Wednesday, 3 June 2009

The Tragedy Of The Commons

Since Tomsk was kind enough to expand upon his earlier point, and since it's been a while since I've stuck up a "Voices of Authority" article, I thought I'd hand the keyboard over to him so he can explain in his own unique style. I've been toying with allowing others to guest-star on the Musings, and Tomsk is an ideal first contributer.

Treat him gently.
After the Labour party lost the 1979 general election, it took them another 18 years to get back into power. During this time a right-wing government remoulded Britain in its own image. One of their many achievements was to destroy the country's manufacturing base, leaving us heavily reliant on a deregulated financial sector to generate economic growth. Luckily for them, it took until 2007 for their banking "reforms" to go pear-shaped, and we are only now starting to pay for their toxic legacy in the form of a huge budget deficit.

Unfortunately for us, the Conservatives don't get the blame.

Instead we have another legacy of that era: New Labour. On the one hand committed to improving public services, reducing poverty, and other wholesome left-wing goals, but on the other a feeling that they had to embrace the Tory economic agenda in order to get elected, and later to stay in power.

For a while this strategy seemed to work. An unprecedented period of economic growth meant that we really could have both historically low taxes and a well-funded public sector. But when the recession struck, the New Labour method for running the country fell apart.

If nothing else, the financial crisis has demonstrated once again that limited government kowtowing to unregulated free markets inevitably leads to boom and bust. In an ideal world, public opinion would turn leftwards as a result. This is exactly what's happened in America,where the economic crisis destroyed any chance of McCain becoming president, and has given the Obama administration a once-in-a-generation opportunity to remake their government.

But what happens when the supposed party of the left is already in power? There was a fleeting moment when the financial crisis first hit when it looked like the progressive agenda in Britain was about to be firmly cemented in place. Gordon Brown, previously a lame duck, was getting plaudits for his swift action to shore up the banking system, and the poll gap with the Conservatives was beginning to close. All he had to do was hang on for an economic recovery before the general election deadline arrived. A hung parliament would be enough (and would open the door for PR, but that's a whole other post...).

The House of Commons expenses scandal has turned all this upside down. Even though all parties are equally to blame for the rotten system,the public have directed most of their anger at Labour simply because they are the party in government. The Conservatives have barely suffered, despite their MPs being among the worst abusers of the system. The opportunity offered by the financial crisis has disappeared, replaced by a lurch to the right that is entirely undeserved (anyone who thinks otherwise should look at the expenses of UKIP MEPs). The prospect of a majority Tory government, perhaps even a landslide, is more likely than ever.

This might not have mattered so much before the recession, when Cameron was positioning himself as a clone of Blair. But now we are faced with tax rises and/or spending cuts to fill in that hole in the budget, and the Conservatives have reverted to type, already indicating that they will choose savage spending cuts wherever they can. It'll be just like the 1980s, only without the craze for synth-pop. Oh wait...


SpaceSquid said...

So is the argument that progressive politics will die under Tory rule because they won't spend the necessary money, or because they're clearly still a bunch of idiotic bastards?

I'm not saying I disagree with either conclusion, I'm just wondering.

Chemie said...

It will die because the Tories have no interest in changing Britain's current industry, labour laws or rigorously regulating finance. A right wing love of capitalism caused the current problem. The Tories are not going to swing left, approach Europe or instigate socialist reform to solve it, so we are heading back to the 80s.

Further compounding this is a growing sense of disillusionment with politics (especially where expenses are concerned- greed again). Any whiff of political reform has unsurprisingly been beaten back by the MPs with their noses in the trough. How many unemployed will it take before people start casting about for unions, or better state benefits? The Tories are *conservative*, they don't want electoral change or to learn from the recession we are in. They just want to take power using it. Why make political progress and re-assess financial regulation and our country's reliance on the finance industry when you can cut benefits, blame single mothers and foreigners and line your pockets?

Tomsk said...

While I agree with Chemie that the Tories are intrinsically un-"progressive" (admittedly a wishy-washy Guardian-reading term that I basically take to mean centre-left), the point I want to stress is that the financial crisis has changed the game completely.

Before the end of last year, Cameron was basically trying to pull the same trick as Blair, i.e. drag his party as close to the centre as possible in order to become electable. In both cases I think they genuinely believed that centrist politics was the way forward.

The problem is that the gigantic budget deficit has effectively removed the centre ground from British politics. No matter which party gets to power, spending cuts will have to be made. The question is how deep will they go, and how far will they be offset by tax rises. In this situation a Tory government suddenly becomes very dangerous indeed.

For the first time since Labour came to power, we're now faced with a substantial and serious choice at the next general election. I don't think the public in general have woken up to this fact yet. Anything that obscures this choice, but in particular the expenses affair, plays directly into the Conservatives' hands.

