18 thoughts on “”

  1. There is a very long way to go from understanding that rich people help their kids to any argument for socialism or social democracy.

    1. Of course. I like to see this blog like a mosaic of small points that all fit together to make my overall argument. It would be completely impossible to fully discuss the free market and the state in one post, so I break into pieces. Perhaps later on I’ll do some summary posts, but I feel I’m still learning and amn’t at the end yet.

      1. Gotcha.

        This might be a useful moment to point out that the current Taoiseach is the son of a late TD. The previous Taoiseach is also the son of a TD. The previous Taoiseach is the son of a known Republican figure. What percentage of Irish politicians are the sons and daughters of other politicians and politically connected individuals? It must be a rather large number.

        More generally, it’s not a terribly controversial opinion that nepotism is rife across many of the well-paid segments of the public and semi-state sector. If you think that more government means less nepotism, I’ll happily take the opposite side of that debate.

        The difference between private sector and public sector nepotism is that those who engage in private sector nepotism must at least continue to remain competitive against those who don’t engage in it. Where jobs are given in the absence of any external competitive pressures, there is no such incentive against it.

        1. I’m not going to deny the ridiculously high levels of nepotism and political dynasty’s in the Dail. Yet you make the mistake common to Libertarians of acting as though it is only in the public sector that there is dishonesty. Nepotism is rife in the private sectors, particularly in “elite” industries (I believe this is the proper correlation) of lawyers and doctors etc. The nepotism can persist is that an individual will have only a minor effect on the total efficiency of the firm (unless it is a very small business). Hence my total incompetence is compensated by the 10 (or 100 or 1000) other staff who do a good job.

          Honestly, your comment links into my point that there is a dominant elite with disproportionate influence on society. They use their power and influence to gain influential positions in public and private life. The lack of egalitarianism closes them off to the rest of society and makes them unaccountable.

          Shrinking the government is a far to simplistic solution to the serious problem of cronyism which is rife in Ireland. Its like a hunter who decides to kill his prey by burning the forest down. Sure it’ll work but in the crudest way possible and it will destroy a lot of good along with it. When we catch a crooked cop we don’t abolish the police. The scandals in Enron and Leheman doesn’t mean we should abolish private business, it means we have to have tighter scrutiny. That’s less simplistic and requires more effort, but its the right way.

          1. No, I don’t make that mistake. There is nepotism in both sectors, absolutely. The only difference between them is that to the extent it harms the business, nepotism in the private sector causes relative losses to shareholders due to the resulting (admittedly marginal) loss of competitiveness. Public sector jobs are often protected from external competitive pressure and in any case there are no shareholders who will suffer the consequences of a reduction in productivity – only taxpayers, whose ability to influence the organisation is far weaker than influence of private shareholders over a business.

            1. I think I should also add that the medical and legal professions which you mentioned are both so heavily regulated as to effectively be cartels, almost entirely in the control of insiders thanks to government regulation. If you really want to fix this, it seems to me that you should consider joining the libertarian side of the debate.

              1. Libertarians are known for their repetition of slogans like “There’s no such thing as a free lunch” or the “Broken Window Fallacy” so it would be a large surprise if you were committing these errors. Surely you are away that consumers will pay the price of private inefficiency? At least some of the cost will come through in the form of higher prices.

                Cartels occur in all situations, even if there is no government and libertarian response to this is unfortunately reminiscent of the “True Scotsman Argument”. I could point out an example of free market cartel and it would be claimed that that wasn’t really the free market. In the case of doctors some qualification is necessary as we are dealing with people’s lives and it isn’t possible for consumers to measure the skill and quality of doctors.

                1. Yes, consumers will pay the price for private efficiency, through higher prices. Absolutely correct. Just as they pay the price for inefficiency in government.

                  The incentives for nepotism exist in both sectors, and nepotism is likely to take place in both sectors, and consumers will pay the price in both sectors. See how I can agree with you? The difference is that, when it comes to a private enterprise, shareholders have opportunities to profit if they choose to make their enterprises more efficient. Also, from the point of view of the consumer, an unregulated market does not coerce them into using a service which has been weighed down by inefficiency. They are free to choose a different supplier, which is what creates the profit opportunity for those who can resist the urge to engage in wasteful nepotism.

