healthcare out and educate my own kids?

Statist – As I said, you can always leave the club if you don’t like the way its organised and go and live somewhere that suits you better.

Libertarian – I don’t see why I should, I was born in this country just like you and your mates in the majority. It’s as much mine as yours. In fact, what gives you the right to issue an ultimatum like that?

As I say, why don’t you slash my taxes and I’ll sort my own pension and healthcare out and educate my own kids? I’ll go and do my own thing and you and the majority can do your thing, set up an NHS, a comprehensive system and all the rest, whatever you like.

Statist – Eh?

You apparently want to be part of a community called the UK, yet apparently you don’t want to abide by the rules that the majority of that community decides upon.  That makes about as much sense as me joining a tennis club, voting for the subscription to be £80 and when the majority vote for it to be £100 complaining that they have no right to issue to me an ultimatum that I should pay £100 to be in the club.

I think we are different planets when we are on this issue and I am afraid I really do not get this moral indignation at having to abide by decisions that the majority make that I might not agree with.  I mean I don’t like having to contribute to Trident for example, but I don’t think subscriptions to the nuclear defence system should be voluntary, even though I am quite happy to go without the alleged benefits of Trident.

Libertarian – No, I want to live in the place I was born in (hence your tennis club analogy is a total dud). You want to make my living there conditional on handing my money over to you and your mates in the majority so that you can spend it as you wish which may not accord with how I wish it to be spent.

So you havent answered my question.

Statist – You are making a fetish of being born on a particular piece of ground.  That, to me, is irrelevant.

You want to live in a particular political community.  That community has rules.  You can choose to obey those rules or go and live somewhere else.  If you choose to  live in that political community you can also try to persuade others to change the rules to your way of thinking.

I am struggling to see what is objectionable about that unless you are arguing that any government spending is of necessity illegitimate (police? courts? military? – they are all funded by money taken from you and I to spend in ways we might not agree with).

Your argument ultimately leads you to some kind of anarchism – after all if you should not have to pay for pensions, education etc, a pacifist should not have to pay for police, military or the rest the state’s coercive arms.  You then get a situation where people only pay for government functions they agree with which, of course, makes government impossible.

Libertarian – It’s not irrelevant to me, I was born here. I’ve just as much right to be here as you or any of your majority. And, for that matter, I have just as much right to tell you all to clear off.

There’s a fundamental point here. My philosophy would leave you alone. If you and everyone else in the country wanted to set up an NHS or paint your heads green you could do that. I wouldn’t stop you.

Your philosophy, by complete contrast, demands that I be involved on pain of expulsion or imprisonment. It requires that what 51% want is swallowed by the other 49% on pain of punishment.

Not too appealing.

Statist – You would agree then that I should not have to pay towards Trident and a pacifist should get a full rebate on all taxes that go towards the military?  After all anyone else who wants to pay for Trident or the military can continue doing so.  Me and the pacifist wouldn’t stop them.

Libertarian – Fine. I’d join you, Trident is a waste of money.

Statist – The point is – as you are well aware – that you do, in fact agree that the state should be able to coerce people to fund some things – the military and the justice system for example.  What we are therefore arguing about is not a point of principle about state coercion but about for what particular purposes the state should be able to coerce people.

Some people think that the state should be able to coerce people to fund the military.  Other people disagree with that.  Ditto with healthcare. How do we resolve those disagreements?  I can’t think of a better way than a majority vote.

Libertarian – Well, I have my doubts about the justice system. I deal with county courts day in day out and they are a shambles. I saw a woman at Bow County Court treated appallingly by the staff last week. I was going to tell her to go to the competing court but, of course, there isn’t one. That’s what you and your majority have given us for our forced levy.

The question is how do people spend their money. I can’t think of a better way than to let them spend it themselves.

Statist – So you don’t believe there should be any state at all?    No military?  No police?  Every person for themselves?

Libertarian – I don’t see why you assume that just because I don’t want the State to do something you assume that I don’t want that thing done at all.

