Thursday, June 5, 2014

Gladstonian Republicans

Before politicians were telegenic.
Source: Wall Street Journal
I enjoyed very much last weekend's WSJ Oped, "In Search of Gladstonian Republicans" by By John Micklethwait and Adrian Wooldrige. Some highlights and then comments.
"Imagine that the world's superpower reduces the size of government by a quarter over the next 30 years, even as its population grows by 50%. Imagine further that the superpower performs this miracle while dramatically increasing both the quality of public services and the nation's diplomatic clout. And imagine that the Republican Party leads this great revolution while uniting its manifold factions behind one of its favorite words: liberty.
Impossible? That is exactly what Britain, then the world's superpower and pioneer of the new economy, did in the 19th century. Gross revenue from taxation fell from just under £80 million in 1816 to well under £60 million in 1846, even as the population surged and the government helped build schools, hospitals, sewers and the world's first police force. The Victorians paid for these useful new services by getting rid of what they called "Old Corruption" (and we would call cronyism) and by exploiting the new technology of the day, like the railway. For these liberal reformers were the allies of the new commercial classes who were creating the industries that were transforming the world ...
Gladstonian liberalism provides a remarkable template....

First, rip out cronyism. Between 1815 and 1870 British Liberals replaced a government based on patronage, sweeping aside the special privileges for the East India Company, West Indian sugar makers and British landowners. Today the American right's dirty secret is its love of big government, especially tax breaks for business (including sugar). The U.S. tax code has $1.6 trillion of exemptions, most of which go to the well-off....
Having helped dismantle Britain's protectionist Corn Laws in the 1840s, he [Gladstone] would be astonished that America still doles out $30 billion a year in agriculture subsidies and employs 100,000 people in the Agriculture Department....
Gladstone would concentrate money on the poor, targeting the welfare state for the rich. More money goes to the top 5% in mortgage-interest deduction than to the bottom 50% in social housing. ...
Third, simplify government, particularly the numbers. In the early 19th century, British government accounts were incomprehensible, deliberately so. The aristocrats who ran the country wanted to conceal the fact that most government spending went to support their relations in the form of sinecures, church livings, pensions and ceremonial jobs. Gladstone insisted on standing before Parliament and explaining the budget in detail: If he couldn't explain it to a gathering of his peers, then he knew that it was worthless. America's current budget is so full of perks for vested interests that only lobbyists and their lawyers can understand it. ...
I think this advice also addresses a sensible middle in the current inequality squabble.

The big "inequality" problem in the US is the situation of the bottom 20% or so, stuck in many ways, outside education, decent jobs, and suffering a lot of social dysfunction. Taxing Larry Ellison and sending them checks is not going to address their problems and everyone knows it.

In the top 1%, aside from Gallic fears of dynastic ambitions among these nouveau-riche, it's hard for serious people to see the problem if formerly middle-class entrepreneurs conjure up wonders that make us all better off and make fortunes doing so.

But there is common ground in 1% riches gained by government favoritism and crony connections. The one halfway sensible argument I have heard for large income or wealth taxation is as rough-and-ready remedy for crony profits.

But people who wangle government contracts and crony protection also know how to wangle exemptions to high tax rates. And higher statutory tax rates just focus their efforts, and focus politician's efforts on extracting political and financial support for offering exemptions. The cure ends up perpetuating the disease.

Even if it could work, I think that approach also gives up too soon. It accepts a horribly inefficient crony-capitalist state, and then tries second set of distortions to offset the first.

How much better to focus on cutting out the cronyism in the first place. Here free market economics, libertarian politcs, and left-wing outrage can meet productively.

How does it happen? I was interested by  "the allies of the new commercial classes who were creating the industries that were transforming the world."  Sudden new technology can create a class with interest in breaking down the crony system.  Uber finally is breaking government imposed taxi monopolies, by suddenly creating a group of happy customers who will bring political pressure to bear, in a way that potential customers of slow-growing new businesses did not.

Alas, half of our tech moguls seem happy to endorse government-centered liberalism, and the other half seem to already be heading to government rent-seeking, as in merger antitrust regulation and big patent wars.  Health care and banking are now firmly in the camp of gaming the government for profit rather than innovation. So while the technological underpinnings are similar, the business coalition for liberty may be harder to find.

The left will have to come the realization that the regulatory state breeds cronies, and does not cure them.  When you need to ask armies of bureaucrats for permission to run a business, the quid pro quo of protection and subsidy for political support is inevitable, and getting favors from the government is the only way to make money.

I loved "incomprehensible, deliberately so." That's our tax and regulatory code. If us peasants knew what was going on we'd be in the streets.

PS, I don't know much of anything about 19th century British history, so if you think Gladstone really wasn't such a good guy, oh well. The ideas in the article are good in any case.


  1. "The ideas in the article are good in any case."

    Yes - but - they are trying to say that there was historical precedent to justify the policies they want now. And that historical precedent may not actually exist.

    It probably mattered a lot that in 1816 Great Britain was coming out of twenty years of more or less continuous war with France. Those ships that Hornblower sailed in were hideously expensive. Nothing like cutting military spending to make investments in social welfare affordable.

    Cronyism is a big problem. It is laughable that the Justice Department "crack down" is limited to prosecuting foreign banks - eliminating or crippling foreign competition makes it just one more way the American government acts as the errand boy for the banking industry. Some crack down.

    1. The US is currently spending about 20 times the sum of what others spend on defense, and most of those countries are allies! Look, I'm all for safety, but this is obviously ridiculous and thus, looks like a Gladstonian moment!

      Same with helping the poor. I have no problems with that, but the US tax code isn't about that. Another Gladstonian moment.

  2. The real question is do we effectively convey this to the public at large, especially when the 1 % argument is so much more seductive. I've tried on a personal level but it is very hard.

  3. "especially when the 1 % argument is so much more seductive"

    It is not a choice between the one or the other. There are parts of both that are true. Some people defend the top echelons of the economic pile by trotting out Steve Jobs as an example. But for every Steve Jobs there are a hundred guys in finance making big money through schemes of petty fraud;

  4. John,

    What made Gladstone's policies politically possible? Did they not face similar problems?


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