Monday, May 30, 2011


In 2003 interview with John Hawkins, Milton Friedman famously said...
I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes."

Which is fine as far as it goes. However, the problem is a little more fraught than that, because governments like having money—money enables whichever party is in power to lavish gifts on its favoured groups, thus ensuring that they will continue to vote for said party.

At the same time, however, said government doesn't want to annoy the other parties favoured groups too much, so it does cut their funding or raise their taxes too much—or else they will never get the votes from those few people who are likely to switch allegiance (and thus win the election for the party).

Let's use a very basic illustration...
  • Party 1 spends £1 billion on the unions and the poor before it is unseated by Party 2. Spending is now at £1 billion.

  • Party 2 spends £1 billion on large corporations. However, it doesn't want to unduly piss off Party 1's supporters, so they only cut spending on these groups by £0.2 billion. Spending is now at £1.8 billion.

  • Party 1 wants to restore the funding to its favoured groups, and more—so, it spends another £1 billion on them. And, like Party 2, it doesn't want to piss off the corporates too much—so it only cuts their funding by £0.2 billion. Spending is now at £4 billion.

  • Party 2 gets in, etc. etc.

This is the basic mechanism by which government spending increases—it's why the state spent 8% of GDP in 1880, and now spends about 50% of GDP now. Another reason is, of course, that the state did far less in 1880 in terms of interference in home markets: about half of that 8% was military spending.

But, you see, once you start giving your voters money, it becomes very difficult to take it away again: and so, the more the government spends on benefits and other sweeteners, the more difficult it gets to cut those costs.

The mechanism that is supposed to curb taxation—or spending—is that of democratic elections. If taxes get too high—so the theory goes—then the voters will simply vote out the high-taxing government. This is what is supposed to keep the state in line.

Unfortunately, we don't need Jonathan Aitken to point out that "one vote every four or five years in not tremendously important" because we already know it.

Politicians can get into government promising all sorts of things—such as low taxes—but, as we also know, "manifesto pledges are not subject to legitimate expectation". So, politicians tell a few big lies every four or five years, and then do not have to deliver on them.

But surely, if a government wants to get re-elected, they will have to enact some fiscal restraint immediately before a general election? No.

What tends to happen is not that governments cut taxes just before an election—no. What they tend to do is simply increase spending to their favoured groups (in this case, nearly everyone) because they can borrow the money to do so: and, if they don't get elected again, well, then it's their rivals' problem, eh?

And the trouble is that there are upper limits to the amount of tax that a government can raise—not simply before voters get really pissed off, but also because people start finding ways in which to avoid said taxes (one of the factors that give rise to the phenomenon known as the Laffer Curve).

One of the ways to avoid taxes is to work less; another is to employ fewer people or to make less profit—these are just some of the reasons why higher government spending leads to lower GDP growth—in fact, according to the OECD, every additional percent of GDP taken by government is to reduce per capita GDP by 0.7%. And that, of course, makes everyone poorer than they might be.

So, the government cannot raise enough tax, and so they have to borrow to keep the ever-increasing funds flowing to their voters. And so we find ourselves in the current mess: the governments can't raise tax anymore because they would mightily piss off one bunch of voters, but they can't cut spending because they will piss off the other bunch of voters. And so governments of all stripes have simply borrowed more and more and more in the vague hope that something will turn up.

Or—like some ever more frantic game of pass the explosive, shit-filled parcel—the respective governments hope that, should nothing materialise, at least the whole shebang will blow up whilst their rivals are in power rather than them.

All of which—plus our current travails—goes to show that whilst Milton Friedman is not wrong, his statement quoted above does not tell the whole story. Because holding down taxation has not stopped our governments overspending: not even the very real threat of "bankruptcy" is doing that.

The basic premise was right: as one episode of Yes, Minister pointed out, governments do not work out what they need to spend and then raise that amount of tax—they work out how much tax they can raise and then work out what to spend it on.

But I don't think that it even works that way any more.

I think governments work out how much they want to spend; then they work out the maximum possible that they can raise from tax, and desperately hope that they can borrow the deficit.

And since all of our major political parties operate in this way, our choice of who to vote for at a general election is not particularly different or wide. Which is a problem.

It is a problem because even a general election ceases to be meaningful as a curb on spending: if you have three main parties and they are vowing to spend much the same amount of money, then it doesn't matter who you vote for—the spendthrift, GDP destroyers always get in.

And then, of course, we are subject to another five years of profligacy which we all must pay for—not only directly in taxes and deferred taxes (which is all that government debt is) but also through lower incomes and lower growth. (And, quite apart from anything else, lower incomes and lower growth means that there are more poor people who require (or desire) more government spending, etc.)

