Nobody is poor no more

Jesus, it appears, was wrong.

I’m not commenting on that whole “Son of God” thing, or his suggestion that we should forgive people or love our neighbours. Rather, I am referring to his suggestion that the poor will always be with us.

In fact, the poor have been in and out of our lives of late. Until the C20th, it was reasonable to say that the poor were omnipresent. Yet through the remarkable mechanism of capitalism, it seemed that we would at last be able to put an end to poverty once and for all. Nobody in the UK now wants for food, clothing or shelter (at least not for a lack of resources) and across the globe hundreds of millions more are being lifted out of poverty.

Then the socialists stepped in, and for a short period of time they redefined poverty back into existence. There’s nothing a socialist hates more than the end of poverty, after all, for without poverty there is no excuse for socialism. So they redefined it as a relative as opposed to absolute phenomenon: one is now poor if one’s income is less than 60 per cent of the median. Even when human progress has reached the point whereby we each shuttle off to our pleasure-planets in our platinum-plated star ships, those with barely a single continent on which to build their diamond-encrusted houses will be considered poor.

However, having done Jesus the enormous favour of proving him right, the socialists clearly panicked, because they have since re-labelled them out of existence again.

Have you noticed that nobody is poor anymore? These days, those with few assets and little income are not poor: they are “The Deprived”, “The Disadvantaged”.

This is not an innocent move. While at first glance it might seem nothing more than one of those irritating euphemisms that urban self-styled “liberals” (more accurately the bien pensant classes) use to avoid causing offence by giving rise to any suggestion that they may be judging somebody (“vertically challenged”; “work poor”), there is in fact a far darker motive. Just as socialists need poverty to excuse their efforts to force individuals to conform to their will, so they need blame to create the enemy within that all tyrannies require; specifically, they need to blame society as a whole if they are to justify permanent revolution.

Think about these terms for a moment. To be deprived, some person or force has to stop a person accessing something. To be disadvantaged is even more insidious: note that one is not less advantaged, but disadvantaged; they are put in a dis-favourable position. In both cases, something or someone has acted upon the poor to make them poor. In the mind of the socialist, this is the evil structure of society.

Two logics follow from this. The first is that society is somehow unfair, that it advantages some and disadvantages others. This is nonsense. Society advantages everybody. Specialisation, for example, is a feature of static, agrarian civilisations, without which everybody would be subsistence hunter-gatherers expecting to live just long enough to see the majority of their children precede them to the grave. Our modern societies have gone further: thanks to capitalism, nobody need want for food, water, shelter, clothing or warmth. It is true that some have benefited (“been advantaged”) more than others, but that does not disadvantage those who have benefited less, it merely advantages them less. They still have advantages that on their own, in splendid isolation, outside society they would not have. Without spendthrift consumers there would be fewer jobs waiting tables or designing jewellery. Without the fabulously rich there would not have been the early adopters of MP3 players, video cassette recorders or motor cars that were so vital to getting those industries up and running and eventually making the products widely available to all.

This capitalist society is anathema to socialists, for it is random and organic, not rational and organised. It challenges their desire to put into practice their planned societies, where each individual is a cog in a finely tuned machine that operates at their direction. By blaming society for individual poverty, they justify revolution and the implementation of The Plan. In the end, we will be as equal as any robot on an assembly line. And this siren song is attractive to the mass of poor voters, because it absolves them of responsibility for their own situation.

For that is the second logic that results from re-labelling the poor as “deprived” or “disadvantaged”. The poor are not to blame for their poverty. There is of course a circumstantial element that influence individual outcomes – social mobility has declined under both the Tories and Labour, so that it is more difficult than ever for an enterprising person to better their circumstances – but the suggestion that other people and/or society are entirely to blame for an individual’s poverty is both spurious and self-serving.

