On December 7, I strongly criticized Finland’s decision to give every citizen $870 each month, tax free.
For an outline of the proposed deal, and my response, please see Bernanke’s “Helicopter Drop” Hits Finland; Prime Minister and 70% of Finnish Support “Free Money”; Dauphin Canada Revisited.
Wealth Redistribution
In response to my post, reader “MH” sent two emails, the first asking question about wealth redistribution and the second citing Hayek. Here is the first email.
Hi Mish,
I was hoping you would blog on the Finnish proposal and almost emailed to ask your opinion, so thanks for the post.
Over the years I have learned an awful lot from you, and these days I defer to your judgement on most things. However, are you sure you have this right?
Isn’t this a very much simplified and therefore efficient taxation/welfare system compared to anything existing today. And crucially it overcomes the increasing problem of what to do with those who can’t or won’t work, especially given the rise of robotics.
Libertarianism is a hard sell in the 21st century … and I speak as a libertarian. Democratic populations will never elect a government which is OK with people damn-near starving when they simply can’t find work.
I agree with the vast majority of what you write, but it seems to me that your views need to cater for an age of ubiquitous automation when human labour might become increasingly obsolete. How does Austrian economics deal with this if not via a ‘basic permanent income’ allied to free-market economics plus the rule of law?
Regards,
MH
On Guaranteed Wages
For starters, the idea of a guaranteed “living wage” type of proposal, in a wealth redistribution scheme of sorts is about as far away from libertarian as one can get.
So yes, I am sure I have this correct.
Before I replied, “MH” next sent a link to a Telegraph article by Jeremy Warner who writes Paying all UK citizens £155 a week may be an idea whose time has come. It was Warner who cited a Hayek reference.
And just in case you are tempted to dismiss the idea as socialist nonsense, this is what Friedrich Hayek, intellectual godfather to the Thatcher revolution, had to say about it in Law, Legislation and Liberty.
“The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born”.
Amen to that.
An Idea Whose Time Should Never Come
Amen to this: Guaranteed living wages are a time whose time should never come.
In response to the second email, I replied “It will never stop where you suggest. Anyone who gets less than they do now will want more. And resentment will build that the rich get as much as the poor. The guaranteed minimum will be seen as not enough by proponents of a ‘living wage. Once started, people will vote for more and more and more. Taxes will rise and the wealthy will flee. It cannot possibly work.“
And to that I now wonder about immigrants. Does it apply to them to? If it does, expect to see an onslaught of immigration that is orders of magnitude greater than what’s happening in Germany right now.
And what about birth rates? Does one really want to give everyone the same amount of money as Finland proposed?
I am quite sure I am missing things, and likely many things. But this is precisely the kinds of mishaps that will occur when one goes willingly and blindly against free market ideas.
No legislation of this sort in history, regardless of good intention, has ever worked out. Please don’t tell me about Dauphin, Canada, as I rebutted that silliness in my first post.
Mises or Hayek?
After I responded to MH, I pinged my response to Pater Tenebrarum at the Acting Man blog. He responded “I agree. And by the way, Hayek was severely criticized by other Austrians for the stance he took in that particular book.”
Tenebrarum referred me to Why Mises (and not Hayek)? by Hans-Hermann Hoppe.
It turns out that not only did Hayek go off the deep end with guaranteed living wage nonsense, he also went off the deep end on military conscription!
Hoppe writes …
According to Hayek, government is “necessary” to fulfill the following tasks: not merely for “law enforcement” and “defense against external enemies” but “in an advanced society government ought to use its power of raising funds by taxation to provide a number of services which for various reasons cannot be provided, or cannot be provided adequately, by the market.” (Because at all times an infinite number of goods and services exist that the market does not provide, Hayek hands government a blank check.)
In addition, Hayek insists we recognize that it is irrelevant how big government is or if and how fast it grows. What alone is important is that government actions fulfill certain formal requirements. “It is the character rather than the volume of government activity that is important.” Taxes as such and the absolute height of taxation are not a problem for Hayek. Taxes — and likewise compulsory military service — lose their character as coercive measures.
I could go on and on, citing Hayek’s muddled and contradictory definitions of freedom and coercion, but that shall suffice to make my point. I am simply asking: what socialist and what green could have any difficulties with all this?
Freedom and Coercion
On forced servitude, Hayek had this to say “If the known necessity of paying a certain amount of taxes becomes the basis of all my plans, if a period of military service is a foreseeable part of my career, then I can follow a general plan of life of my own making and am as independent of the will of another person as men have learned to be in society.“
Supposedly it’s OK to involuntarily forced into servitude to fight wars in which you do not believe, if only it’s for a “period of time”.
No libertarian on the planet would agree with that. Indeed, no one should agree. Forced conscription to fight wars is nothing but slavery.
Hayek went off the deep end in more ways than one. Is it any wonder that it’s Hayek and not Mises who gets any mention?
Mike “Mish” Shedlock