So in answer to your question, the Tories are by nature idiotic bastards, but it is only the fact that there's no money left that gives them the excuse to revert to their Thatcherite roots.

Senior Spielbergo said...

Well your getting closer to politics that directly effect me, but still not quite there yet though…

So just to clarify Tory = Bad, Labour = Also bad but occasionally shows promise, Lib Dem = No one knows as they’ve never actually had any power… About right?

Now what does this term “progressive” actually mean? I’ve heard it banded about so much in so many different contexts (mainly in relation to tax strategy and for some reason in that context it means increasing the proportion of income, as apposed to the actual amount, that higher earners pay), what does it mean by progressive politics? I’m guessing it simply refers to change but if so that’s not in on itself a slam dunk good thing so perhaps I’m missing something and it means something more.

As far as the whole fiasco about expenses goes - it’s been blown out of all proportion if you ask me. If you introduce rules allowing people to claim back for certain things – guess what people are going to claim the money. Given enough time – everyone is going to claim the money – great big tap dancing woop. It’s not the MP’s fault it’s the rules fault, and admittedly the rules are dumb. Make it simple – pay MP’s a set amount a year, no expenses allowed, and that would be it. I wouldn’t even make it a large amount – maybe £50K a year – being a MP should be a privilege not a meal ticket.

And yep Labour are getting screwed – MP expenses scandal = small news story, cabinet member expenses scandal = big news – Oh and who has all the cabinet members again?

SpaceSquid said...

"what does it mean by progressive politics"

I suspect this isn't what Tomsk means by the term, since he's discussing British politics, but since so much of this blog is about the American political system I thought I'd give my definition for the sake of comparison. In America the term should mean the attempt to make progress in society through change and reform. In this sense it can be considered the opposite of conservatism. In practice, though, because so much of the current American legal system is viewed as being right-wing (or at least centre-right), an American progressive will almost always be left-wing, and thus "progressive politics" is indistinguishable from the politics of the left.

Tomsk has mentioned before that he thinks I misuse the term "liberal", and in truth whilst "liberal" and "progressive" are considered essentially interchangeable by many American political commentators, the latter term is probably more accurate in general (though one could refer to any American self-styled liberal as a "social liberal" and be pretty close to the mark).

Tomsk said...

Spielbergo - as a confirmed leftie I think your summary of the parties has some merit, although I wouldn't describe Labour as bad so much as excessively timid. The major difference between Labour and the Lib Dems over the past few years was that the Lib Dems opposed the Iraq War, but now that Iraq is a non-issue it's not so obvious how they differ in fundamental terms.

"Progressive" is, as I said, a fairly wishy-washy term, but if forced to define it I would say that it is an ideology that believes in gradual (rather than revolutionary) change towards a more equal society. The concept of progressive taxation is unrelated, but as it results in a redistribution of wealth, most "progressives" would support progressive taxation.

You're right to say that the expenses system is at fault, but you forget one important detail: the MPs themselves devised the system. They've only got themselves to blame. Having said that I agree that it has been blown out of proportion and has now become an ugly witchhunt.

Your solution would not work at all for geographical reasons. Some MPs (e.g. representing Highlands & Islands) require a second home and some clearly don't (e.g. any MP in a London constituency). Unless you want to impoverish the provincial MPs, some kind of second home allowance is needed.

Senior Spielbergo said...

Ah so “progressive” in this sense is related to progress towards a more equal society – OK that makes sense (although I think the use of a very general word for what is a relatively specific purpose is not the greatest use of the English language).

As far as MP’s expenses are concerned I figure it wouldn’t be that hard to have an MP’s “Hall of Residence” – which is basically a Hotel which is owned and run by the government purely for outlying MP’s to stay in whilst they do their parliamentary thing. They could probably even recoup some of the costs by renting rooms out in the “off season”. People may moan, but it should be noted that there are plenty of government employees who live in government owned and run accommodation when they are called upon to work away from home (the army spring instantly to mind, they get shot at far away from home and they don’t get to claim a second home allowance for their accomodation).

SpaceSquid said...

"Although I think the use of a very general word for what is a relatively specific purpose is not the greatest use of the English language"

In fairness, we do have other words to use to describe people who want to change society to make it less equal. Most of them are not very nice.

BigHead said...

What exactly do we mean by "equal" here? It tends to be used without explanation which is fine when you're in the clique that understands it, but for dumb righties like me it isn't so clear what you're getting at.

On the subject of why the MPs expenses are a big deal: these guys make laws to bully their subjects, and like to have a self-righteous preach every so often, and so this shows them up as villainous hypocrites.

As far as "it's the fault of the system" goes, it is indeed the fault of the system that some of these claims were accepted and MPs making ridiculous claims were not dealt with, but if the system allows you to successfully claim nonexistent or bullshit expenses, then you're still guilty for making them in the first place. This applies to the commoners, so I don't see why our honourable lords and masters should be immune.

