I knew it would happen: I just say the public sector adds value and the far right come out in force accusing me of every economic crime imaginable.
Is it worth responding to such people? Candidly, I frequently doubt it: they don’t understand, don’t care and don’t want to do either; that I know. So why bother? Largely because, as Dennis Howlett points out the 90-9-1 rule pretty much works. 90% of people who read this blog lurk unseen (and that’s OK with me, 9% pop up very occasionally and 1% contribute a lot. This comment is for the 90%.
Why do I say that the public sector generates wealth? The glaringly obvious answer is it does. In my own life my birth, education (throughout) and health have been state provided. And I value them.
In the last few years the births of my sons (both complicated) were in state hospitals. Subsequently I can say without a shadow of a doubt the life of one of my sons was unambiguously saved by the NHS. If that is not value, what is? My mother died in hospital after 11 months of NHS care: I hate the think how much the NHS has spent in caring for my in-laws over the last few years. Not only would we have been bankrupt without the NHS, they could have suffered considerably I expect. Again I define that as the most phenomenal added value.
As I also define the police, fire and security services as adding value to my life. And knowing there is a social safety net, which I have not ever needed I admit, but which friends and family most certainly have definitely adds value.
Then there’s the state old age pension: never to be ignored in any financial calculation.
Add on to that health and safety — which means I dare drive a car, travel in a plane and buy a cup of coffee.
Or international development — which partners and supports the charities I choose to support and often provides them with the access they need to do their work.
And what about the arts? I get enormous enjoyment from art which could only happen with state support.
I could go on, and on. But if you cannot see that this lot adds up to added value then it is very clear that you are either blind or choose to be so.
None of which says the private sector is inappropriate (why are these commentators so black and white when the world is always grey?). When there is room for excess capacity then the market can operate — which there is not in health, education and so on if the supply is to be universal. When it can operate I am happy for it to do so — subject always to the fact that it needs to be constrained because the idea that it allocates resources efficiently is wrong: the votes in the system are not allocated efficiently to start with as they are unevenly distributed. That is why regulation and taxation has to tackle this problem. If not too many yachts would be produced and even more would starve to death. On no definition anyone could create is that efficient.
But I stick to my point: a great deal of what we value most is provided by the state. That is why we care about it. That is why we voluntarily pay for it through tax — and vote to do so. That price is at least as well set as one distorted by the impact of advertising.
And value added has nothing to do with the ownership structure of the organisation supplying a service — or even how it is paid for at the end of the day. You cannot, for example, make a nurse and added value supplier by transferring them to the private sector. But if you restricted the supply of their service to large sections of the population as a result (as happens in the US, for example) you can most certainly reduce well being by doing so.
So those who comment blatantly, and for reasons of outdated and outmoded ideology argue otherwise.
Which is why we need a new economics. Which is why I am working on it.
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As one of the 90% – here to learn – I say yay you. Am still to work out if you are logically convincing in posts like this or confirming my shared prejudices, but I hope it’s the former…
The issue lies in the definition of value. I think those on the right are only able to define value in terms of cash. Normal people understand that cash is valuable, yes, but only in the context of other values. From the point of view of the Right, the fact that public sector services are provided free, paradoxically, makes them non-valuable. The pblic sector generates sevices, which cost money, but does not generate financial wealth. This is short sighted, because the generation of financial wealth is almost impossible without the services provided by the public sector.
Of course the state provides things of value. But cash does play a part, because in an atomised society, you only get what you pay for. Now, there are things – education and the arts, for example, that could probably be provided more or less cost-free by small communities as part of a shared social system. And I think that would be a better model of society than we currently have, small villages where people fix and grow and help each other in an egalitarian way. I suspect that life expectancy would increase, general well-being would increase, crime would drop and everyone would be happy.
The problem comes when you need to buy an MRI scanner, or gets computers into school, or have an arts production above the local level, or as a nation get involved in a war far away. Then, you need cash. And only the private sector can provide that.
And on a bigger level, what happens if we can’t repay our public borrowing. Do you really think the people who hold our gilts (the Chinese, mainly) will be happy not to be repaid because we want a world class NHS? That is surely an elephant in the room.
But, to agree with you twice in a day, we do need a new form of economics. Anything based upon growth is clearly environmentally unsustainable and spiritually (for want of a better word) unsatisfying.
I think one of the problems we have here with the truly ‘economically illiterate’ is that they do not recognise service providers as wealth creators and, of course, the public sector is largely providing essential services. Does the private health care industry produce wealth?