And we haven't even covered the perverse incentives that government spending creates.

So, here is the big fact—money is power. In theory but not, it seems, in practice.

You see, the government has, seemingly, all the power but doesn't have any money of its own: that money is ours—we earn it. So, why don't we have the power?

Because the state has the one thing that trumps money: it has guns and, additionally, a monopoly on legal force. If you don't pay your taxes, you go to prison.

I think that it is important to emphasise this point, which is why I consistently point out that taxation is extortion with menaces. Some, mostly on the Left, argue that this is not the case and that, by voting whichever political party into power, we—as a nation—acquiesce to this theft.

Which, as I have argued above in pointing out the similarities between the parties' economic policies, is a something of a fallacy because we are not, actually, presented with a choice. The only way we have of registering our disapproval of all of them is not to vote—a choice that increasing numbers of people take each year.

Besides, there are any numbers of policies that people vote on that are not directly to do with money (although most of them require money to be fulfilled).

So, what we really want to do is to be able to separate the money side from any other policy; and we want to do it more often than every four or five years.

Which is where EUReferendum's campaign for Referism comes in.
The executive (the former king) must refer to parliament each year for approval of its budget. Without that, it runs out of money. Our problem is—and the heart of all our problems—is that this process has become an empty ritual. No parliament has rejected a budget in living memory, and none is likely to.

So each year we see this great ritual, where the government of the day pretends to ask us for money, and we have to watch the empty charade of approval being given—only then to see vast amounts being spent on things of which the majority of us do not approve, such as the European Union.

This must stop. The ritual must turn back into substance, and there must be real control over the annual budget. The politicians cannot be trusted to discharge this duty. They have their fingers in the till and a vested interest in maintaining high levels of expenditure. The power must go to the people who pay the bills—us.

Indeed. But how might this be achieved (I think that you can guess)...? [Emphasis mine.]
The means by which must be achieved is through the ballot box, with an annual referendum. The budget must, each year, be submitted to the people for approval, and comes into force only once approved. The politicians must make their case, put their arguments, and then ask us for the money... and they have to say please. We, the people, decide whether they get it. We, the people, have the power to say no.

If you want politics—you got it. Do you want out of the EU? Fine, build up a caucus and vote down the budget. Make it plain to the politicians that no money will be forthcoming until we withdraw. Simples... and it is that simple. Starve the beast, rather than risk everything on an all-or-nothing rigged ballot, given at the discretion of our masters. And let's do it at local level as well.

Logically, there might have to be a fall-back position, where the executive can draw down maintenance funds, pending approval, to keep basis services going—or not. If Congress does not approve the budget in the US, it falls. That tends to concentrate minds. Only, in this case, it is the people who stop the money. And money talks.

As Richard points out, the real value in this is that it provides a continuous process of control. We already know, because a judge has told us, that manifesto pledges are not subject to legitimate expectation—that means that political parties can lie and lie again in order to get into office and there is no way in which we can hold them to their promises.

However, if they have to come back to the electorate every, single year—regardless of party or manifesto promises—then the government will not only need to justify the next year's spending, they will need to show that the last year's actually achieved what they claimed it would.
It is that which makes the big difference—we are talking about a continuous process of control. By contrast, a one-off referendum, agreed (or not) by the government, on a grace and favour basis, for its own tactical advantage, is to concede the power to the government. We, the people, still have to go to The Man, and ask him "pretty please" can we have a referendum. When we hold the purse strings, The Man says "please" to us.

Which is all very well, but how do we achieve this aim?
So how does this become an "ism"? Well, in my earlier piece, I wrote about the need of society to communicate to its government its "wishes and needs", to make it perform and yet prevent it from taking over, swapping the master-servant relationship.

We do it by controlling the purse strings, and we do that by making the government refer to us for permission to raise and spend funds. Our tool is the referendum, our philosophy is thus "referism" and we are "referists" or, in colloquial terms, "reffers". If we want a political party, and I would not advise it, then we set up a Referist Party.

Better, I thought, we work with the existing parties. We build a movement and make it clear that the first party to offer an annual referendum on the budget gets our vote. We could, tactically, even pick on one of the parties, and tell it that it will never get into power unless it agrees to our terms. We have the power to do that, if we mobilise and then use it.

After some experience of attempting to get bloggers together to do something in the real world, I am heavily sceptical that it can be achieved—as I pointed out on the EUReferendum forum. Richard's reply was confident...
One must not ask too much, too soon. All revolutions have to have an intellectual base ... their own "ism". The blogosphere ... if it cares to do so, can build brand recognition for an "ism", cocking a snoot at the MSM. That in itself it a worthwhile and necessary task ... great fun, and doable.