Statist – Because your argument was that it was illegitimate for the majority to impose its will on the minority in any circumstances.  If you think that, as a matter of principle, the majority of the population should not be able to force you to contribute towards the NHS it must follow that, as a matter of principle, the majority of the population should not be able to force the pacifist to contribute towards the military.  It then follows that contributions to all government services become voluntary, with the resulting collapse of the state.

Libertarian – It means the State stops doing certain things but it isn’t very good at doing them anyway and, as I say, that’s not to say that those things wouldn’t be done at all.

Statist – So you have no objection on principle to the state coercing people to pay for things they don’t want to pay for, it’s just a question of deciding what those things should be?

Libertarian – I’m not clear on how you’ve deduced that. I think a system which gives most people what they want is better than one which gives 51% of people what they want.

Swing voter – I’m pretty sure most people are in favour of the NHS.

Libertarian – I’m sure they are.

Swing voter – So given that you want a system that gives most people what they want, do you want to be outside that system sorting out your own healthcare?

Libertarian – Wouldnt the option be nice? I mean, how chuffed would you be if you went into a restaurant and ordered steak only to be told “Well, 51% of the diners wanted Lentil Soup so you’ll have to have that”?

Swing voter – I think I’d prefer that option than the other option which is “51% of the diners have had the lentil soup, so supply is quite limited at the moment. If you want the lentil soup, you’ll have to pay through the nose for it”

I don’t think we should be continuing the Restaurant/healthcare comparisons…

Libertarian – You might be right but if this restaurant is charging you loads for lentil soup and you’re gagging for it would pay another restaurant to flog lentil soup cheaper. Of course, that presupposes A) the availability of another restaurant and B) the ability to pick up your wallet and go there with it.

Statist – Your original point appeared to be that it was somehow illegitimate for the majority to force the minority to contribute towards something they don’t want to contribute towards. You were waxing all indignant about that. I pointed out that, taking that principle to its logical conclusion would make any form of state impossible as all contributions to the state would become purely voluntary.

You seemed to accept that in that you drew a distinction between the things that you considered the state wasn’t very good at with the things that you considered it was good at (I know you don’t say that explicitly but you certainly implied it earlier) and, I assume, accepted that people should be coerced into paying for the latter. You therefore accept that it is not illegitimate, in some circumstances, for the state to coerce people to do things they don’t want to do

That then, of course, raises the question as to how we decide which things the state should do (and which people should be coerced to pay for) and what it shouldn’t do. I can’t think of any better way of deciding this then a majority vote.

The thing is you are between a rock and a hard place here. The only two logically coherent positions are:

1. It is never legitimate for the majority to coerce the minority into paying for things they don’t want to pay for. As such, no form of state and no state functions are legitimate.

2. In some circumstances it is legitimate for the majority to coerce the minority to pay for things they don’t want to pay for. Thus some form of state and some state functions are legitimate and what is to be decided is what those functions are.

It, of course, does not necessarily follow from proposition 2 that how you decide what those functions should be should be via majority vote. There are competing theories – you can refer to your Holy Book or you can have some concept of rights and I actually think what you are groping towards is some notion of the latter. You want to hold that some things inalieanbly appertain to the individual and should not be invaded by the collective. The problem you then, of course, have is on what basis can you say that these rights to appertain to the individual when the majority of your society disagree with you.

Take the notion of the right to property. Since the rise of socialism in the 19th century, this has been hugely contested. Those with property generally argued that things like progressive income tax, inheritance tax, nationalisation etc invaded the individual’s inalienable right to property and was illegitimate no matter than the majority might vote for them. The socialists argued equally vehemently that there was no such right (or that the right was limited by the needs of society as a whole). How can one decide a dispute like that? It’s either by voting or by war isn’t it?

Libertarian – It does not follow that because “all contributions to the state would become purely voluntary” “any form of state (becomes) impossible” There are all sorts of voluntary associations which have lasted longer than most states. 

“You seemed to accept that in that you drew a distinction between the things that you considered the state wasn’t very good at with the things that you considered it was good at (I know you don’t say that explicitly but it is certainly implied in post 98 )..” I didn’t intent to make that implication (I can’t actually see that I did) so the rest doesn’t follow.