Incidentally, if the services sector does generate wealth, don’t we need to expand this sector where it consumes minimal resources? Perhaps we don’t need to sacrifice growth to save the planet.
The strong reaction to your original post was not just to your comments about the ability of the public sector to create wealth but to your comment that the ‘private sector was … nice but wholly unnecessary’.
You often have a kernel of truth in some of what you write and yet manage to lose the point (or plot) by writing something else, in passing, that is patently obvious nonsense.
There is a sensible debate to be had about how the public sector creates wealth, but it can’t be had in the context of ‘the private sector … is wholly unnecessary’.
You would do well to read John Kay’s ‘The Truth about Markets’, particularly the bits about ‘disciplined pluralism’, and the different processes by which good ideas emerge and bad ideas get canned in public and private sectors.
Lusakajoe
Please quote correctly:
much (and I know, not all) of what the the private sector does is froth on the top of the cappuccino, nice but wholly unnecessary.
Completely different from what you say
And if it was not unnecessary why would we need so much advertising to shift the stuff?
That’s the evidence of the froth: this is want creation for the benefit if the supplier not need fulfilment for the benefit of the consumer
That’s why our planet is in the mess it is
Of course I am not contradicting John Kay: it is you who is arguing in absurdum, not me
Now stick to the argument, please
Richard
What is interesting is that while we do not trust the private sector to do most things important, the housing industry is now pretty much in private hands and what a mess they have made of it.To put the tin hat on it,housing bubbles worldwide have led to a paralysing crisis in capitalism .
I wonder if Mr Murphy has read today’s Times in which Rebecca O’Connor describes how developers deliberately ration the number of houses coming to market to keep up prices. This provides a prima facie case for LVT on a use-the-land-or-lose-money basis.
Is it that in the private sector it is the customer who decides the value of the service, and in the public sector it is the government who decides the value?
There`s advertising for food too.
Is that evidenc
Whoops.
There`s advertising for food too.
Is that evidence that it`s unnecessary?
Advertising means it’s unnecessary? I sure can’t wait for this “new economics”– from your list of items in the above post, it looks like you’ll be jettisoning that pesky concept of opportunity cost too.
You are apparently ignoring the most basic lesson of economics… the art of economics is looking not merely at the short-term effects of any policy, but the long-term; and not merely looking at the effects on one group, but on all. You are making what is known as the “Broken Window Fallacy”. You are ignoring what would have been created with the money that was taxed (stolen) from us in order to pay for the public services. By definition, taxpayers would have valued what they would have bought voluntarily higher than what was forced upon us by government.
Taking money from one group (taxpayers) in order to give it to another group (tax-consumers) is never economical and never ethical. The public sector adds value, it is true, but only a fraction of the value that would have been added had the money never been taxed away from people in the first place.
Truth and Liberty
You, and many of the others commenting here, promote abuse, nothing more or less
You do not argue
Further libertarian comments on this and other economic issues will be blocked for good reason – I do not think the discourse you offer any more acceptable to society than that of the BNP
Your concept of liberty, as is theirs, is one that is deliberately designed to harm – and would
I will not give it space
Richard
@Richard Murphy
What’s your definition of abuse, Richard? I can’t see anything in my post that could be construed as abusive.
Richard, in one sense this is a statement of the blindingly obvious, and I guess you would hope that for 50%+ of GDP we get 50%+ of wealth creation. The problem with government spending is that (however you define it) wealth is a scarce resource, and governments tend to make poor spending decisions (primarily because they tend to make these decisions for political reasons, and for the current mob their tendency to want to micro manage – or interfere as it might more properly be called). Although I think the actual level of optimal government spending is dependent on cultural factors, it is hard to justify 50%+ as anything more than too much – and I do think that the socialists will be flung out of government as a backlash against this.
Perhaps that is a bit unfair, as after all, all governments prefer to increase rather than decrease their spending. But the level of spending above the level of taxation is dishonest, and breaks their mandate with the people that elected them – and it is something that they started immediately on taking power.
from the posts you make it seems clear that you support the Keynesian analysis and would support borrowing in the current circumstances, but I believe you have the intellectual honesty to accept that such a view is not settled. It concerns me that my children will have to pick up the bill for this.
“And if it was not unnecessary why would we need so much advertising to shift the stuff?”
If the above is true, why is the public sector’s advertising budget so high? Millions (billions?)are spent every year informing us of various aspects of public services. To paraphrase, if they were not unnecessary why would we need so much advertising to promote them?