We need to believe in our own strength and power ... but it does take time. From the start of the publication of the Chartists' "six points" (1838) it took them ten years to reach London with a major rally ... but they changed politics forever. What has been lacking so far is focus ... our "ism". Now, have ism, will travel.

Very well then, your humble Devil will happily throw what weight he has left behind this concept of Referism—it is an interesting idea and, if achieved, would shackle the politicians to the will of those who pay for the government's profligacy.

Indeed, the idea that the government—and local authorities—must come grovelling to beg us for their funds each and every year is enough to make the entire exercise worthwhile...


WitteringsfromWitney said...

"Indeed, the idea that the government—and local authorities—must come grovelling to beg us for their funds each and every year is enough to make the entire exercise worthwhile..."

Exactly Chris, which is why I too am pushing this 'Referism' for all its worth. Smaller Westminster - much much fewer MPs; education, health, law & order etc all down to local county level - whats not to like?

Roger Thornhill said...

The problem with Referism is the 51% can still vote to have the other 49% pay for it all, surely?

David Jones said...

I have (re)tweeted your tweet on this. Let's get REFERISM on the radar!

Staffordshire man said...

I'd like to see spending fixed as a percentage of gdp, they have an easy option to spend more; grow the economy and make us all richer

Led said...

This may be counter-productive to some of your libertarian views, but would it not be interesting if we could arrange for a national boycott of all abusive taxes and corporate interests for a month?

For example, if we gave up for a month the following things: nobody purchased commercial beers, avoided the expensive city centre drinking spots, didn't buy luxury goods, gave up smoking, quit watching sports. I wonder how this would be taken by our upper echelons of alpha? Personally I've given up my interest in sport and shopping at Tesco/Waitrose/Sainsbury. Opting to be buy basic essentials at my local without the distrations of shiny compulsive buying.

Barnacle Bill said...

Sign me up for "Referism".
There might be some snags to be ironed out and some unforeseen problems popping up along the way, but surely it offers us - hope!

Dick Puddlecote said...

Seems a cracker of an idea, but as you say, relies on parliament giving up some of its power. That'll be one hell of a wrench. As Roger says above, too, it's possible it could be counter-productive as our current spoiled and financially retarded population could end up voting down budgets which promise to spend too little money.

Anonymous said...

Great in theory, but rubbish in practice!

Think about it -who likes voting? The left.
Who likes lobbying? The left

Who has most to gain from ensuring that everything possible gets voted through? The left.

While I really like the idea, I know what would actually happen is that within a few years, people would just not bother turning up to vote - turnout would be less that 10%. And that 10% would be made up of leftist with agendas - defeating the object of the whole plan! :)

Sorry for being negative, but if it really was that easy to defeat the system, it would already be in pieces!

CC Truckston said...

Will never happen in the US, because the ones--citizens and illegals--who benefit from government give-away programs and other government largess, and those who may not directly benefit and who agree in theory that government spending should be curtailed, but balk in practice at voting for such, comprise a majority of voters, legal and illegal. Legislators who promise to give always trump those who threaten to cut off the flow of money. Thomas Jefferson said it more succinctly: When the people find that they can vote themselves money, that will herald the end of the republic.

CC Truckston said...

My attribution of the ending quote was in error: Should have been Benjamin Franklin, not Thomas Jefferson. Apologies to both.

Anonymous said...

Seems like a terrible idea to me. It would be public choice theory gone mad. The government would simply bribe enough interest groups in its budget so it got passed and fuck over everyone else. Public spending would rocket as everyone demanded their special demands be bet in order to vote for the budget.

Dave Evans said...

Anonynous. That's how it works already. I could end up worse off as a beneficiary of the welfare state but something's got to be done, do you have a better idea?

The big thing is there are two sides of every budget, spending and taxes.

I know we are basically selfish but surely we must know we can't keep borrowing and excessive taxes doesn't do it.

Yes I know the lefties think tax big but the Laffer Curve, whilst counter-intuitive is real & demonstrable. Even poorly educated people could be persuaded to the destructive nature of excessive taxation.

The problems may be insurmountable, we'll never know if it isn't tried.

Malpoet said...

I'm afraid it doesn't make any sense. The UK government accounts for about 52% of GDP at the moment. That means that more than half employees work for the state. Add to that the huge number of companies whose existence depends on state contracts. Now add all the fake charities who get a substantial part of their income from the state.