And, let's be honest, if they really think that a duck house, a nonexistent mortgage, a trouser press, and so on, are expenses "wholly, exclusively and necessarily incurred for the performance of a Member’s parliamentary duties" then it's true that they may not be villains, but they show sufficiently horrific judgement for their lawmaking powers to be revoked instantly.

Tomsk said...

BigHead - you're right of course, that's another problematic idea to define.

At the most basic level it implies equality of opportunity, so everyone is entitled to the same rights under the law, the same standard of education, the same standard of healthcare, access to housing and so on. Further, no-one should be discriminated against on the basis of age, sex, race, religion etc. etc.

On top of that a more equal society implies a reduction in wealth inequalities, which is where the UK has so conspicuously failed in the last 30 years. This is easier said than done, of course, although reducing inequality of income is the obvious place to start. Progressive taxation is one means of addressing this issue, though not the only one.

Some people (e.g. Blairites) would argue that only equality of opportunity matters, but I strongly disagree. It's part of human nature to want to acquire as much material wealth as possible, but it's well-known that once our basic needs are satisfied this process doesn't actually make us any happier. Whereas economic equality has been demonstrated to lead to happier and more successful societies.

Senior Spielbergo said...

Woohoo! I think I fall into a category for a change! I am clearly a “Blairite” (even though I have a dislike of Mr Blair due to an experience in my youth) as in my view equality of opportunity is indeed the key while on the whole equality of wealth is a bad idea. In order to operate efficiently society needs to have very rich people in it. It is these mega wealthy that can actually afford to provide capital, invest in ventures that otherwise would never get the required funding, and provide a market for industries that otherwise would never exist. Without the discrepancy between rich and poor, the economy would narrow significantly, focusing predominantly on just the essentials, and as a result you get less employment, less taxation income to support those people and generally an economy in trouble.

The right approach is to be constantly striving to improve the lives and wealth of those at the very bottom of the wealth scale, thus bringing the whole economy and everyone’s lives up. Not to try and compress things together which would overall shrink the economy and in the long run make everyone’s life worse.

The rich might get a lot of stick, but it’s very difficult for them to have wealth and at the same time not to be doing good things for the economy in general through investments and the use of capital (even if they just stick their millions in a bank the bank is going to invest it for them, about the only way they can do no good is if they stick all their money into gold bars or other similar fixed asset).

Chemie said...



If the very rich contribute so much it also means that a great deal of economic and therefore social and political power lies with a tiny minority. Aim for more wealth by all means but large gaps are harder to bridge. It's very easy for the mega rich to not be doing 'the right thing' for the economy -see our present situation. And only capitalists believe that the economy is in direct and only correlation with 'society'.

Tomsk said...

Spielbergo - nice attempt to justify the mega-rich, but the role of providing startup capital can be (and usually is) played by institutional investors such as banks, specialised venture capital funds and even the government. There is no need to rely on the whims of those who happen to have obscene levels of personal wealth. In fact I would argue that it's highly inefficient for any individual to hold such power over our budding entrepreneurs.

While it's of course a truism that we should improve the lives of the least wealthy, I don't think you've taken on board my previous point that it isn't enough just to raise absolute living standards. Wealth inequality has been shown to have a tangible negative effect on society as a whole (see the book I linked to before). And compressing wealth distribution does not necessarily lead to the economy shrinking - the most equal societies are those like Sweden and Japan - hardly economic basket cases - while the least equal is Namibia (as measured by the Gini coefficient). Where would you rather live?

It's also inefficient economically to have people with huge personal wealth. Fine, the money can be invested, but it is far more efficient to give it to the poor, who have a more pressing need to spend it. It's no coincidence that Britain's stimulus package was spent on cutting the consumption tax VAT, rather than income tax - because that way more money goes to the poor, thus boosting the economy more swiftly.

Last but not least, there's the moral issue. The financial crisis has brought to light just how little relationship there is between the merit of the mega-rich and the money they earn (Fred Goodwin being just the most obvious example). It was the reckless behaviour of the financial elite that got us into this mess. In what possible way did they deserve the ludicrous amounts of money they made while simultaneously ruining our economy?

PS. please give details of the trauma Blair inflicted on you as a child - nosy blog-readers have a right to know!

SpaceSquid said...

"PS. please give details of the trauma Blair inflicted on you as a child - nosy blog-readers have a right to know!"

Yeah, that intrigued me too. Well, I say "intrigued", "alarmed" is probably a more accurate description.

Senior Spielbergo said...