                  Needless to say, government services don’t work like this. The taxpayer is effectively forced to pay for them, and the people are often simply forced to use them. Beyond a rare sense of altruism or fairness, there is very little incentive for the people who work in the public and semi-state sector not to engage in nepotism.

                  Essentially, we are comparing a sector where there is some incentive for people to take the most efficient course of action with a sector where there is almost no such incentive.

                  As for cartels, I should mention that I’m not opposed to them per se. When they occur in the free market, they are just halfway-houses between competition and outright mergers. Unfortunately, many cartels are sustained through anti-competitive barriers imposed by government on behalf of vested interests. The banking industry is an example of a cartel imposed by government. The medical industry is another good example of something similar, and I feel your pain in trying to sort out these apparent conflicts. You want to take away the privileges of the wealthy, professional elites, but you also want to defend the idea that the government, which will necessarily have to take advice from these professionals, should decide who is allowed to practise medicine. That is a puzzle with no answer.

                  My guess is that the free market would supply several multiples of the number of doctors which we have today. Not all of them would be as good as each other, of course, and those who didn’t have elite certifications or the best reputations might not be able to charge the same fees as those who did. Of course, the thought of different standards of healthcare being offered at different prices makes a left-winger recoil in horror! And that’s why they are ok with cartels. It means fixed prices, severely restricted supply to be rationed by the government, and a promise by the members of the cartel that they will not compete too hard against each other.

                  1. I think we both agree on the difference between entrepreneurs and managers. Entrepreneurs are often innovative and imaginative. They are the risk takers who set the business up. However, once the business is established managers take over. This is because the risk has been taken so now its time to play it safe. An established business is a lot less interesting and the entrepreneur probably has more ideas they want to put into practice.

                    You rightly argue that government businesses are run by managers who are cautious. However, so are large corporations. They share many similarities, which is why I don’t believe simply privatisation will sort the problem. Like state managers, private managers don’t have a personal share in the success of the business or anything to lose. Their wage is their only incentive. Shareholders are separated from the actual running of the business and many don’t want to run a business, being content with getting a return or being a pension fund or bought for stock market speculation. So shareholders have an incentive for more efficient firms, but are separated from actually getting this. Board of directors rarely allow shareholders any say and are regularly and usually unquestioningly re-elected..

                    State firms work to their own logic and are held accountable by the press and public opinion. Stories of inefficiencies always sell, while private inefficiency can be unreported and left to turn mouldy. Politicians can run on promises to increase inefficiencies and redistribute them as tax cuts. Of course this is an imperfect check, but so are shareholders AGMs. I think we can only really progress in economics when we move away from idealised and perfect systems and delve into the flawed and imperfect real world.

                    1. I’m afraid I didn’t really understood your comment. I wasn’t talking about cautiousness, I was talking about whether a manager could resist engaging in wasteful nepotism and what sort of system would be more likely to disincentivise him or her from doing so.

                      You talk about the distinction between shareholders and managers, and of course there is a massive amount of work that goes into resolving the principal-agent problem. Never forget, though, the advantages brought about by the advanced division of labour in a modern economy. It allows some people to specialise in allocating capital, or to engage in it as a hobby, and allows others to specialise in executing strategies for the particular businesses to which capital has been allocated. As with all forms of specialisation, this allows for different skill sets to be developed to levels of expertise which would otherwise be impossible. However, as with all forms of cooperation, it also implies that certain issues around trust do need to be resolved and monitored. This helps to explain why corporate governance is such an important field nowadays.

                      For a quick summary of modern ideas for executive compensation, which are designed to align the interests of executives with the interests of shareholders, start here:


                      You wrote “Board of directors rarely allow shareholders any say and are regularly and usually unquestioningly re-elected..” I would reply by saying that it is true, shareholders probably could add value if they took a greater interest in how they were being represented on company boards. However, many of them don’t have the time or the interest to do that. If you think that there are strong opportunities to create value through activism, then perhaps that’s a career route you should go down. As you can probably sense, constructive shareholder activism isn’t free. It requires expertise and engagement. However, I can guarantee you that if taxes on investment returns were abolished, there would be far stronger incentives for shareholders to supply it! As with any form of professional work, there are natural limits to its supply and to criticise the market for not providing it in abundance is to criticise reality for imperfection.

