TVHE

Just having a look at the speech from Labour on savings.  One bit that has caught my eye so far is:

The Government collected tax, which is compulsory, and saved it for the future.

Now this is true, tax is compulsory.  And one way of looking at “compulsory savings” is as an increase in the tax rate.  But I think there is a more fundamental difference that makes compulsory savings a bit more ridiculous.

We pay tax as part of redistributive policy – tax is used to reallocate resources effectively.  We justify this morally by saying a couple of things:

1. Land and other forms of endowed capital are fundamentally communally owned – but we need private ownership to ensure an efficient allocation of resources.  As a result, tax acts as a form of social rent – as part of the social contract.
2. If we looked at society objectively – without knowing whether we would be born into poverty or wealth – we would say that some level of redistribution is desirable (Rawlsian justification).

So we have compulsory redistribution, which is justified by the “social contract” and the belief that the democratic process enforces this implicit contract.

Compulsory savings doesn’t have this justification.  We are taking someones wealth away from them, and then giving it back to them later – like when a kid in the playground takes another kids ball and plays with it, giving it back to them at the end of the lunch break.

The only “social contract” argument you could make here is that individual in society WANT to save, but lack discipline (time inconsistency).  But forced regulation is not the best solution if this is the case – providing institutions and incentives that help to solve the time inconsistency issue, while still allowing choice, is the way to go.

As a result, justifying compulsory savings on the basis that “tax is compulsory” is a slippery slope.

I will get back to reading the speech tonight I guess – I’ve sort of paused there

Their case is so compelling, they don’t need to actually make it.

Also, rewriting the start for kicks I find …

So compelling is the case for slavery that it is a mystery why the Government is setting up yet another working group [ed "so compelling is the case"  WTF, did Yoda write this - actually that would be "so compelling the case is" wouldn't it].

It needs only look at the New World, where the concept has proved so successful over recent centuries that almost two-thirds of landowners now support an increase in slavery rates.

Trekking down the same path here will address a number of pressing issues. In reality, it is not a question of whether there should be slavery but when and how it should be introduced.

Yes, the slavery comparison is excessive.  But compulsory superannuation is a forceful, ill conceived, idea.  Expect more ranting next week – I might even go into a little more detail

So if the main justification for compulsory super is that “people are too stupid to save for themselves”, how can we say that a government made up of these same people will be able to determine the “right” level of savings?

Eric Crampton notes that Peter Dunne views income splitting as a subsidy for “household services” – as he thinks the secondary partner in a relationship should be at home more often.

Ok, well he is right that it is discouraging second earner labour supply, and so will end up with second earners staying at home instead.  But is he correct when he says we need to subsidise household services?

Just yesterday CPW pointed out to me that we don’t tax household services provided in a relationship – even though it is a service.  As a result, it is already subsidised.  In fact, we could argue that we should be taxing the imputed rental value of said services – given that they are part of the inherent structure of the household (and households are effectively just firms).

Arbitrary tangent

In many ways we could say allowing people to form families is a way of “dodging tax” is that something a civilised society such as New Zealands wants to promote!

Overall, I think Peter Dunne has convinced me that we need to not only avoid income splitting – but start taxing people based on how much they clean their own house.  Sure, looking at how I keep my house, this would see a significant fall in my tax burden – but I swear I’m not asking for anything on the basis of self-interest ….

Tangent over

So, in seriousness, we have to ask – why do we have someone wanting to implement a policy on the basis that it will reduce labour force participation by secondary earners?  Does he seriously want society to revert to some sort of 1950′s traditional household mold?  Even if he does, and even if YOU think that this is what society should do – do you think it is right for government to implement policy to achieve such goals?

That my friends is really a bridge too far – no-one, not even economists, have the foresight and the knowledge to say that they should be the ones determining societies institutions.

Compulsory super is being suggested, again.

I agree with Kiwiblog’s first statement that compulsory super is bad policy – but then he states:

However KiwiSaver is close to de facto compulsory as it is opt out, and the subsidies are so great you have to be very poor or very stupid not to take them up.

Serious, what the frik.

It is opt out, because it wants to “change the framing” of saving, in order to see if people have a framing issue with savings.  However, they messed any potential for using this as a test for framing by epically subsidising the scheme – subsidies which are inefficient and generally unfair.

I wouldn’t use the dumb subsidises in Kiwisaver as any sort of argument for compulsion.

Trust me, if we are about to get into a debate on the merits of compulsory superannuation there is going to be a lot of “against” posts on this blog – lets hope we don’t go there.

Update:  An anti-compulsion post on Policy Progress that is worth flicking over.

Arnold Kling makes an important point when discussing market failure on Econlog:

Instead, it says that every industry is dysfunctional in its own way. But every industry is dysfunctional.

He points out that this may lead people to the conclusion that:

And in every case, experts wielding the power of the state are presumed to make things better.

Now, to the sheer majority of people this conclusion would seem suspect – which in itself tells us that there is something amiss.  The “something” that is missing is the imperfection of government policy.

Yes markets fail, but the state isn’t able to perfectly correct for such things.  In order to justify intervention, we need to be able to say that the cost of market failure exceeds the costs associated with government intervention.

This raises an interesting issue – if it is up to policy makers to make a judgment call on these costs, and for some reason they believe that their abilities are greater then they are are (say because they don’t face punishment if they fail, and so never have to update their beliefs with regards to their abilities) then we are more likely to get government intervention when it is inappropriate then no intervention when it is appropriate.

That is just a little point to keep in mind – and is probably one of the justifications for having a Treasury department that looks at the quality of spending rather than just balancing the books.