P lewis
Public sector advertising = information
I have no problem with information
But that is not the same as the creation of new wants – so please stop pretending you cannot tell the difference
Richard
@Truth and Liberty
You are abusing those who depend on taxation for their well being – as millions do – and which you would deny them
@alastair
See http://www.taxresearch.org.uk/Blog/2009/07/08/govspend/
The only way your children will have a bill is if we cut spending
Richard
Richard,
If the argument that public sector advertising = information is true then why can’t the same statement be made about private sector advertising?
To take a very specific example: Between making my post & reading your response an e-mail from a hotel chain dropped into my inbox. It tells me that they have a hotel in a location which will be convenient to break a long journey I’ll be making next week. I could have spent half an hour finding that information. The journey is not optional & I can’t drive 2000km in one go so I’ll likely use their accommodation. Why is this advertising froth when the booklet my local council sendt out unsolicited to promote its sports facilities is information. I have absolutely no interest in sport.
P Lewis
An argument in absurdum – and I did not argue against information supply in any event
That is very different from a media dedicated to advertising that has the sole propose of feeling unhappy with their current lot in life
Please deal with the big issues – if you can
Richard
Richard Murphy, so you are saying that theft (taxes) is okay as long as it supports the well-being of someone? Using that logic, all carjackings should be considered okay since it supports the well-being of others; that is, it supports the well-being of the carjacker and anyone with whom he decides to share the newly-acquired.
Dan dan
Tax is not theft
It is legal obligation due to the state
Your argument is so absurd it is ridiculous – and if you can’t see that shame on you
Richard
“Then there’s the state old age pension: never to be ignored in any financial calculation.”
Maybe not, but it clearly doesn’t add value, it transfers it. For every pound paid out in an old age pension, somebody else has to pay at least a pound in tax.
From you to a pensioneer. You need law writers, their staffs, buildings, printing presses, then collectors, cops, jails and jailers in some cases, then pension office staff, buildings, their health care, their pensions.
If you give your money, the transfer is virtually free. Through the maw and muck and mess of government who knows how much is cleaved off?
James Buchanan won a Nobel in Public Choice that basically said that state bureaucracies are motivated and rewarded to grow problems and become ever more inefficient over time. They like the money coming in, but not going out.
“Then there’s the state old age pension: never to be ignored in any financial calculation.”
Let’s just say: if you’re planning to get by on the state pension alone in your retirement, you’re in serious trouble. So for many, it can be safely ignored in every financial calcualation.
Peter
Which shows how out of touch you are
For millions that is all they are going to have to rely on
Richard
The state gets all of its money from the private sector. It does not generate wealth or value itself. That does not mean that there is nothing that should not be managed by the state, but the private sector always fund it. The NHS is NOT a free service.
Charlie
A strange argument – ever heard of a central bank?
And who supports the property right that is money?
And do you actually understand how money is created – it certainly does not seem like it
Richard
Richard,
You seem to be lacking in basic logic. Just because millions of people hope to win the lottery doesn’t mean any of them will. Just because millions of them are relying on a decent state pension doesn’t mean it will happen. The only difference is whether massive civil disobedience could change public policy, but I’d frankly be more worried about the younger workers than the older retirees. Since the war, every generation has had to work harder than the previous one for less benefits.
Free school meals? NHS dentists? Free opticians? Free prescriptions? Free university tuition? University grants? World class education? Dole during holidays? A decent state pension? All gone, and a country mired in debt. And now you want to burden your children with the obligation to pay decent pensions for those who have messed everything up.
I think it is you who are out of touch for believing that people can safely assume the state pension will give them a reasonable standard of living in future. Just because the future is unpleasant doesn’t mean we should be in denial. And the idea that a generation coming out of university with £30k of debt, a degree in something of little use and no jobs to even apply for will be able to fund what would be nice – well, wake up and smell the coffee.
We’re a poor country. We can’t afford any of it anymore.
Paul
Your comments are quite bizarre
We’re poor? We have a higher GDP than ever
The stete pension can’t be afforded? How is an ageing population to be managed then? I guarantee private pensions can’t pay. Are you planning they all starve?
Of course – we need to massively cut our expectations of consumption – that is obvious – they are unsustainable because they are beyond the limits of our planet to support
But we can maintain all people to a more than adequate standard
But that will require redistribution, progressive taxation, taxes on consumption, or more.