Next consider all the people above working age who depend on state spending for their care and living costs, Then think about the massive numbers who continually demand more spending on the NHS because they are terrified of the unknown.

Voters would demand more spending every time until the economy collapsed completely.

Anonymous said...

I have massive doubts about this, similar to the ones raised by another 'anonymous' above. Governments will just offer the voters whatever they want, even if it means borrowing all the money.

A much simpler immediate step towards accountability is to petition for a combination of compulsory voting in general Elections and NOTA box on the voting slip.

If a certain percentage of the votes cast were NOTA then there could be penalties for the standing parties, to be worked out (one thought could be if, say, 35% of the electorate NOTA'd then the election is run again, or existing cadidates/parties are disqualified, whatever).

NOTA (None Of The Above) would enfranchise the disenfranchised and disillusioned as their votes would suddenly count.

Politicians would fail to listen at their peril.

Tomrat said...


I'm sold; to be honest was hoping LPUK would be this - sadly it looks to be more of the old politics, stuck on an intellectual ideal, spinning around like a top.

We need our own set of "points": 3-4 condensing the idea of referism and what it means; leaflets can be thrown in the bin, soap-box preachers can be passed in the street, ignored.

Ideas though become indelible.

One youtube video, one facebook campaign, if we can raise the cash one tv advert.

Then simply finish by asking "why not ask your mp about this?"

Pete in Wanganui said...

I'm unconvinced of the effectiveness of this. Where I live now the council has used referenda in the past, including on the size of the rate rise.

It will come as no surprise that people are quite capable of voting for low rates _and_ increased expenditure. And will continue to vote for politicians that promise to square that particular circle.

Sadly no politician has ever been elected by overestimating the greed and underestimating the stupidity of the voters.

WV 'frown'. How true.

Anonymous said...

For this to work I think all taxes would need to be local. At least then people could have a proper discussion. The idea of MPs is to represent their people's views, but an MP cannot possibly represent 80000 people who all have different opinions. Why not let each council have a referendum on its taxes and its spending. Then there could be local debates in the town hall or something where groups of people can send one representative and actually get heard (not councillors as people who voted for them may not agree with their entire manifesto). Part of each council's budget would contain a contribution to the national government, which would have limited functions (like the US was meant to be). If the people did not allocate enough money for their council to contribute, then the national government would have to back down or persuade the councils to get their people to vote them more money.

Anonymous said...

I can't believe I wasted 2mins of my life reading that drivel! You libertarians are the absolute pits!

Blue Eyes said...

This idea is based on the rather strange premise that nobody concentrates on the economy during and between elections.

Blue Eyes said...

Also, doesn't California do this? Tax rises have to be approved by referendum, so the government just runs up a huge debt until it goes bust.

Andrew Zalotocky said...

Western governments seem to have lost any fear of the dangers of debt and deficit. The Fixed Quantity of Wealth Fallacy is well known. Our politicians seem to be in the grip of the opposite delusion, an Infinite Quantity of Wealth Fallacy. They really seem to think that there will always be more money to spend and that nothing they ever do will ever have any serious consequences. It's worse than cynical government. It's frivolous government.

Perhaps this is a form of decadence that affects every society that becomes significantly more wealthy than whatever is normal for its time. More and more people begin to take their good fortune for granted and to resent the effort needed to maintain their position. The ruling class ceases to take its duties seriously because it no longer believes that the good times could ever stop. Eventually there's a crisis which either leads to a return to realism or a total collapse.

O tempora! O mores!

Lord Blagger said...

This is my take on the issues

# Governments do not implement manifesto promises
# Governments do implement things not in their manifestos
# I might not like all of a manifesto, so I have to compromise
# Governments force through policies that a majority would reject
# Unpopular governments carry on forcing policies on to an electorate who would vote them out
# We can't get rid of corrupt MPs
# Referenda are expensive
# Governments do no do referendas they know they will lose.
# Candidates are controlled by the parties.
# If you are in a Tory safe seat and want Labour policies, your vote has no influence.
# A vote in a marginal constituency is more valuable than a vote in a safe seat
# People's wants change over time. What they wanted 5 years ago isn't what they necessarily want now.

These are my solutions.

# Open Primaries. This stops the parties from forcing candidates on to safe seats
# Right of recall. Petition, and a vote to remove the corrupt MPs. The police haven't prosecuted the majority of MPs who fraudulantly signed a document to say their expenses were wholly and necessary their work.
# The election for a representative is as it is now. Either first past the post, transferable vote.
# Everyone nominates a representative. It doesn't have to be your local MP. ie. If you want Lib Dem polices you can nominate a Lib Dem MP as your proxy even if you are in a Labour safe seat.
# For final approval of a bill, its not MPs that count, it is proxy votes that matter.