So the Welfare working group has come out with their first piece (main site, ht Welfare Watch).  Did they have any sort of point, or were they just getting paid on the basis of how many times they could mention “welfare dependency” and “getting people into work”?

However, I jest.  I can’t judge their policies at present, as there aren’t any – they have just released a first document outlining the issues they think will need addressing before they think about policies.

I can say that I found the lumping together of sickness, invalid, and unemployment benefits a bit disconcerting.  And I can also say that, contrary to their language, I think the idea of welfare dependency is being overplayed as an issue – but if we get some cleaner evidence out I’d be willing to change my mind.

The thing that most scared me in the report was the discussion on “poverty” and getting people to “work their way out”.  I hate it when people go on about poverty traps, and then turn around and say we should get these people into work by “cutting benefits” or “tightening eligibility”. But note, they have not said this yet – and I am not keen to put words in their mouth.

Now hopefully they didn’t mean it this way.  Hopefully what they mean is that there are major issues in the labour market, which can make it difficult for people to move back in after a sustained period outside of the workforce.  If the welfare working group is interested in increasing the integration between the labour market, welfare policy, and education then that is a good thing.

But if, as I’ve heard a lot in the past, we are going to get told that benefit eligibility should be cut so that people have to get jobs, because “it will be good for them” I fear we are just going to hurt a lot of people – like we did in the early 1990′s, but without the excuse of international credit markets threatening to devalue us.

Note:  Also, try to remember that a social safety net is part of our social contract as a society – it is something we agree to as a group of disparate individuals.  If we want to debate the size and scope of this safety net as a society then that is reasonable.  But lets not move down the road where our sole focus falls on “benefit abuse” – as it leads us to forget about the far larger group of people who we are intrinsically willing to help.

And don’t forget that the “labour market” is only really voluntary if we believe labour has an outside option.  The benefit provides this outside option – and in theory it should be funded by a tax on land.  But I digress again

Note 2:  Why are we so willing to focus our attention sharply on how injured people “should” be working (even if the opportunity cost of doing so is very high for them) – and yet we are unwilling to cut back on working for families, which is largely welfare for the middle classes?

If you are worried about whether government can balance the books, if you are concerned that there are government policies that are distorting investment and spending decisions, if you fear the fact that some transfers appear “unfair” – the primary target of your ire “should” be working for families, not invalid benefits.

Update:  Sue Bradford and Dim Post comment.  I agree largely with what they are saying – but in defence of the welfare working group, they weren’t really providing “policies” just outlining the data.

… why don’t we just have a land tax, instead of trying to restrict voluntary trade of land between individuals.

My impression has always been that one of the fundamental reasons for tax was to proxy for a social return on a nations capital – such as land.  By doing this we get the advantage of actual property rights on land, even though in essence we hold a belief that society as a whole owns that land.

Now my impression of this debate is that NZ society DOES believe it implicitly owns the land.  If we had a land tax that proxied the “rental income” for society, it wouldn’t matter who owned the property right to use the land and this whole debate about foreign ownership could be chucked out the window.

Another point in favour of land tax is it?

Update:  Danylmc at Dim Post discusses the same article.  I’m not sure I would interpret history the same way as him – was there really much of a cost from the running down of our grossly inefficient railway system?  However, lets not argue about this point here – as it is peripheral to both posts.  There are two primary points that need to be raised beyond my land tax call above.

Firstly, if the problem is that the government sold the asset too cheaply, then we should raise that as the issue.

Secondly the arbitrary idea of a “strategic asset” might crop up – if we want to think along these lines, lets actually do some thinking.  We should ask “is it a public good”, “are there competition issues” and/or “are there externalities from the assets use”.  If these things hold, then we can ask what is the best way to define ownership.

Yes there are cases where the government should own assets – but they should be determined by analysis instead of arbitrary catch phrases like “strategic asset”.  Obviously there are too many management consultants floating around government at the moment given the amount that term is floating about.

Over at the Dim Post it is suggested that New Zealand is somehow failing when company owners sell their assets to non-New Zealanders.

However, there is no issue with selling companies in of itself.

The “problem” might be that, as a whole, New Zealand residents appear to own a significant amount relative to their income and wealth.

If we do believe this is the case, then we have to ask why. Just saying “look we are selling stuff”, “look NZ owes some stuff” doesn’t tell us why this is the case, whether this is a problem, and if it is a problem what we can do about it.

If we think that there is some systematic risk from this behaviour, or that New Zealand residents do not recognise the risk associated with this level of risk, then we should be looking for policies that will improve said decision making – not arbitrarily looking at policies that will “force” saving or the voluntary sale of goods, services, or assets.

Is this point of view unreasonable? If we accept this point of view, we also have to accept that other New Zealanders might want to consume now, or may want to avoid the risk associated with “high return” ventures.  Given this, it is both unreasonable and harmful to social welfare to try and force New Zealanders to save to effectively subsidise the risk of business owners – which is what compulsory savings will be.

Sorry, that was just me interpreting a consequence of this article – where a Green MP stated that he wants to outlaw cold damp flats.  As he says:

“We know that there are a lot of cold damp rentals out there and that lots of people have to live in them because they don’t have the money to move.”

Exactly, so by reducing the supply of rental properties and driving up their price, this bill will ensure that students who move to the city to get access to university won’t be able to – and so will have their lifetime options cut down.  That is exactly what would have happened to me, if I hadn’t have been able to live in dingy dingy properties.

And of course, this ignores the costs of administering the scheme – are we going to have people constantly patrolling flats for quality now?  Won’t this lead to “black-market” rentals.  If they think there are external benefits to insulation, subsidise the damn thing – don’t run around with poorly thought out policy like this please.

Anyway, I’m off to watch the Phoenix play …