“The problem you then, of course, have is on what basis can you say that these rights to appertain to the individual when the majority of your society disagree with you.” Indeed, it was the same problem slaves had in the United States. It’s the same thing gays have when US voters decide not to let them marry. If you believe that no right is inalienable and that we only have the rights we have because the majority consents to letting us have them, then if that majority votes for slavery or discrimination you would have to accept that as perfectly legitimate.

Swing voter – And if the majority votes for a compulsory healthcare system you have to do the same.

Libertarian – Indeed, exactly the same principle which brought you Obamacare brought you California’s ban on gay marriage.

Statist – So do you agree or disagree that a state, as opposed to voluntary associations, should exist?

On your latter point, I agree, it’s a difficult issue.  I didn’t say that I didn’t believe they were inalienable rights, what I said was that the nature of such rights is heavily contested.  If people can’t agree what those rights are, you then have to decide how one decides what amounts to an inalienable right and what doesn’t.

A burglar might argue that, as a staunch social Darwinist, he believes in the survival of the fittest and that he has an inalienable right to pit his strength against that of an individual householder and see who comes out best.  It follows that it is an infringement of this right for society to lock him up if he commits a burglary.

If we can’t say the burglar is wrong because virtually everyone disagrees with him, how can we say he is wrong?

Libertarian – Well if we both agree that there are inalienable rights then it becomes a slightly more technical question of what those inalienable rights are. Id argue there is an inalienable right to life, that’s why I oppose the death penalty. I think we’d agree. Id also argue you have an inalienable right to do what you like with your own body. That might be more contentious?

Exactly, which then begs the question as to how we decide what are and what are not inalienable rights.  Which then, it seems to me, leaves us with the alternatives of either majority vote or war.

It’s not an easy issue.  On something like the right to property I would say that this is a matter of majority vote.  If society votes to tax those earning over £150,000 at 50%, then those who have to pay such a tax have a duty to pay it and not resist it by force as an illegitimate invasion of their right to property.

On the other hand if Hitler had held a (fair) referendum on the extermination of the Jews and, say 70%, voted for extermination, I would say that the 30% had a right to resist that majority decision by force as an illegitimate invasion of the Jews’ right to life.

So sometimes, it seems to me, it is reasonable to allow a majority to define an inalienable right and sometimes it isn’t.  Unfortunately, the circumstances of when allowing the majority to define an inalienable right is reasonable is also contested and we go into an infinite regression…

Libertarian – Possibly all correct, but first Id ask again about that individuals right to do what he or she wants with her body. I would consider that inalienable, would you?

Statist – To an extent.  Does an individual have a right to pay a doctor to amputate his leg when there is no medical need for such an operation?  I would say not, given that the subsequent disability will impose burdens on society.

Libertarian – That’s only a problem if ‘society’ accepts those burdens. If the guy knows in advance that it wont he might think twice before doing it.

Besides, Aids is, I understand, disproportionately a disease which afflicts homosexuals. We could reduce rates of HIV infection and avoid these supposed societal costs by voting to ban gay sex.

I wouldn’t support that.

Statist – I think the nature of humanity is such that if people see a one-legged man, they will not stop to enquire how he came by his disability, they will try to help him , so it’s pretty impossible not to get a situation where having only one leg does not impose a burden on other people.

In fact, I think a society where people are not allowed to pay doctors to chop their legs off on a whim (incidentally the doctor commits the offence not the amputee) but where the disabled are helped without deep enquiry as to how they came by their disability is much preferable to a society where such voluntary maiming is allowed but where disabled people are only helped if enquiry establishes that they are deserving of help.

Your final para again illustrates the difficulty of balancing the rights of the individual with the rights of society and how this is deeply contested (and historically contingent given that, until 40ish years ago gay sex was illegal virtually everywhere).

Libertarian – If individuals willingly want to help the one-legged man that’s up to them.

In both cases we have a negative externality which could, we are assuming, be mollified by legislation, either to stop the man having his leg chopped off or to stop men having sex with each other. How can one be accepted and the other not? Especially when the externalities of Aids are much greater than the externalities of people having their legs chopped off to solicit sympathy and money.

Statist – Actually people tend to get their legs chopped off for reasons of sexual gratification..

