Lost Causes: The Retreat from Classical Liberalism

 

Last month, the IEA co-published Lost Causes by Deepak Lal. The book can be bought from the IEA here. It was interesting to see, in the wake of the 2012 budget, various think tanks and commentators claim that they had influenced this or that policy. Deepak Lal has no such pretensions. Lal’s book is a collection of policy ideas that he has promoted that have been flatly rejected by government after government. They are all sound ideas – though I differ with the author on some of the details – but the ideals that Deepak has promoted for decades have definitely not come to fruition.

The ideas that Lal has written about include: replacing the NHS with a state-funded private health insurance system; largely abolishing foreign aid; ending the crusade against tobacco; and the misconceived fight against terrorism using methods that seriously reduce personal liberty. Indeed, these very four issues have been in the news recently including a very-well-researched House of Lords report criticising government aid policy.

So, why are these issues – and many others – lost causes? Lal refers back to the theme of another recent IEA publication – the Public Choice Primer by Eamonn Butler. The state exists, in the mind of liberals, to protect us from predation. However, that same state has now become the main predator because, through interest groups and the democratic processes, we are able to legally confiscate each other’s property and do so to the tune of 50% of national income (if inter-generational transfers through government borrowing are taken into account). Majorities in a democracy can easily take the property of others (especially of the next generation by building up debt). However, minorities can prey upon majorities as long as they are well organised and bureaucratic interests find it especially easy to prey on others. The mechanisms by which we hold them to account are very imperfect.

What is Lal’s solution?

The first is a radically decentralised state raising (mainly) local taxes on consumption. People could choose where to live including on the basis of the level of tax. All taxes should be flat taxes to reduce predation through redistribution. Tax competition will then operate within countries and this will complement the tax competition between countries that Lal expects to become more effective over time as Asian states grow richer and attract talent from the West.

If this policy is followed, the state will have to focus not on predation but on providing the best possible public goods – in those cases where there is a role for the state – for the lowest cost. This will then lead to solutions, such as those proposed by Lal, being adopted.

Funnily enough, I just started reading this last night. Unfortunately, it's now met some stiff competition from Ronald Coase and Ning Wang's How China Became Capitalist, which arrived at the office about 30 minutes ago!
Sounds great, but the solution to predation is to convince people to stop doing it. The economic case (government spending is wasteful) doesn't seem to be getting through. Perhaps you should try making a moral case: e.g., it is morally wrong to forcibly take money from A in order to benefit B. It is morally wrong to force A to pay for and use a monopolistic 'public service'. It is morally wrong to use force against peaceful people who just don't want their money taken for these purposes.

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