At least some responsibility for their situation must lie with the poor themselves. This often makes people who see themselves as liberal uncomfortable, for there is undoubtedly a correlation between liberals and bleeding hearts. Yet there is clearly also a correlation between poverty, poor school achievement, criminality, drug use and a number of other social problems. And here lies the crux of the liberal dilemma: if liberals believe in the primacy of the individual, and in an individual’s ability to exercise their free will, then how can liberals deny that some of these result from bad choices. It is unfortunate that many of these choices are made when people are young (though I’m not convinced that they are always too young to know better), but nonetheless the decision to play truant or refuse to do homework is a choice exercised by the child, for which their adult self will suffer. The same can be said of youth or unmarried motherhood; it is not judgemental or reproachful to say that the mother has exercised her choice to have unprotected sex and to have a child, and that consequences will result from that choice.

Society in fact benefits from the fact that the choices made by individuals have consequences; it is these consequences that encourage us to make good choices that will benefit not only ourselves but others too (I want money, therefore I work, therefore I generate wealth for society as a whole). That does not mean that we should have no welfare safety net, or that we should not help those at the bottom of the pile improve their circumstances. There is a strong case for focussing on education to ensure that all children have a good start in life, and for helping people (but not making people) make sensible decisions. But both the health of society and the freedom of individuals depends on our creating a system that encourages people to look first-and-foremost to their own welfare, that encourages them to make decisions in their own best interests. The alternative is to strip individuals of responsibility for their own circumstances, prosperity or wellbeing and instead give credit or blame to society as a whole.

By absolving individuals of responsibility we obviate the need for them to make sensible decisions (indeed, any decisions), we reward failure and penalise success, and give our freedom up to politicians and bureaucrats.

Then we really would be deprived.

How the “Asset rich, income poor” can afford their Land Value Tax

Julian H. has asked a perennial question about Land Value Taxation, which I will seek to answer below, namely

…how it's possible to tax something so illiquid.

For example: suppose I have owned the land my house is on since 1990 - in which time its value has increased from £100k to £1m. Yet I am a school teacher and my income during that period has merely risen from £18k to £28k per annum; enough to live off but no more. I have no money investments beyond my pension. How do I pay a LVT on the £900k that my land's value has increased by? I have not seen that £900k cash and never will do because my lazy kids are still living at home and anyway I am sentimentally attached to the house so I'll live in it until I die.

In doing so, he has highlighted the one serious obstacle that land value taxation faces, which is how it affects those with big assets but small income: fashionably called the “Asset rich, income poor”. The most obvious example of these people are pensioners – those whom we cite so often when criticising the Council Tax (which is, when all is said and done, a property tax, albeit a badly flawed one).

There are two possible solutions to the knotty problem of paying tax on an illiquid asset. One would be to permit the taxpayer to defer payment indefinitely, with a proviso that the debt must be paid when the asset is sold, including giving the tax debt priority in the estate of deceased landowners still owing land tax debts. This would result in low yields from LVT in the first few years, but after a while it would begin to settle down and average out. It would also reduce house prices, as profits would be significantly curtailed as significant portions of any profit earned could be owed in back tax.

The other solution would be to create a far more sophisticated market for turning illiquid into liquid assets. Better than the above – which is effectively a government loan scheme – would be for markets to lend money secured on the property. This would require only a small change to existing rules. One can currently withdraw equity on a property; the only difference would be for asset-rich, income-poor households that would wish to defer payment on the new loan. That problem is hardly insurmountable.

Creditors (be they state or private) could either charge a set return, as they do now (5% per annum; 0.75% over the base rate; etc.) or take a stake in the premises (perhaps without charging a fee, as they would then be sharing in the impressive return on the land values themselves). After all, if LVT was set at 1%, and fell only on the land value rather than improvements (considered to average less than two thirds of property prices), then even if one bought a house and lived in it for 30 years, never paying one’s own LVT, when one came to sell/died after 30 years one would only have ceded less than a fifth of the (value of the) property to the person or institution that had paid 30 years of LVT on your behalf.

In answer Julian’s specific example, then:

Assuming a typical property, £60,000 of Julian’s original £100,000 was the stake for the land rather than the building on it. This has grown to £600,000 over 17 years, giving Julian half a million pounds in unearned growth. Consequently, either:
a) 17% of the land (but not the buildings thereon) is owned by somebody else – government or financial institution, or
b) Julian borrowed the money at a commercial rate of interest, and currently has a financial commitment (which I can’t be bothered to calculate because it is complex) which he has no need to pay until he sells the house or dies.