                      Which brings me to your last paragraph. I hoped you would realise by now that I don’t think of the world as anything but flawed and imperfect.

                      You write that media attention keeps the public sector in check, while the absence of media attention can allow the private sector to remain inefficient. Again, I must give credit to you for your increasingly creative methods of defending statism. However, this one too is short of the mark.

                      Your democratic theory of accountability completely fails to take into account how democracy works: everybody’s vote carries equal weight, regardless of how much they pay to the government in the form of taxes and regardless of whether or not they work for the government. It doesn’t matter how many people read about the inefficiencies of a government service: the employees and other key suppliers, whose very livelihoods are at stake, are almost guaranteed to vote for the benefit of their own concentrated interests. This is in stark contrast to the the dispersed interests of the consumer.

                      Additionally, it fails to take into account the problem of sheer size: governance and accountability become more difficult for stakeholders to monitor with size, and governments are typically gargantuan and dominate their economies. Furthermore, there is no logic as to why the thousands of services provided by governments should all be provided by the same entity. Diverse conglomerates in the corporate world, which were still much more focused than governments are, went out of fashion in the 80s as their inefficiency became apparent.

                      If we were to transfer the principles of modern democracy to the corporate world, we could come up with a plan whereby many companies from many different industries would merge together to become a single entity. This entity would then announce that all shareholders would be entitled to one vote, regardless of how many shares they owned. Every employee would have a vote too, naturally. Indeed, this doesn’t go far enough: to be fully democratic, maybe they would go so far as to drop all requirements and simply let anybody vote at their shareholder meetings.

                      It doesn’t take long to realise that any entity which did this would suffer unimaginable failures of both strategy and governance, and would cease to exist in a very short period of time.

                      Governments, however, thanks to their monopoly powers of taxation and counterfeiting, can do it and survive for a very long time. They can tax and print, and they can borrow with the promise that future generations will pay it back: future generations who in many cases have not even been born.

                      You argue that government services can get criticised in the press when they are inefficient. You argue that politicians can promise to deliver efficiency to taxpayers, and get elected on the back of their promises to distribute the returns. Yet you live in a country whose government went completely bankrupt only very recently, and has shackled its citizens to a horrendous debt which will last for at least a generation. I applaud your creative thinking, but I look forward to your enlightenment.

                  2. You discuss the ideas of public choice theory a subject that deserves a post in itself but I will briefly discuss it here. I came across a good criticism here http://socialdemocracy21stcentury.blogspot.co.uk/2013/02/steven-pressman-on-public-choice-theory.html

                    The problem is that people do not always vote in their economic interests. Public servants are not overwhelmingly statist or left wing. My parents are public servants yet they would lean more towards shrinking the government than growing it. In Ireland the anti-austerity parties have made little progress in winning the votes of the working class or public servants whose interests they support. The largest party of the working class is the conservative Fine Gael party, whose main objective is to cut social welfare rather than raise taxes on the middle class. None lof which can be explained by public choice theory.

                    You repeatedly make the mistake of confusing an example with the entirety. For example just because Ireland has incompetent politicians doesn’t mean we are doomed for eternity to have incompetent ones. Just because the government made a horrendous decision doesn’t mean every decision it makes will be horrendous. An example of failure does not doom you to eternal failure. When examples of police corruption are revealed we do not argue that we should abolish the police service, rather we call for better police officers. The bank bailout highlights the importance of the need for better government, not no government.

                    1. I do not slavishly follow public choice theory. It’s understandable why you would link me to that school of thought, but I would urge you to take what I say at face value and resist the urge to pigeonhole my arguments. I will not be going out of my way to defend public choice theory here.

                      A standard tactic in a debate is to frame the political spectrum in such a way as suits one’s arguments. This often involves portraying one’s own position as centrist, in a bid to make political opponents appear extreme. Alternatively, the tactic might be used of portraying one’s opponents as the powerful majority, whether or not that is true, in order to blame them for the current state of affairs.