That is the reality
Face it
And there is no libertarian or market solution: its externalities we’re dealing with – and neither can handle them
Richard
Richard, without the state welfare system, families would take care of “the aging population”. Do you know why Social Security came about? Because of the Great Depression. Why, you ask, did the Great Depression happen? Because Hoover and FDR intervened in the economy. Why did Hoover and FDR even consider intervening in the economy? Because the Fed created a bubble during the 1920s that eventually popped. Now, how did “the aging population” survive before Social Security? The family.
Also, just because the state can afford to do something (with other people’s money) now, it doesn’t follow that the state must do it.
Dan Dan
more fantasy – have you ntoiced the breakdown in the conventional family?
are all your positions dependent upon make believe?
and how are those without family to survive – or will they starve in your world – especially if they are so unfortunate as to get ill – the incidence of which is random chance in most cases?
This is, of course what happened in the 20s
As for you economic analysis – that is also simple make believe unrelated to any facts
Are you surprised it is hard to take you seriously?
Next you’ll tell me you’re one of those who sees the Fed and Bank of England as private conspiraciezs and US income tax is illegal. Am I right?
Richard
Ever hear of a church, synagogue, mosque? They provide charity for the poor. Also, are you going to simply say that I am wrong without actually explaining why I am wrong? And no, I don’t see the Fed nor the Bank of England as private “conspiraciezs”.
As a regular communicant member of a CoE parish I know how hard it is to meet the parishes own financing needs – it’s ability to raise funds and provide social services when most of its won members are old and – candidly – not well off – is decidedly limited
Again – you simply fantasise about a world that does not exist
And whoopee – I sometimes make spelling checks on the blog – so what?
I’d make a simple request – would you open your eyes tomorrow morning and see the world as it is?
You’re a member of the Crown’s Church of England? My God, no wonder you’re a statist. I bet that if it wasn’t for the state, you wouldn’t know where to park your car.
Again, I ask you to provide sources or evidence for your claims about me.
Interesting comment – and a wild assumption
But at least I offer evidence – abundant evidence – that the informed could use to prove you’re wrong
I just use your comments as the basis of mine since I have no clue who you really are – and suggest that your comments are sufficient for me to draw the conclusions I do
But since you clearly don’t like me reading or commenting upon them I will henceforth delete them all
@Richard Murphy
Would that be the world where one can spend oneself out of debt perchance?
An individual can’t
A state can – in some circumstances – such as those we face now
Have you not grasped that macro and micro economics are not the same thing?
Richard
If the important thing here is for the state to provide everyone with a decent, basic standard of living, then surely we should expect to have seen the proportion of national wealth used by government to have fallen as efficencies in food production and administration make it progressively easier for us to provide this basic amount.
At the very least, if we assume that technology will continue to progress, we should expect the government to become an ever smaller sector of the economy from now on.
Non?
You ignore demographics. rising living standards, advances in education and expectation, increased cost of medicine, defence, policing, and more besides
Do you really think food is the sole definition of a decent standard of living
Is this the workhouse mentality gone mad?
Richard
It is evident that many of the commenters are so ideologically blinkered that they are unable to see what is written by others without distorting it. There also appears to be an ivory tower mentality which does not see the world as it is.
Someone seems to think the aging population we have now existed before the 1920s. It didn’t. People died younger. Of course, if we remove free healthcare at the point of use, we can go back to that situation. Prolonging life and improving its quality in old age has been a healthcare objective for many years. But if you want the poor to die younger, why not just say so.
Dan dreams of a world in which the religious people priovide charity for the poor, which substitutes for a welfare state. Then he seems to declare his disapproval for the largest church entity, leaving me a bit confused. Dan, do you know what proportion of people in this country are involved in churches (or mosques and synangogues)? It’s not very high. This isn’t the nineteenth century now you know!
James
I do appreciate your sanity
And I wholeheartedly agree with you
The problem I have with so many who comment from the libertarian right here is just how far out of touch with reality they are
Regards
Richard
There are a number of serious conversations to be had here. Where should the boundaries be drawn between the private and state sector? Which services are best provided by each? What is the appropriate levels of tax? What should be taxed and how? These are all areas where there are real and serious disagreements. But as long as we are distracted by people saying the public sector is all rubbish and cannot do anything better than the private sector, that tax is theft, etc we are not going to be talking about the real issues.
James,
I agree with you that there are serious debates to be had here. But the ideological blinkers work both ways, you know. The other day Richard said that much of what the private sector does is unnecessary. This is clearly nonsense as it is, at the very least, paying for the public services that his beloved State provides.