All it takes is for one MP to set up a website where he or she allows you to vote directly on a bill, and they promise to cast the proxy votes the way that the electorate want. If you want control over an issue, you can have your say. ie. Everyone's vote is equal.

The cheap solution is referenda by proxy.

It can be sold to MPs.

1. They still set the agenda.
2. If they have to make a difficult decision, they can always blame the electorate.

2 out of the following 3 must be subject to referenda.

a) Spending
b) Taxation
c) Borrowing.

Preferably all of them, so as to avoid any ambiguity.

Now to cost.

100 million at the moment, per year, to register voters.

20 million per year on top to register your proxy.

Savings of 120 million a year from abolishment of the lords.

Total saving over 5 years, 500 million pounds.

Anonymous said...

I know you British don't have a Constitution. But it is enough to Limits to Taxes and Debt in Constitution or a Chart.
Limits to Taxes says that 51% can't vote to take all money they want from 49%.And politicians to play for it.
Limits to Debt, means the politicians can't in-debt generations for "glorious" 8 years in power build on debt.

The important thing is to take economic power from Politicians.
That is the evolution we should make.
In political history of western civilization we took power from politicians. The can't jail you just because they say so. In past they could.
But strangely there are no limits to their economic power.
Now it is time to take illegitimate economic power from their hands.

Adam Bell said...

As pointed out above, this already happens in some form in the notoriously fiscally prudent state of California.

Look, if this is a yes/no thing, then over time the budget will tend towards equalising incomes, because if wealth is concentrated into fewer hands then the majority can vote themselves more money. It might possibly work if every party put forward a proposal and everyone voted for a particular one. Or used AV, your choice.

Kevin Monk said...

Government backed currency and taxation? LOL.

That's so 2010.

I think that's the sound of a decentralised crytographic and anonymous (tax-free) currency coming to the rescues?

Is it? Yes it is!!

Woo Hooo

The authoritarians are history.

So excited!

Matt said...

I quite like the bitcoin idea, i.e. take the currency out of state hands, but I'm not sure how successful it will be given the overall geekyness of it. I can't imagine the majority of people getting their heads around some of the concepts involved, let alone being willing to invest their money in it.

Just try to imagine explaining it to the average man in the street who doesn't even realise there's a problem with our current currency. First there would be a look of confusion when you mention the "64 bit signed integers". That would then change to suspicion when you start talking about "hash". By the time you get to the point where you mention the "nonce" you'll be having to dodge punches!

Back to the subject of the Referism, I think it's a step in the right direction but there are currently too many loopholes that a cunning politician could exploit.

It's actually similar to an idea I had a few years ago called "Ticksheet Taxes" (catchy eh?!). Basically every year you are sent a form (or you complete it online) with a list of Government expenditure items. Some of them would be probably need to be mandatory to maintain a functioning country, e.g. courts, police, defence, roads, but the MAJORITY would be optional. The main thing is that next to each item you see how much it is going to actually cost you if you decide to stump up for that bit of government spending. This could either be in the form of a fixed sum (i.e. a "flat" tax) or in the form of a percentage of your income. It would certainly force the leftys to put their money where their mouths are and I think it would be very interesting to see the results. I suspect we would find that a lot of the bleeding hearts are suddenly cauterised!

It would also restore transparency to the tax system as something like road tax would now pay for roads rather than nurses or benefits or whatever it is the money goes to now. Another benefit is that it would allow the average man to make a realistic comparison of value for money between the public and private sectors without getting waylaid with all the polictical arguments. Imagine if people suddenly realised that the NHS was costing them 3 times what the equivalent BUPA cover would cost? As I said, the results could be VERY interesting and I believe this may be the only legitimate pathway to breaking the British public's dependence on the welfare state. Of course it could also show that the state is indeed better at delivering some services. If that's the case, so be it. Truth will out!

Obviously there are some issues to be ironed out. For example, how do we decide what initally goes on the mandatory list? I guess a referendum of some sort would be needed. Also if there was enough call to add something else to the mandatory list that would also need to go to a referendum. The same goes for taking something off the mandatory list. Perhaps a better idea would be to incorporate the "rejustification" aspect of Referism and allow people to vote on the entire Mandatory list every year or two?

To be honest I don't think either Ticksheet taxes or referism are perfect concepts but I think the way forward does lie in that direction. People need to be made to understand again that government spending is actually paid for by them rather than by the magic money fairy. As others have said above, we'd also need to find a cast iron way to address government borrowing otherwise all of these ideas are pointless.