Either way, Julian need not worry. If, as he says, he is “sentimentally attached to the house so [will] live in it until [he] die[s]”, he need never pay off the debt. Instead, he can die still owing the tax/debt, and his “lazy kids” can pay it off out of the enormous sum of money they make selling the family home.

Even if Julian lives for 100 years after he buys the house, his children will still get the return on the buildings (a third of the overall value - £400,000 so far according to his original example), which will still provide a nice start in life now that they have to go out there and fend for themselves.

I hope that explains how LVT might be affordable for the asset-rich, income poor. It’s a better position than they currently find themselves in when the Council Tax bill arrives. And it would help damp down the housing market, too.

For ye have the poor always with you

Geoffrey Payne and Agent Mancuso began a debate yesterday on whether the Liberal Democrats should make the reduction of inequality (referred to by some as the issue of “relative poverty”) a matter of party policy.

Coincidentally, I have been reading some old party papers today, and have come across clear statements of support for the concept of “relative poverty” and the idea that government should counter it.

“A fair Britain is one… [that] redistributes wealth from the richest to the poorest.
“Inequalities in wealth… are widening… We are determined to reverse this trend and to remove the inequalities created by the structures of society. We are determined to create a fairer Britain.” (Trust in People: make Britain free, fair and green, Lib Dem policy paper 76)

Yet as Mancuso notes, “even the poorest people in Britain are considerably better off than the poorest were a generation ago, and they in turn were better off than the generation previous. Compared to the millions who live in genuine poverty around the world, all but the very poorest in Britain live in luxury.” The sentiments are echoed in the article by Arnold Kling to which I referred a couple of weeks ago.

The Government defines income poverty as having an income below 60 per cent of the national median income; severe poverty is below 40 per cent. Yet in a dynamic, prosperous society, vast differences in wealth are inevitable (and perhaps even functional).

It is almost as though, at the very moment that we are about to rid our country of poverty forever, we have discovered a way of ensuring that the poor will always be with us. Hmm…

Last year I read an interesting account of how the relative definition of poverty came to be adopted in the UK. It starts with the Labour Party conference in 1959. Labour were in the doldrums: they had lost three general elections in a row, and Barbara Castle lamented “the poverty and unemployment which we came into existence to fight have been largely conquered.” But three years later at the annual conference of the British Sociological Association it was proposed that the “Poverty Line” be considered to be the equivalent to the amount that the government paid in ‘Supplementary Benefit’. Harriet Wilson, an academic who was there, described the tension that resulted from this redefinition of poverty as “a mood of conspiratorial excitement.” One historian, examining this change, has referred to it as “explicitly political”.

If there is truth in this suggestion, it is indeed disturbing, for it suggests that senior Labour figures deliberately adopted and promoted a relative definition of poverty, not because it better summed up the suffering of the economically less well off, but because it gave them an inexhaustible raison d'être, a justification for a Trotskyite permanent revolution, an excuse for an eternal battle against the wealthy and successful whom socialists so fail to understand and appreciate.

Irrespective of whether the conspiracy theory is true, however, relative poverty should not be our concern. Our focus should be on ensuring that nobody suffers from absolute poverty: that no matter how dire the circumstances, everyone may be assured of food, water, clothing, shelter and warmth. To those five essentials I might add the opportunity to lift themselves back out of their desperate state, but this is best achieved through a rapidly growing economy and loose labour laws, resulting in the rapid creation of new and better job opportunities.

By comparison, the levelling sentiments (which, is might be noted, bear little resemblance to the beliefs of the original Levellers) of those who would seek to take from the rich to give to the poor (what economists would call penalising success and rewarding failure) should have no place in our party’s policies.

Particularly, we must absolutely shun the populist attraction of a “policy of extra income tax for the very rich to secure more funding for public services [which] was a net vote winner at the last general election, by a substantial margin.” As liberals we should no more discriminate against people because of their wealth or their income than we should because of their gender or race. It is easy to find unpopular minorities against which some punitive legislation can be enacted, to the delight of an unsympathetic majority – and no minority garners less sympathy than the rich. But that is not what liberalism is about. Rather, it is an affront to the rule of law.