BTW, the demographic problem can be solved very easily – just raise teh retirement age immediately to 70 and then progressively to 75 over the next two decades or so.
Well… let`s say we consider food, shelter, education, some entertainment and access to healthcare to be fundamental right for all citizens.
I`d say it`s a fair assumption that given improving technology and increasing administrative efficiency we should be able to provide these more easily in the future than we do now. The only one which is likely to increase as a cost is healthcare and that`s simply because we`ll be able to do more – and who knows – improvements in preventative medicine may lead to a reduction of costs in this area too.
Peter, You may have a point about raising the retirement age. But, there need to be the jobs out there for these 60 year olds to do. Also, there needs to be less resistance on the part of employers to employ the old. B & Q can’t be expected to employ all of them!
Peter
a) If we are to get carbon consumption to where it needs to be I can assure you a great deal of what the private sector does now will need to disappear – that or sat goodbye to life on earth. What would you choose for your children?
b) This myth that the private sector pays for the public sector is myth – because it assumes the private sector creates and the public sector consumes wealth. I’ve shown that is not true.
c) Another libertarian truth comes out – work till we drop – in a workhouse presumably?
Richard
Mark
Prove it
You will not be able to – because you’re wrong – and what you prescribe is a world of widening wealth divides – and that is always unsustainable. People don’t accept it
Don’t over extrapolate – it’s very dangerous
Richard
Richard-
Well food and shelter will fairly clearly be taken care of by technology and productivity advances. Education – I`d imagine that the internet and improved technology will allow education to become rather cheaper and more convienient than it has been in the past – but you`re right – I can`t prove any of this. I don`t think it`s unreasonable to assume that there will be advances in productivity in these areas though.
Regarding the widening wealth divide, I`d say that the difference (in real, rather than crude monetary terms) between a starving man and a man with food is always going to be greater than the difference between two men with enough food, one of whom takes his holidays in Barbados. In fact once certain fundamental needs and rights are taken care of the differences are actually rather insignificant.
To put this in the form of your original analogy – why should we worry about how much froth someone else has in their cup when we have coffee?
You ignore demographics. rising living standards, advances in education
Rising living standards? Fancy analysing that?
Advances in education? I did my first degree at Cambridge, and I can tell you that it is utterly embarrassing how standards declined between 1900 and when I took my degree. I regard understanding Latin as being fundamental to a decent education and yet although all my predecessors knew Latin I have never studied it or been given to opportunity to do so. What could be more valuable than understanding the rise, decline and fall of an entire culture? And nobody knows about it any more – including me. I am well annoyed at the advances in education – looks to me like dumbing down.
“The state pension can’t be afforded? How is an ageing population to be managed then? I guarantee private pensions can’t pay. Are you planning they all starve?”
Richard – get this, I am one of the “all” you describe. Do you think the current pension is that great? I would love a decent pension when I retire. Just because I don’t think it will happen doesn’t mean I wouldn’t like it to happen. It just means I think it would be reckless to rely on it. We are in the same boat – it’s the Titanic. The difference between you and me is that I suggest the boat should have liferafts – you suggest its too big for anything to go wrong. I hope you’re right. But…
Of course the current pension is not great
Better than now’t though
And it should be enhanced
And trust me – there is no lifeboat – just one earth
We can only manage it together – not in isolation, by cooperation, not in competition
Richard
“have you ntoiced the breakdown in the conventional family?”
There are good arguments that the requirements of the neo-liberal economic model actively encourage the breakdown of family units, increases in crime and the prison population and many other social ills.
Shame that the possibility of creating a European-style of popular social capitalism is prevented by the ruling American-style of global capitalism.
Richard, where do you think carbon consumption should be?
Interesting question in amongst this lot. Is tax theft? Of course you are right that it is not, particularly given the narrow legal definition of theft. But what about the morality of governments raising taxes for which they have no mandate? I am thinking specifically of the recent changes to income tax rates – the abolition of the 10% band, and the raising of the top rate to 50%. It would be difficult to argue that the Government has a legitimate mandate for either of these changes, and it would be equally difficult to argue that they will solve any of the problems that Brown (and to a lesser extent Darling) argue they were made for. On the other hand both changes have created a lot of negative press.
The other interesting theme is the morality of the current spending in excess of taxation. I have heard some refer to this as theft on future generations – I have some sympathy with this argument.
You claim to represent tax justice, so I am interested in your views on the justice and morality of some of the taxation practices of government.