Now We Are All Working for the State
A consequence of increasing economic intervention by the state is that we are now expected to breed more taxpayers in future and draw down on our state pensions for less time. Our productivity must be improved as well, thereby maximising our state’s tax revenues.
With respect to the democratic process, is this really what we have signed up for? It is hardly surprising that we are losing individual freedom. We are now working for the state, instead of the state working for us.
This role inversion is the logical outcome of turning our backs on free markets and ceding a role to the state in the management of our personal and economic affairs. And it is further justified by statistical analysis that supports the role of the state, but on examination turns out to be thoroughly misleading.
In this article, I comment on the economics of population growth as discussed by mainstream economists, show how we are being badly misled by productivity statistics, and by the true value of GDP which is to enable the state to estimate future tax revenue.
But the states’ habitual predation on their private sectors is coming to an end, because it will become impossible to finance. The end of the long-term trend of falling interest rates will see to that.
Economists routinely comment about national relationships between births and deaths. Typically, an aging population is seen to be a problem, principally because of the consequences for state pensions. It affects all countries experiencing improved life expectancy, upsetting the relationship between earners paying taxes and retirees who in the main do not.
The costs associated with childcare are also rising. The childcare cost factor hits advanced economies particularly hard, because women are increasingly prioritising career and lifestyle choices over having children. And the sheer expense of complying with laws and regulations which parents in the last century did not have to face coupled with increasingly high taxation makes it uneconomic for many to have children.
The combination of an aging population and falling birth rates are ringing alarm bells. But why should this be the concern of governments and their economists? The answer is that socialising governments have taken increasing responsibility for our own actions and are now cavilling at the cost. They are trying to raise retirement ages, forcing people to work longer and pay taxes instead of drawing pensions. It should come as no surprise that lifting retirement ages is causing riots in France.
In the UK, there was controversy over the “triple lock” on pensions, and whether election promises to maintain it should be honoured. The triple lock refers to the state pension being increased annually by the greatest of 2.5%, the rise in average earnings, and prices as measured by the CPI. In other words, the Conservatives in their election manifesto had promised to protect state pensioners from the inflationary consequences of government policies. That was an entirely reasonable proposition.
But government bean-counters took a contrary view. They saw it as a transfer of national resources from the tax paying employed to the tax draining retirees. In a nutshell, this defines the vested interest of government in its electors. No longer is the statist establishment representing the electorate, it represents itself. And it sees the electorate as a source of funds for whatever schemes the state deems desirable. It is creeping socialism that has now made the state the public’s masters, not there to do the public’s bidding.
But this is a situation we must live with. Government actuaries are correct, that pension commitments are leading government finances into a deepening crisis which must be addressed. But in the UK and a number of other countries, they ignore the even more costly per head crisis created by index linked pensions for government employees – a burden to be shouldered by others, naturally. And there are also the escalating costs of healthcare — but in Britain, the health service is deemed an inviolable national treasure to be shielded from any vulgar attempt to improve outcomes while reducing costs. And now that we face a potential recession and increasing unemployment, additional associated costs are mounting for the not-so-benevolent state as well.
Rather like the use of leeches and bleeding in olden times to cure all ills, the resort to increasing levels of taxation on the productive elements in society leaves the economy in a depleted state without curing anything. The reality is that the socialising of economies has reached a crisis point. If it is to be avoided, public expectations in advanced economies must be managed to accept that a reversal of the trend to increasing government spending is inevitable. Does the West have the statesmen and women with the common sense and ability to understand and deliver this outcome? Don’t hold your breath…
Even well-meaning politicians depend on civil servants for advice, and government statistics for evidence. Once elected to office, they are no longer in a position to argue in favour of reducing the state as a proportion of the total economy and it is hard for them to resist increasing state intervention “for the common good”.
For evidence of how the system misleads us statistically, there are few better examples than that of productivity.
The productivity myth
Every now and then, there’s a rash of commentary on national productivity. And for the British, productivity was an important part of the Brexit debate, with the OECD, the Treasury, the Bank of England and Remainers all saying the average Brit’s poor productivity just goes to show how much they need the certain comfort of being in the EU.
Following Brexit, the OECD came out with a paper repeating its disproved nonsense about the economic consequences of Brexit, even recommending Britain should hold a second referendum to reverse the Brexit decision. To back up its analysis it claimed Britain’s labour productivity was at a standstill, while that of France, Germany the United States and the OECD averages were all improving.[i]
Regular readers of my articles will know I have no truck with statist statistics, averages, and the neo-Keynesian analysis that goes with them. The econometricians’ analysis of productivity is a prime example of why statistics derived from questionable information should be disregarded entirely, as I will show. You can prove anything with statistics, except the truth. The OECD, which is the principal source of the productivity statistics quoted by politicians everywhere, uses statistics as a cheerleader for statism. Being based in Paris this institution is particularly sympathetic to the basic concepts of the European Union.
This is the organisation that leads official international statistical analysis of economics, while being funded entirely by self-interested governments. It works hard to decrease tax avoidance, having led the charge against tax havens in the 1990s. It is a firm advocate for a level playing field in corporate taxes, which means imposing minimum rates globally to protect corporate tax rates in high tax jurisdictions.
The OECD is the cheerleader for European-style socialism and is a primary source of international labour statistics. However, on the face of it, estimating productivity should be uncontentious, and hard to criticise. GDP divided by the number of hours worked is simple. How can it be misleading? Read on.
The OECD’s approach to productivity
The OECD’s brief paper, Defining and measuring productivity, quotes Paul Krugman:
“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise output per worker.”[ii]
Krugman implies in this quote that productivity is a function of government and therefore by implication not that of the employer. This is plainly in contravention of the facts: an employee only produces if he or she is employed by an employer for profit. It is up to the employer to make that decision, not government. That the OECD quotes Krugman confirms the OECD’s approach is in line wit
Article from LewRockwell