                      In this instance, and I do not blame you for it, you chose to frame Fine Gael as a party “whose main aim is to cut social welfare rather than raise taxes on the middle class”.

                      Firstly, in the context of who you are debating against (someone whose opposition to the governmental provision of welfare is so clearly far beyond anything represented by Fine Gael), such a description does not help the cause of productive conversation. To give you a counter-example, Labour could be considered a far-left political party, depending on where you draw the political spectrum, but it would be unhelpful to describe them as such in a debate with a member of the Communist Party.

                      Let’s talk about the issues.

                      I am familiar with the phenomenon of public sector workers who do not vote for or believe in having a more powerful government. What does this prove in relation to the point I made in my previous comment? Humbly, I would say nothing.

                      It proves nothing because these people can vote in the manner that they do and yet never vote for the elimination of their own specific jobs or livelihoods. You’ve heard of the phrase of turkeys not voting for Christmas? People are very good at making exceptions for their own specific cases. They can believe in all sorts of things in general (a balanced budget, rural development, nuclear power, etc) while fighting tooth and nail against any associated detrimental effect on their own particular circumstances. This is related to the concept of “NIMBYism”.

                      As you know, there is a party in the Irish government called Labour which explicitly seeks to represent a set of vested interests. The other parties are not so explicit about it, but I hope you’d agree that they all rely on the support of powerful sets of interest groups to get elected. These lobby groups, professions and industries have the effect of pulling most political parties toward a central consensus, leaving anybody who likes to engage in free or creative thinking far away from that middle ground.

                      As for individual voters, I agree that they do not always vote in their own economic interests. That is obvious. However, that is not to say that they do not attempt to do so. Any politician who promised to abolish 10,000 specific jobs could expect how many votes from those 10,000 people and their families and friends? Even if most other people in society agreed that there was no need for the government to employ those 10,000 people, the marginal savings for each other person will not be huge. So it may not be worth making the promise to delete those jobs, given the significant number of votes which will almost certainly be lost. The public sector workers you and I know who believe in small government may indeed exist, and may even attempt to vote for smaller government, but will they ever vote for the likely elimination of their own specific jobs? And if few people ever vote for the likely elimination of their own specific job, then how many job cuts will be promised and delivered by successful politicians, compared to the number of job cuts which may be needed?

                      By the way. this question of whether or not bias exists does not even address the question of whether or not voters would be good stewards of the capital which government acquires, even if they were unbiased. As described in my previous comment, there is far more involved in being a steward of capital than simply being unbiased. As I argued, it seems that it would be impossible for voters to have the collective expertise and ability to produce good government, even if they were not afflicted by biases.

                      Finally, let me say that I explicitly do not make the mistake of confusing an example with the entirety. My understanding of method in the social sciences would prevent me from doing so. The purpose of my final paragraph in the previous comment was merely to highlight the massive failure of government which is staring you in the face and which is destroying the lives of thousands of people, and will make millions of people poorer for decades. It was a way of checking if empirical disaster caused by government failure would motivate you to show any caution when it comes to advocating for more powerful government.

                      If you want to understand libertarian ideas, you need to understand the ideas in at least some of these books. I was left-wing until I was about 19-20, but I made a conscious effort over the course of several months and years to understand the counter-arguments. Because I came to certain conclusions only after thoroughly exploring the arguments, I’m confident that I could put forward the case for statism in a much more convincing way than even some of the most eloquent statists. If you could argue for libertarian ideas even better than I can, and yet still disagree with them, that is what would be truly impressive.


  2. I am aware that social mobility is decreasing in the United States and that there is more mobility in some of the European welfare states than in the USA, but the Pew chart indicates that there is a fair amount of social mobility left. What is shows is that a majority of American adults are in different income quintiles than the ones in which they were born. A majority of those in the bottom fifth rise out of it, and a majority of those in the top fifth fall out of it.

    Maybe the result would be different if the focus was on the top 1 percent rather than the top 20 percent. George W. Bush messed up in pretty much everything he did in life, but he kept his standing in the elite class.

  3. Great chart. While it seems harder to break out of rigid class distinctions, I think it is still possible through hard work, good education, and a little bit of luck.

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