I’m afraid I don’t quite have time to order, receive and read the book in question in the space of the next few hours (after which time I’m sure we will have moved onto Squid’s next post). So basically whilst I can accept that there exists a book with the title “Why More Equal Societies Almost Always Do Better” I don’t think I can use that fact to form an opinion on if the statement “More Equal Societies Almost Always Do Better” is accurate. The only judgement I can even make on the book is the fact that a quick Google search reveals opinions on the book in question, ranging from “It’s really good” to long statements pointing out all the errors, assumptions and general inaccuracies in the book. So basically it’s not much help in forming a view.

The point I’m trying to make about what the wealthy bring to the table, is that they have disposable income, and excess capital they can invest in a wide range of enterprises. Something which the general population doesn’t, at least not in the amounts required. You mention venture capital funds, institutional investors and banks, but the funding for all of these entities comes from people who have comparatively large amounts of disposable income and excess capital. I.e. the wealthy. The mega rich are not typically like Scooge McDuck stockpiling money in a big vault somewhere, they are in themselves corporations who employee hundreds if not thousands of people and invest in ventures that otherwise would never see the life of day.

If you view some of these people, like Steve Jobs, Bill Gates, Richard Branson, and of course Sir Alan Sugar (Apprentice final this Sunday by the way – Not the usual time slot), it is quite clear that the businesses they run provide enormous benefit to the economy and help produce both employment and innovation in a number of areas. Many of the companies they have raised up would never have had a hope without backing from such wealthy individuals.

Now there are quite obviously some wealthy individuals who are les then stellar examples of wealthy individuals helping the economy, and I’m sure there will be some who just spend the entire time lazing on the beech and generally just having a good time. But you get that sort of behaviour all throughout the wealth spectrum. It’s just in the case of the mega wealthy a small number of these people can cause a lot of damage. Perhaps a good step would be to somehow encourage the mega wealthy to actually use their money rather than simply horde it (something like a 90% take on money that sits still too long – admittedly that’s a simplification but you get the general idea), that would be a good step.

Oh and nothing too bad concerning Blair: I’m sure I mentioned it before but as a relatively small child (probably like 20 years ago) I was singing (loudly and out of key admittedly) in Church up in his neck of the woods (I have family up there), and he was sitting behind me and made some sarcastic comment about my singing ability. While I don’t believe this in anyway effects his ability to run a country, it does mean I’ve never been willing to put an X next to his name (plus of course I don’t live in that particular country anyway so it’s kind of a mute point).

Tomsk said...

Fair point about the book. Read these articles: 1 2 to get the gist of the argument (note they are taken from both a left-wing and right-wing newspaper).

Meanwhile more on the side issue of whether the massively wealthy oil the wheels of capitalism...

"You mention venture capital funds, institutional investors and banks, but the funding for all of these entities comes from people who have comparatively large amounts of disposable income and excess capital. I.e. the wealthy."

This is simply not true. The vast majority of banks' business comes from ordinary savers and borrowers, or their own investment vehicles - none of this is reliant on the mega-rich. Similarly, the largest institutional investors by far are the pension funds - again funded mostly by ordinary people. Venture capital funds may indeed enrich the select few who run them, but the fund money doesn't come from their personal wealth, rather from reinvesting the profits of earlier investments. None of this activity would disappear if the mega-rich didn't exist.

And if investing in start-up enterprises is a truly important part of society (and I believe it is), it follows that we should not rely on the caprices of the highly wealthy to provide the money, for the exact same reasons that we no longer rely on feudal leaders to run the country. It's simply not a dependable way of running things.

As for the four businessmen you mention, they undermine your own arguments about entrepreneurship. As far as I'm aware they all worked their way up from nothing, and none of them needed the finance of a mega-rich backer to get ahead. It's true that their businesses (not them personally) now employ thousands of people, and this is good for the economy. What I don't accept is that the only thing that motivates them to build these businesses is a vast pay-packet. If it was, they would have retired years ago in favour of the proverbial beach. It's a love of business that keeps them going, and this wouldn't disappear if incomes were made more equal.

I am also not arguing in favour of absolute equality of income. It's clear that some jobs require more work and have more responsibilities than others. However the disparity in income between the lowest and highest earners is so huge as to be completely unjustifiable. If a CEO earns £10m a year, is this superhuman being really doing the work of 500 average earners? That's what his pay implies, but it's patently false (particularly if he's been running a bank).

The prime minister earns £200,000 a year, and no one can claim to be doing a more important job than him. It stands to reason that no one should earn more than him.

Tomsk said...

Something to keep Squid interested - an American perspective on Brown's situation from the New York Times. Basically the same point I was trying to make in my post but written by someone who actually understands economics...

[If it doesn't load, search for "Gordon the Unlucky" on Google News]

SpaceSquid said...

Thanks, Tomsk, a little bit of Krugman is always welcome. He's right of course, and as you've already made clear, the problem with a two-party system is that the bunch out of power always looks better during a crisis, even ones that they themselves would have handled as badly (see Iraq; war in), or worse, or even exacerbated.