Anyway - this news story made me think about this issue from a different angle.  Would it be right to reward people who made conscious decisions relating to their health, consumption, pollution etc by cutting their taxes?  In a sense we already do this with Road Tax (tax less polluting cars less) so why not tax people who are less of a burden on the state less?  If you keep your BMI below a certain level, don’t smoke, don’t drink excessively, excercise heaps etc etc then why should you pay as much tax as somebody who exhibits all of these ‘polluting’ and costly activities?  In the USA where, depending on your definition of liberal, the most liberal healthcare system (and many, me included, would argue unfair…) exists this is reflected in lower insurance premiums for people with ‘healthier’ lifestyles (and in the UK – here).

Is this liberal?  I think there are arguments on both sides.  On the one hand the state increases your liberty by reducing your tax burden (similar to the Easyjet council model we’ve heard so much about – here).  On the other, like the nudging objections, someone has to decide what the ‘good behaviour’ is.  Another obvious objection is the inequality that would be created between healthy people who find it easy to lose weight, keep fit etc and those who for whatever reasons find it more challenging.  Also would it be a breach of the universal coverage the NHS provides?

I’d be interested to hear peoples’ opinions.

Firstly, Scrooge has an unfair rep. People call misers ‘Scrooge’ but they forget the over-riding moral of the story. Having stood, and wept, over his cheap tombstone in an unkempt graveyard Scrooge repents and becomes a very model of generosity and kindness. As others mocked his about turn and laughed at him ‘he let them laugh and little heeded them. His own heart laughed and that was quite enough for him. And it was always said of him that he knew how to keep Christmas well if any man alive possessed such knowledge‘. We could all learn from that Scrooge – charitable, kind, not caring for what other people thought, full of the joys of Christmas. Scrooge, therefore, should be a compliment rather than an insult.

Secondly, as numerous economists point out, the stereotypical Scrooge is useful too. As Hartford points out in Prospect, Schelling’s classic Micro-motives and Macrobehaviour, sets out the pointlessness of many of the Christmas cards sent. ‘People feel obliged to send cards to people from whom they expect to receive them, often knowing that they will receive them only because the senders expect to receive cards in return’. This is a little like mutually assured destruction by politeness.

Hartford also points out the uselessness of sending gift vouchers – many are unredeemed and many end up on ebay which seems like a strange way of giving relatives money. Why not just give them the cash – that way they get to buy whatever they like from wherever they like (and, furthermore, get to keep the change!).

Landsburg in his book (More Sex Is Safer Sex*) argues that the original Scrooge is actually the model citizen. Indeed, the pre-repentant Scrooge is far more socially good than the charitable Scrooge at the end of the book. He was a rich man who didn’t spend money on food, wine or clothes. He ate gruel because it was cheap. This meant, fairly obviously, that there was chicken for someone else to eat. He lived well within his means – we could probably all learn from that too, even if we might forget it for the next week or two.

The money he so carefully accrued and saved was bunged in a bank and gathered interest for him. This helped capitalise a bank but also helped drive down interest rates and, better still, could be utilised by the bank to offer credit to other businesses – either as start-ups or as businesses needing liquidity during tough times. Again, this is a social good – good on Scrooge – the more he didn’t spend (e.g. saved) the more credit was available for others in the economy. He was an accidental Dragon.

Of course, if we were all Scrooge’s, there would be a problem. No one would consume the chicken or wine or chocolate – we would eat lots of gruel but people would be unwilling to enter a market because they couldn’t foresee people buying up the goods they were producing. They’d need to lay people off (or not employ them). The credit would, essentially, be useless as no one would be willing to take it up. So we need some Scrooge’s – both pre-repentance and post-repentance but not too many…

Have a very Merry Christmas

* Try reading that one on a crowded train

Next year, we will be paying £44.4bn in debt interest alone – never mind debt falling due for repayment.

That debt interest in 2010-11 will absorb the entire proceeds from capital gains tax, inheritance tax, stamp duty, tobacco duties, wine and spirits duties, beer and cider duties, betting and gaming duties, air passenger duty, the climate change levy, the aggregates levy and Customs and Excise levies – and still leave £1bn to find.

That is extremely frightening.

RCM

Scotland’s unemployment rate stood at 7.2% between July and September of this year and a staggering 32% (claimant count measure) of those had been unemployed for more than the critical length of 6 months. The worst areas were North Ayrshire, Glasgow City and West Dunbartonshire. The reason for this is simple: these areas were based around industries which have now been rendered uncompetitive by the access firms in developing and newly industrialised countries have to cheap labour and raw materials. Furthermore, it is unrealistic to expect these areas to improve in the future as the national minimum wage and lack of skilled labour deters potential investors.

The classic policy to deal with long-term structural unemployment is to increase spending in education and thus develop a more skilled and flexible labour force that allows entrepreneurs to capitalise on areas of potential comparative advantage within the economy, but the Scottish Government’s attempts to follow this path are undermined by the proposal of accelerated spending now and subsequent fiscal cuts over the next 20 years. Salmond and Swinney plan to spend the extra money on building affordable housing to help the long-term unemployed, but this reduces labour market flexibility by providing a disincentive to relocate and, given that Britain’s strengths are in financial services and that potential investors in this field are not interested in areas of economic depravation, compromises any educational schemes designed to increase the occupational mobility of Scotland’s workforce.

 This is also the worst possible time for any Government to be embarking on a major spending plan, as the possibility of misallocating resources is so great. The absence of private sector demand means that the Government will be choosing the areas for investment, and not consumers and producers. The wrong choice, as shown above, leads to public debt without the increase in productive potential necessary to justify it, and the consequences of increased public debt are currently much more severe than usual. Britain is in grave danger of losing its triple AAA debt rating, and if that happens then interest rates will have to rise in order to attract the funds from abroad necessary to service our monumental current account deficit. Higher interest rates will deter private investment within the economy and thus lead to economic stagnation. The Scottish Government’s fiscal response would be handcuffed by the deal made over the Forth road bridge ensuring a reduced budget for 20 years.

 The solution to the nightmare outlined above is to allow a private firm to construct a bridge and then let them charge a toll and keep the profits. If no firm deems this to be profitable then the project should not go ahead and the Government should continue to dry out the cables on the old bridge and thus prolong its life. The Scottish Government should also cut back its spending on affordable housing and instead promote more flexibility in the labour force which would encourage investment, reduce unemployment and lead to a long term increase in residential construction stimulated not by the Government, but rather by demand for houses.