A simple change of assumption can place an entire political policy in a new light.
The famous economist, Arthur Laffer, who is known to everyone for his curve drawn on a table napkin, warned a visiting British politician recently that Britain had reached the point of tax saturation such that proposed rises in taxes—the government’s response to yawning deficits and ever-increasing debt repayments—would result not in an increase, but in a decrease in government revenue.
Incentives both to work and to invest would decline, and welfare dependency—or its simulacrum, unnecessary work creation in the government bureaucracy—would increase. This would inevitably lead to a declining standard of living for practically everyone, including those dependent on government handouts. Thus, further tax rises would be economically irrational. A government that claimed to be concerned for the welfare of the impoverished would actually have deepened impoverishment and added to the numbers of the impoverished.
It is likely that Laffer’s warning will fall on deaf ears: those ears, at any rate, attached to those with the power and responsibility to determine policy.
To the majority of people who give even passing thought to such matters, Laffer will appear to be in the right, and obviously so. No one can say that he is right beyond all possible doubt, for absolute certainty of prediction in economics (other than such banalities as that the stock market will either go up or down) is not possible. Economic journalism is, after all, a graveyard of confident predictions falsified by subsequent events. Still, with a little connected thinking—the lack of which among his fellows the late economist, Peter Bauer, deeply lamented—and a few simple facts, it seems very probable that Laffer is right.
The mistake, however, is to suppose that increasing government revenue so that current obligations can be met is the purpose of the proposed tax rises. They might be economically irrational, but economic irrationality is not irrationality tout cour.
Though I have no high respect for the individual intellectual calibre of members of the British government, I am sure nevertheless that they are quite capable of understanding Laffer’s point of view, for it is not very difficult to understand, though they are probably incapable of refuting it. But that does not matter to them, because taxation is not for them principally a matter of economic rationality. Its purpose is to achieve something else, which is much more important for them, namely, control over the economy as a whole and the population that comes with it. This is what taxation will do, and why so many of them think taxation is a good in itself, independently of its economic effects. A survey of supporters of the government found that a majority of them favoured the driving away of rich expatriates from Britain, even if it meant a loss of revenue to the government.
This geometric reasoning applied to entire societies is very tempting to educated people of adequate intelligence and limited experience or capacity for reflection.
No doubt members of the government are in part driven by a desire for power, but that does not distinguish them from any political class. It is not necessary to ascribe to them power-hunger to explain their attachment to high taxation, even if such taxation has the effect of increasing their power. It is their whole world outlook that explains their love of taxation.
When the Franco-Swiss fascist architect, Le Corbusier, saw the traditional street, he was appalled by its irrationality, its disorder, its lack of overall plan, its spontaneity, and his architecture and urbanism were designed specifically to eliminate these characteristics by means of a rational plan.
The members of the government who believe in high taxation have the same reaction to a free society as Le Corbusier had to the street. It lacks rationality, an overall plan or goal, it is higgledy-piggledy, and above all, it is not only unjust but unfair. Terrible things go on in it: people are not nice to one another, they are full of prejudices and bad thoughts. And since humans are born good, it must be society and the way it is organised that accounts for this baleful situation. It is therefore the proper role of government to correct matters so that society becomes what Le Corbusier called one of his utopian building projects La Cité radieuse, the Radiant City.
The means to constructing the new and better society—societies for these watered-down Lenins are constructed, not grown—is taxation, which will be used to eliminate not only injustice, but unfairness. The fact is that in a free society, not everyone ends up equal, however scrupulously equality under the law is observed. It cannot have escaped anyone’s attention that good fortune in such a society, left to itself, tends to concentrate in certain classes and families, which is unfair. It is not right that children should be born with different chances in life. Moreover, it has been shown that, above a certain level of economic prosperity, people do not become happier with greater wealth, and more equal societies are happier than less equal ones. What argument, then, can there be against further redistribution, even if everyone as a result were to become poorer, provided that everyone became more equal?
This geometric reasoning applied to entire societies is very tempting to educated people of adequate intelligence and limited experience or capacity for reflection. They think of society as a precocious child thinks of Lego, with taxes as the studs that hold the whole construction together.
Humans being human, they escape this geometric reasoning. Without being the most corrupt people imaginable, government ministers have already, in only a few months, been caught up in corruption scandals, and it is a racing certainty that, as they tax yet further in the name of social justice, they will be caught in many more. The deputy prime minister has already had to resign, and the man Keir Starmer appointed as ambassador to the United States, Peter Mandelson, had already resigned twice in his career from high positions because of financial irregularities.
In practice, the model of society that higher taxation will produce is one divided into three classes: a government nomenklatura with a sub-class of licensed millionaires, a class of modestly prosperous apparatchiks, and a much larger class of impoverished dependent proletarians. Social justice will at last have been achieved.
If one changes the assumption that increased taxation is a response to economic conditions to the assumption that it is a means of social engineering, the conduct of the British government becomes not only explicable but rational.