Virtually everything anyone does involves a “negative externality”.  If I choose to go to work by train rather than bus that involves a “negative externality” to the bus company and its employees as it deprives the former of revenue and makes it slightly more likely that the latter will lose their jobs.  Politics is all about making subjective judgments as to which forms of individual behaviour involve such an unnaceptable amount of “negative externality” that they should be forbidden.

There is no deep principle that says an individual should be able to do whatever he likes and that “negative externalities” don’t matter.  Going back to our friend the social Darwinist burglar, he is, after all, just acting in accordance with his individual desires and his individual conscience, yet I think you would agree that, in his case, the “negative externalities” of his behaviour are such that we should forcibly prevent him from committing burglary.

Libertarian – Well, you see, if I believe in an inalienable right to property then the burglar hasn’t got a leg to stand on. Just like your amputee.

The conversation sort of petered out there.

Recipient of handouts defends handouts

Writer Angela Epstein with three of her four children

Just £60 a month can keep a journalist’s child in shoes

I have read a great deal of utter rubbish about the coalition government’s ‘cuts‘. But the article in the Daily Mail by Angela Epstein might be the most cretinous, whiny, self interested bucket of bilge I’ve yet come across.

Mrs Epstein and her husband earn well over £100,000 a year. This puts them in the top 15% of earners. Yet they receive Child Benefit of “£20.30 a week for the first child and £13.40 for each extra one until they are 18” for their four kids (three boys, 19,17, and 14, and a girl, 8).

It might seem odd that people as rich as this receive state benefits at all. You can thank the idea of ‘universal’ benefits. When the welfare state was introduced it was thought that making poverty a condition for receiving benefits might make those who received them feel bad. So, to spare their feelings, it was decided that certain benefits would be dished out to everybody who qualified regardless of income. Thus, a Lord I know who owns a collections of stately homes once told me he was being paid Winter Fuel Allowance to heat his palace.

Obviously, with the British governments finances in such dreadful shape, this principle ought to be one of the first to be junked. And, however imperfectly, it is being. You’d also think that it would be one of the least controversial cuts. Not a bit of it. Ed Miliband, a man who never saw a bandwagon he didn’t try and jump on, supports benefits for millionaires. It’s generally a good thing to be on the opposite side of an argument to Ed Miliband. And its rather pleasing to be on the opposite to Mrs Epstein too.

The first thing to note about Mrs Epstein’s article is that, never once, does she use the word ‘taxpayer’. Instead you have a phrase like this; “There was something quite heartening to think the State was directly responsible for ensuring my children had shoes”

First, isn’t Mrs Epstein primarily responsible for ensuring her children had shoes? Since when did the State become some sort of Daddy Warbucks who will take care of us all and abrogate us of all responsibility to look after ourselves and our families no matter how rich we are?

And what is this ‘State’ that is apparently responsible for making sure Mrs Epstein’s kids don’t go barefoot? The State has no money with which to buy shoes for Mrs Epstein’s kids other than that it takes from the taxpayer, most of whom earn less than Mrs Epstein. Yet she can write, apparently without a hint of shame, “Despite earning a good salary as a journalist and broadcaster and being married to a chartered accountant, the Government money lands in my account each month. I accept it happily, without so much as a twitch of embarrassment” Its not government money though, it’s taxpayers money.

The whining self justification continues. You get a statement like this “I understand that we are going through a time of great financial difficulty in this country and that sacrifices must be made to get us back on track” followed by statements like this “But why should my children lose out” and this “The State had pledged its support for all parents. Why should that change?” In other words, yes, sacrifices will have to be made. By someone else.

As Margaret Thatcher famously said,

“I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the Government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!” “I am homeless, the Government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first.”

The people primarily responsible for putting shoes on the feet of children are the parents of those children. If they cannot then the State, with taxpayer funds, can step in. But the belief that the State represents an inexhaustible teat at which we are all entitled to suck on endlessly is part of what got us into this mess. Britain spends more on welfare than the entire GDP of Austria, a prosperous nation of 8.4 million people.

“I’m not talking about a tax loophole or state backhander that allows the streetwise to filch from an already over-committed welfare state” Mrs Epstein says. Yes, that’s exactly what she’s talking about.