A fair Britain does not mean that everybody has the same or a broadly similar amount of wealth. It means that everybody, no matter their wealth, is treated equally by the state.

As Oliver Wendell Holmes, Jr., once said, “I have no respect for the passion for equality, which seems to me merely idealising envy.”

If we really want to solve poverty, first we have to stop trying

It is the weekend, a time for reading books, watching a three day old episode of Question Time and not spending too long in front of the PC.

So instead, let me guide you to an excellent article by Arnold Kling on why the best means to solve poverty is "decentralised entrepreneurial activity under capitalism", rather than misguided centrally planned wonder-cures.

In the process, he (or rather, Robert Rector, whom he quotes) points out the fallacy of our oft-cited figures on poverty in the Western world, where (in America, where British commentators like to say that poverty is rife) "Forty-three percent of all poor households actually own their own homes... Eighty two percent of poor households have air conditioning... Nearly three-quarters of poor households own a car; 30 percent own two or more cars..." etc.

Kling's final point is especially pertinent. He advises that we need to shift our attention from a focus on intentions (how nice and worthy people are, and how much they want to help poor people), to a focus on outcomes (what effective policies or practices are, and how much they actually help poor people).

In the end, we need to spend less money dispatching 11,000 donor missions to 31 aid-receiving countries each year, and more money buying stuff we want to own, much of which (and, increasingly, more of which) is made in developing countries. If we try less hard, we might do more good.

Unicef report may be flawed, but there is still much to worry about

The Unicef report on child well-being in rich countries caused an instinctively sceptical reaction in me, partly because of the known left-wing bias within the UN agencies and partly because of its reliance on relative income measures. As I commented to Cicero earlier today (I have since rectified the typos!):

I fail to understand how a poor child in Britain is worse off than an even-poorer child in Slovakia, simply because the British child is able to see a Porsche from her window rather than a clapped out Lada.

Having said that, I’ve decided it’s best to read the report before spilling too much virtual ink. Sadly (sic.), I’m about to disappear off to Cape Town (where the temperature is in the 20s and the sun sets late over the sea) and so won’t have time to read it and write about it until it is quite stale, so I’m going to make a few observations based on the very informative annex, which has the 40 separate indicators which led the report writers to their conclusions.

Having reviewed these, I remain very sceptical of the relative poverty issue. Furthermore, many measures are based on subjective reporting (“aspiring to low skilled work”; “finding their peers kind”; “agreeing with the statement that…”) and others are probably based on surveys that may not be entirely accurate (reports on how many books are in a house or how many educational tools – did the children consider the family computer an educational tool? Or a toy?).

Nonetheless, perhaps a third of the measures were clear, objective measures based on official statistics in which we ought to have at least some faith. The following stand out as cause for real concern:

· Above average infant mortality
· Above average number of births with low birth weight (they say “birth rate below 2500g” but I am inferring what they meant!)
· Below average immunisation against DPT3 and Polio, and significantly below average immunisation against Measles
· Above average number of overweight 13 and 15 year olds (according to BMI).
· Significantly below average participation in education among 15-19 year olds
· Below average number of 15-19 year olds in either education or employment
· Significantly above average number of children living in single-parent and step families
· Significantly above average adolescent (15-19 year old) fertility rate

(For statisticians among you, ‘Significantly’ refers to more than one standard deviation difference, which puts the UK into the bottom quintile).

No matter how you cut it, that means that the UK’s children are less healthy and dying more often than peers in less wealthy societies including the Mediterranean countries, the Czech Republic, Slovenia and Malta. They are not undertaking as much further study and are more likely to expect to work in unskilled employment – not a good place to be with a billion Chinese yet to join the global labour market. Traditional family structures are more fragile (though I hesitate to draw any conclusions from this).

I do not believe it follows that the solutions must be more Government intervention in family lives or massive statist structures institutionalising childhood. But there is clearly room for improvement in our public health and education, currently subject to two of the largest Government departments. A more thorough immunisation programme, better sex education and improved technical educational opportunities for non-academic school leavers would be a good start.

One thing is for certain: despite the instinctive scepticism and lingering doubt of myself and many liberal-minded colleagues, this report leaves no room for complacency.