I was talking to a friend at work yesterday who mentioned that he’d met an extreme libertarian while visiting America. This person believed that there should be absolutely no government at all. What made this person’s argument a little weak was that they were extremely wealthy, most of which had been inherited.
I don’t claim to understand libertarians particularly well, but I assume that they feel that there should be no government and that we should simply pay directly for everything we need. Essentially I’m using the word “libertarian” to refer to those who would like to pay very little – if any – tax. My problem with this general view is quite how it is expected to work. The figure below is one I’ve taken from the Office for National Statistics and more information can be found here . What the figure shows is the original income (pink bars) and final income (yellow bars) for all households in the UK, divided into 5 groups (poorest 20%, next 20%, …, richest 20%) for the 2008/2009 tax year. The final income is essentially what a typical household in each division would have after tax and benefits.
What the figure shows quite clearly is that the poorest 40% of households gain quite a lot due to benefits and the richest 20% lose quite a lot. The figure shows some interesting things straight away. The median household income is between £20000 and £30000 per year. I still find it amazing that 50% of households in the UK have annual incomes below £25000. This is also roughly the break even point. Household income needs to be about £25000 in order for the amount lost through tax to be recovered through benefits. This isn’t true for all households with incomes of £25000 as it will depend on various factors (no. of children for example) but is presumably reasonably typical. Why is this relevant? Well if we wanted low taxation and small government then none of this redistribution would occur. The income distribution would be represented by the pink bars in the figures. Households with incomes above £25000 pa would be better off and those with incomes below £25000 would be worse off.
One could argue that the money that was paid as taxes could end up going to the lowest earners, but this would require that employers explicitly decided to take this away from the highest earners. It could happen, but it’s not obvious that it would. Furthermore even if the income distribution did tend towards that represented by the yellow bars in the figures, there are still things, such as education and healthcare, that people don’t pay for directly. Annual education costs are about £3000 per pupil and healthcare is about £1500 per person. A typical family would therefore need an additional £12000 per year to cover these costs. Admittedly they would no longer be paying VAT and other indirect taxes, but it is still hard to see how a household with an annual income of £20000 could suddenly find £12000 for healthcare and education costs. The only way that I can see this working is if the income distrbution were narrower still than that represented by the yellow bars in the figure.
Essentially what I’m arguing is that a libertarian society in which everyone has access to the basics (healthcare, education, accomodation, food, transport, etc) is one in which the income distribution must be very narrow – most people must earn almost the same as each other. Hence my reference to being “communist” in the title. Alternatively, maybe libertarians really don’t care about society and just don’t see why they should have to pay taxes that ultimately benefit someone else. If others haven’t worked hard enough or aren’t skilled enough to get a salary that allows them to afford the basics, tough. It’s their problem. Hence my use of the term “complete bastards”.
The title of this post is deliberately provocative and I don’t really believe that those with very libertarian views are either communists or complete bastards but I do wonder if they’ve thought about the implications of this world view. My gut feeling is that they haven’t and don’t actually realise how income is distributed in a country like the UK and what the implications are for those on the lowest incomes. I’m also not suggesting that some of their views don’t have merit. Big governement is also bad, but it seems – to me at least – that the more unequal the income distribution the bigger the government has to be in order to provide for the poorest in society (there are also arguments – such as those in The Spirit Level by Kate Pickett and Richard Wilkinson – that there are additional problems and costs associated with unequal societies). Those who genuinely want small government should therefore be fighting for a more equal distribution of income so that they can justifiably argue that government doesn’t need to provide for people, because they are able to afford to provide for themselves.